Timbercreek Financial TSE: TF reported stable distributable income in the second quarter as strong mortgage originations, syