Timbercreek Financial Q2 2024 Earnings Report

Timbercreek Financial EPS Results

• Actual EPS: C$0.19
• Consensus EPS: C$0.18
• Beat/Miss: Beat by +C$0.01
• One Year Ago EPS: N/A

Timbercreek Financial Revenue Results

• Actual Revenue: $26.68 million
• Expected Revenue: $27.90 million
• Beat/Miss: Missed by -$1.22 million
• YoY Revenue Growth: N/A

Timbercreek Financial Announcement Details

• Quarter: Q2 2024
• Date: 7/31/2024
• Time: N/A
• Conference Call Date: Thursday, August 1, 2024
• Conference Call Time: 1:00PM ET

Timbercreek Financial (TSE:TF) Corp is a Canada-based non-banking commercial real estate lender. The company provides shorter-duration, customized financing solutions to professional real estate investors. It invests directly in a diversified portfolio of structured mortgage loans primarily secured by stabilized, income-producing commercial real estates, such as multi-residential, office and retail buildings located in urban markets across Canada. The company's strategy is to preserve investor capital by lending mainly against income producing real estate, mitigate concentration risk by diversifying geographically by asset type and borrower and ensure loan to value ratios.

Timbercreek Financial Q2 2024 Earnings Call Transcript

Key Takeaways

• In Q2, Timber Creek reported net investment income of $26.4 million, net income of $15.4 million and distributable income of $0.20 per share with an 88% payout ratio, while book value rose to $8.42 per share.
• Originations reached $137 million in the quarter, growing the net mortgage portfolio above $1 billion and adding $27 million in net assets after $111.5 million of repayments.
• The team actively managed Stage 2 and Stage 3 loans, adding $52 million of new Stage 2 exposures and fully resolving a $24 million Quebec Stage 3 loan, with further recoveries expected in the coming quarters.
• Following recent Bank of Canada rate cuts, Timber Creek sees improving market conditions and a diversified $500 million deal pipeline across multifamily, industrial and retail assets heading into H2 2024.
• On the capital front, the company issued $46 million of 7.5% debentures, renewed its NCIB and drew $307 million on its credit facility to support accretive deployments.

Presentation

[Operator]

Listen-only mode. Following the presentation, we will conduct a question and answer session for the analysts. Analysts are asked to raise their hand to register for a question. As a reminder, today's call is being recorded. I would now like to turn the meeting over to Blair Tamblyn. Please go ahead.

[Blair Tamblyn, President and CEO at Timbercreek Financial Corp.]

Thank you, operator. Good afternoon, everyone. Thanks for joining us to discuss the second quarter financial results. I'm joined, as usual, by Scott Rowland, CIO, Tracy Jolly, CFO, and Geoff McTait, Head of Canadian Originations and Global Syndications. The overall portfolio performed well in the second quarter. We reported improved sequential results and demonstrated our ability to generate consistent, healthy cash flows and dividends with a conservative payout ratio, but we navigate a transition period in the commercial real estate markets. Building on a strong Q1 origination activity, we continue to have success redeploying capital into high-quality loans as we expand the portfolio back to historical levels. We ended the quarter over CAD 1 billion, and as you will hear from the team today, recent Bank of Canada rate cuts create improved market conditions for Timbercreek.

[Blair Tamblyn, President and CEO at Timbercreek Financial Corp.]

As we look out to the second half of 2024, we are well positioned to shift back to growth mode and deploy capital to expand the portfolio. With this backdrop, we reported healthy financial results in Q2, including net investment income of CAD 26.4 million, net income of CAD 15.4 million, and we generated distributable income of CAD 0.20 per share, with a healthy payout ratio of 88%. Our book value per share was modestly higher year-over-year, even after we issued a special dividend in Q1. At CAD 8.42 per share, our current book value is roughly 15% above the weighted average trading price in Q2. Lastly, our team continues to focus on resolving the remaining staged loans through highly active asset management efforts.

[Blair Tamblyn, President and CEO at Timbercreek Financial Corp.]

We're making good progress on these select situations and remain confident both in the underlying value of the assets and our ability to navigate these situations to ensure the best outcomes for our shareholders. Scott will walk through these situations in his portfolio review. Scott?

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Thanks, Blair, and good afternoon. I'll comment on the portfolio metrics and the progress with Stage Two and Stage Three loans, and then I'll ask Geoff to comment on the originations activity and overall lending environment. Looking at the portfolio KPIs, most were stable relative to recent periods and consistent with historical averages. At quarter end, 83.4% 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 52%. Portfolio remains conservatively invested. First mortgages represented 85.6% of the portfolio. This is typically above 90%, and we expect this percentage to trend upward in the coming quarters. Our weighted average LTV for Q2 is down to 62.3%, as new loans were funded at lower LTVs, while loans with higher LTV were repaid.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

The portfolio's weighted average interest rate, or WAIR, was 9.8%, down slightly from 9.9% in Q1 and flat with Q2 last year. Our Q2 exit WAIR was 9.5%, down from 9.9% exiting Q1 and reflects the June interest rate cut. Lastly, floating rate loans represented 87% of the portfolio at quarter end. In terms of the asset allocation, the mix between provinces was largely unchanged from Q1. Recall, we had a more significant shift from year-end due to the Quebec City repayment in Q1 and strong deployment in Ontario. We're comfortable with the current Ontario and Quebec diversification and continue to look for new opportunities to deploy capital in Quebec. As Blair mentioned, we continue to pursue resolution and recovery on the Stage Two and Stage Three loans through our asset management efforts.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Asset management is a bespoke process, and we spend considerable time developing plans and weighing our options to ensure the best result for Timbercreek shareholders. There is still some disclosure in our MD&A, so I will comment on the main developments in the period. In Stage Two, the previously reported Calgary and Vancouver loans are stable, with no material updates at this time. In Calgary, we have seen some positive leasing activity on the assets. Three new exposures have entered Stage Two this quarter, and I will provide some color here. We have CAD 40 million on two loans related to a GTA industrial construction project. The borrower and their general contractor are looking to end their relationship due to cost overruns on a development that is actually unrelated to the Timbercreek loans.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

However, these issues have overflowed to affect our loan as the borrower stopped making interest payments beginning June first. We are actively engaged with the borrower, and resolution here may come as their contractor issues are figured out, or alternatively, we understand that potential sale may be a near-term outcome. The strategy on this exposure is evolving, so we will provide more details in our next update, but we are hopeful this will be resolved relatively quickly. The other main addition to Stage Two is a CAD 12 million loan on a residential development site in downtown Toronto. This is a very well-located site that the borrower has listed for sale and requested to accrue interest until the sale is finalized.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

The loan is in Stage Two, given we have accrued June and July payments, but we have signed a forbearance agreement with the borrower to allow an existing sales process to proceed, as we believe it is the most efficient path to repayment. We are expecting firm bids in late Q3 and full repayment of this loan thereafter. On the Stage Three front, we are pleased to report that the Quebec multifamily development loan has been fully resolved and has returned to Stage One. The asset is nearing completion, and a CMHC takeout is expected before the end of the year. This brought total Stage Three assets down to just over CAD 24 million at quarter end. In summary, while there is more work to be done, we are happy with the progress of the stage loans and remain confident these files will be resolved in due course.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

The team is focused on successful outcomes and is very experienced in handling these situations as they come along. At this point, I'll ask Geoff to comment on the transaction activity in the portfolio. Geoff?

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

Thanks, Scott. It was a solid quarter for new investments, and it's been a good first half of the year as we've been successful in redeploying capital and building back the portfolio following two quarters of higher repayments. In Q2, we advanced nearly CAD 137 million in new mortgage investments and advances on existing mortgages, including 13 new loans in the period, which were largely centered around lower LTV multifamily investments. Total mortgage portfolio repayments in the quarter were CAD 111.5 million, resulting in a turnover ratio of 11.6%, a return to normal levels, as you will see in this chart. The net result is we grew the portfolio by about CAD 27 million over Q1. Importantly, the positive macro backdrop created by the recent Bank of Canada rate cuts is further enhancing the deal pipeline going forward.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

While valuations of assets purchased pre-COVID in certain segments, such as office, will continue to be challenged, we believe transaction activity will rebound in the second half of this year and provide improved optionality for borrowers to either sell or refinance their assets. We are well-positioned to continue to deploy capital in this environment, which will result in the portfolio continuing to grow through the balance of the year. We continue to believe that 2024, 2025 will be excellent investing vintages as the market has re-reset from previous valuation highs. To better illustrate the types of opportunities we're seeing and the segment of the market we serve exceptionally well, we've highlighted a recent transaction. This is a first mortgage commitment of CAD 43 million, secured by 95 multifamily units, spanning five buildings located in Midtown Toronto, within an established and affluent neighborhood.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

The borrower has acquired the portfolio in 2020 considerably to update all the exteriors and landscaping. Our loan refinanced the prior existing debt and will provide some additional capital to advance the remaining portions of the borrower's repositioning program. This fits squarely in our core multifamily category and has attributes that align with our typical transaction. This is a three-year loan with an attractive LTV. These are urban, well-located multifamily assets that will command substantial demand and liquidity. And the loan is supported by a sponsor with a successful track record with previous projects, several of which were funded by Timbercreek. Relative to other lenders, we win transactions like this because of our ability to execute on committed terms and timelines, in addition to providing working capital to drive further value accretion.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

Our going-in loan basis is comfortable relative to current value and is further supported by the strong underlying fundamentals of the collateral security, and is poised to delever through the investment period based on successful execution by an experienced operator and existing borrower relationship. I will now pass the call over to Tracy to review the financial highlights. Tracy?

[Tracy Jolly, CFO at Timbercreek Financial Corp.]

Thanks, Geoff, and good afternoon, everyone. As Blair mentioned, it was a solid quarter across our key metrics. Similar to Q1, the year-over-year income comparisons were impacted by a lower average portfolio balance from the higher repayments we experienced at the end of 2023. Context, the average net mortgage investment portfolio balance for this quarter was CAD 960 million, about 19% lower than CAD 1.2 billion in Q2 of last year, which is a more typical or targeted level for us. Q2 net investment income on financial assets measured at amortized cost was CAD 26.4 million, down from CAD 31.5 million in the prior year. Q2 net income was CAD 15.4 million, compared to CAD 16.9 million in Q2 last year.

[Tracy Jolly, CFO at Timbercreek Financial Corp.]

In Q2, basic and diluted earnings per share were CAD 0.19 and CAD 0.18, respectively, versus CAD 0.20 in the prior year. While the lower portfolio balance impacted top-line income, interest expense on the credit facility also declined meaningfully due to the lower credit utilization, allowing us to maintain net income margins. Interest expense in the quarter was CAD 5.4 million versus CAD 7 million in the same period last year. We reported quarterly distributable income of CAD 16.3 million or CAD 0.20 per share, versus CAD 0.21 in last year's Q2. The Q2 payout ratio on DI was very healthy at 88%, reinforcing our ability to generate healthy cash flows and dividends. We declared regular dividends of CAD 14.3 million or CAD 0.17 per share, representing a 93% EPS payout ratio. Looking quickly at the balance sheet.

[Tracy Jolly, CFO at Timbercreek Financial Corp.]

The net value of the mortgage portfolio, excluding syndications, was CAD 1,003.4 million at the end of the quarter, an increase of about CAD 57 million from the end of 2023. At quarter end, we had CAD 92.8 million of net real estate, including real estate held for sale, net of collateral of CAD 62.2 million, which is the 3 senior living facilities acquired in August 2023. Note that these were previously classified as real estate properties inventory. This adjustment changed the presentation on the consolidated statement of financial position, but otherwise had no impact to the financial statements. The balance on the credit facility for mortgage investments was CAD 307 million at the end of Q2, up from CAD 260 million at the end of 2023.

[Tracy Jolly, CFO at Timbercreek Financial Corp.]

Lastly, on the capital front, we repaid the June 2017 debentures in Q2 with the proceeds of a new issuance of debentures for total gross proceeds of CAD 46 million, and a coupon of 7.5%. Additionally, we completed the renewal of our NCIB, where we can repurchase shares when accretive opportunities exist. In short, we have ample room to deploy capital accretively as activity in the commercial real estate market accelerates. I will now turn the call back to Scott for closing comments.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Thanks, Tracy. As you are hearing from us today, we're feeling increasingly positive on the balance of the year. With two rate cuts and more expected, the stage is being set for recovery in the real estate sector, increased transaction activity, and more optionality for borrowers to repay loans. We were able to deploy a substantial amount of capital in new investments during the first half of 2024, growing the average net mortgage portfolio balance by close to CAD 100 million from the low in early Q1. As Blair highlighted, the market conditions support meaningful growth in the second half of the year. At the same time, we will continue with our active management of the stage loans as we drive toward resolution of these files over the coming quarters. That completes our prepared remarks. With that, we will open the call to questions.

[Operator]

We'll now take any analyst questions. If you have a question, please click the Raise Hand button on the bottom right screen below. The first question will be from Jaeme. Jaeme, your line is open. Please go ahead.

[Analyst]

Yeah, thanks. Can you hear me okay?

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Hey, Jaeme.

[Analyst]

All right. So first question, just on the deal pipeline and the optimism that you're expressing in both the press release and in your prepared remarks today. Can you describe some of the deals that are starting to flow through into that pipeline? Is it primarily multifamily, or are you getting diversified? Maybe some geographic commentary, and then, you know, how is that building for the second half compared to the first two quarters here?

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

Yeah. Hi-

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Yeah, go ahead.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

Hi, Jaeme. It's Geoff. I'm happy to provide some commentary on that. I mean, I think, you know, again, in general, it's pretty broad-based and diversified from a geographic standpoint. I think we're seeing good flow from our sort of three core originations locations in Montreal, Toronto, and Vancouver. So we're seeing good balance of opportunity across, you know, west, central, and east, which will keep, you know, kind of the existing diversification, I think appropriately diversified and maintained. You know, the activity, you know, again, sort of early activity is, you know, call it CAD 500 million of opportunities in the deal-identified pipeline, which are sort of that earlier phase.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

You know, and again, will translate into more advances into more tangible real investment opportunities as we move further into the year. As well as, you know, significant deals that are, you know, LOI signed or commitment signed, which would be near-term executions. Again, you know, we're seeing good predominance in the interim multi res exposure. But in addition to that, we are seeing good opportunities in the industrial space as well. We're seeing some interesting and well-leased retail opportunities with some, you know, potential upside to grow or to expand footprints and grow that side of the book.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

We're seeing a little bit of land, a little bit of construction, and again, it's pretty well diversified across asset class in addition to geography. So we're feeling really good about, you know, the sort of the deals that we've signed up, and the, and the potential deals that will be signed up in the near term.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

And, uh-

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

Can I just add to that for a second, Jaeme? I'll just add-

[Analyst]

Yeah, go ahead.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

... from an overall market sentiment perspective. You know, as we talk to some of the larger equity holders, some of the owners of real estate, what we start hearing, and we're starting to see and hear some early signaling about as the rate cut cycle starts, is some of those larger portfolio players coming back to the market and looking to tie up properties before rate cuts continue to go in earnest and the values start to creep up. So we're sort of anticipating, based on just some signals in the market, a more, a more transaction-heavy fall, a more of a return to normal after kind of a, a year, year and a half of sort of buyers and sellers not quite agreeing on price. I think that will help drive our pipeline as well.

[Analyst]

Okay. Yeah, and, and just looking to put some context around that pipeline, Geoff, you mentioned, like, CAD 500 million in the initial phase. Like, what would, what would that number have been in, let's say, like, 2019, 2020? Maybe not 2020 as a good example, but just more normal years, let's say.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

Yeah, I'd say it's, I mean, it's close. It's not quite, you know, the transaction velocity that we saw back in 2019, for sure. Again, I think the profile here is preferable in terms of the, it's lower leverage than it would've been at that point in time. And lower leverage on more of a reset valuation at this point. So I think there's still room to grow that opportunity set as we get back to normal. Again, you know, further to Scott's point, it still is predominantly refinancings as opposed to a preponderance of transactional financings, acquisition financings. And that's where we expect to see some additional growth.

[Analyst]

Okay, great. And, you know, following on this, this question, in terms of the, in terms of the pricing and I guess the impact on the, on the, the yield earned in interest income, obviously, a couple Bank of Canada rate cuts is going to weigh on that weighted average interest rate that's earned. So of course, I guess, is that kind of correct to think about that flowing through in, in Q3 and Q4? And then second, and when you're- when you're looking at this pipeline, like, what are you seeing from a pricing environment? Is it, is it staying elevated, or are you starting to see, that pricing environment move lower, with the rates and, and perhaps with competition?

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Yeah, I can take a stab at that. When it comes to pricing, I mean, it's funny. Like, so we have our-- there's the margin, and there's the, obviously, the underlying prime rate, and we get to our mortgage coupon. One of the dynamics that we saw as, as interest rates were increasing, and properties, you know, there's, there's really only so much they can bear, right? So you actually see pressure on margin, that net margin, as, as the market kept going up. So actually, as coupon comes down, our WAIR will fall, but our, you know, our, our, our debt, our leverage also falls. But what happens is, you get-- as, as coupons start to shrink, there's actually you get a little bit of an expansion of margin, which is helpful, helpful to the eye.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

So it's a little bit of both. So there's relief goes to the borrower, but there's also a little bit of margin expansion as that continues to go down. So I think what we have is a market where as pricing falls, a little bit more margin to the lender that comes back. But in general, and then outside of that, just on a coupon front, I do think what you're seeing is there's still some tighter margins in the multifamily space. As there's such a sort of off trade to office classes like office, you're seeing some flight to safety from lenders into sort of multifamily and industrial. So that, that tightened margins really about two to three years ago, and that we're still seeing that in the market, which is, which is well reflected in our portfolio.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

But I think as we move forward into this new cycle, I think you see coupons coming down a bit. I think you see some room for some margin expansion. And I think there's still continued to be, you know, competitive for multifamily loans. But for us, that's well within the barbell of what, you know, we're looking for in our portfolio. So stable from that perspective, but it's definitely a dynamic market, pricing market.

[Analyst]

Okay. That's interesting on the margin expansion or at least modest expansion early on. I would've thought that might come more towards the back end of a rate decreasing cycle as like loans with floors are hit, but your credit facility continues to drop through. I guess, we're probably still a little ways away from that, maybe a-

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Yeah. No, that's, that's right, Jaeme, by the way.

[Analyst]

Yeah.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Your observation is correct, right? It's not day one, for sure. It's just as we continue to go, if we're down middle of next year, we're down another 50-75 basis points, that's when you'll start seeing that expansion.

[Analyst]

Right.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

It's not with the first cut, as your point.

[Analyst]

Okay. Got it. Okay, that's good for me. I'll turn it over.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Thanks. Thank you.

[Geoff McTait, Head of Canadian Originations and Global Syndications at Timbercreek Financial Corp.]

The next question will go to Raseeb. Raseeb, your line is now open. Please go ahead.

[Analyst]

Okay. Thank you. Okay, can you guys hear me okay?

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Yep.

[Analyst]

Okay, awesome. So I wanted to focus on the credit side of the business for my questions. I guess first, at a high level, could you remind us what would cause a loan to go from Stage Two to Stage Three? Is it simply being in arrears for over 90 days, or are there some other factors over here?

[Tracy Jolly, CFO at Timbercreek Financial Corp.]

Hi, Raseeb, it's Tracy. Generally, that's a factor. Arrears over 90 days typically pumps it to Stage Three.

[Analyst]

Okay, fair. And then more specifically on the individual loans, the Edmonton condo portfolio, it's so it was good to see it being sold down. I think your commentary mentioned you have around CAD 4 million of PCLs associated with the remaining balance. If and when you're able to discharge of the entire portfolio, could we expect to see some of those provisions flow back into the income statement, or do you expect the majority of these to be eaten up by write-offs or credit losses?

[Tracy Jolly, CFO at Timbercreek Financial Corp.]

I don't think it's unreasonable to see some release of the provision. I think it's a little too early to say, just as we get down to the final units, whether or not all of it would come back in, but we'll likely see some recovery of that.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Yeah. We're pretty much, from our perspective, from my perspective, holding it to what a net is today. So I think if we get a recovery out of it, that's- that'd be a really good news story, but I think we feel comfortable with what our current exposure is.

[Analyst]

Okay, that, that makes sense. And then the medical office building in Ottawa. So correct me if my timeline is off here, but this asset went to Stage Two around the summer of 2022 and then went to Stage Three shortly thereafter. I guess the high-level question is, what's the timeline here for resolution, or why has it taken so long to resolve till now?

[Scott Rowland, CIO at Timbercreek Financial Corp.]

... Yeah, so this, this particular asset, you know, we've been undergoing a re-leasing plan, so this is a medical office property. That's exactly one of the files that we're actively working on at the moment, is how exactly we want to resolve it. To continue to release the asset, you know, that takes, you know, time and money, and you get to an outcome. We're also exploring just a potential sale, an outright sale, with some entitlement work. It's a good site, actually, and there is some excess density on the site, so we're actively engaged with the city there to sort of come up with sort of a some early entitlement work.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Likely, we think that that is a good exit for this, for this asset, and potentially we'll be coming to market with it towards the end of the year.

[Analyst]

Okay, so-

[Scott Rowland, CIO at Timbercreek Financial Corp.]

So it's been dragging a bit, but it's again, I'm just trying to find what is that best outcome for us.

[Analyst]

Yeah, that's right.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

We think a disposition might make more sense.

[Analyst]

Okay, so, would it be fair to expect an exit or some resolution by 2025 if we're targeting to bring it to market by the end of this year?

[Scott Rowland, CIO at Timbercreek Financial Corp.]

For sure. To me, it's sort of a Q1 2025, maybe.

[Analyst]

Okay.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Q2.

[Analyst]

Okay, that's good to hear. And just my last question, so, the overall portfolio mix, between cash flowing properties, so it used to be in the high 80s, even like low 90s in a few quarters. That's, I think it's 83% or so. Just wanted to confirm, is this intentional or is this just a, a blip, during this period?

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Yeah, no, that's, that's a, that's a really good question, and we, we addressed it, I want to say, a couple of quarters ago now. One of the things we did, and one of the things that we, we saw through this cycle, through the later part of the cycle, is the traditional, I mean, the bulk of our portfolio is the multifamily income-producing properties. Multifamily income-producing properties, though, trade at a pretty low cap rate. So as interest rates, you know, we're hitting 9%-10%, that puts pressure, right, on those borrowers. Do they want to pay that rate, considering the income that the property is actually generating? So an, an alternative approach for, for refinancing, if you're the owner, is you could sit there and say, "Hey, so I'll just inject more equity into this property.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

I'll take a more traditional bank loan, cheaper rate." But they have to, they have to inject the equity to do that. As that happened, right, so you're seeing sort of fewer opportunities than, than, say, going back to sort of that pre-rate hike cycle in the multifamily space. What we also were seeing is there was a pretty big reset in the land market. Land and construction loans became more difficult to obtain, sort of post-COVID and in a rising rate environment. And so for us, where we've always done some land, but maybe that was, you know, 5% of our portfolio, 7% of our portfolio, we made a conscious decision that, hey, listen, these were sort of on sale from both a risk and a pricing perspective.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

So we were getting more yield at a much lower LTV, and we've made some conscious decisions to invest in some of those land assets. A little more construction, a little land, which are both non-income producing. There was also a condo inventory loan or two we did in the past six months, as an example, which again, very, very low LTVs, much lower than we would have seen sort of pre the rate hike cycle and just such a, such an opportunistic opportunity. Plus, the pressure on the multifamily, we sit there and say it was just a, it was a right opportunity for us to move that mix a bit, which is where you're down to that kind of 80/20 type of mix.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

I think as we get into the rate hike cycle goes the other way, you know, the reduction cycle, I do see us floating back towards more multi, a little less non-income producing, and probably get more into an 80%-85% split, you know? So it's something we're keeping an eye on. We won't go much lower than we are today. I see it going back to more of traditional norm, but it was intentional, the split you're seeing today.

[Analyst]

Okay, that's helpful clear. Those are all my questions. Thank you.

[Scott Rowland, CIO at Timbercreek Financial Corp.]

Thank you.

[Operator]

Thank you. As a reminder, if you have a question, please feel free to use the Raise Hand button at the bottom of the screen. Okay, at this time, there are no other questions, so I'll now turn the call back over to Blair Tamblyn for closing remarks.

[Blair Tamblyn, President and CEO at Timbercreek Financial Corp.]

Great. Thanks very much for joining us today. We look forward to speaking again when we release our Q3 2024 results. As always, please reach out to the team with any questions, and hope you enjoy the rest of your summer.

[Operator]

Thank you. You will now be disconnected.

Participants

Executives

• Blair Tamblyn, President and CEO
• Geoff McTait, Head of Canadian Originations and Global Syndications
• Scott Rowland, CIO
• Tracy Jolly, CFO

Analysts

• Analyst
• Analyst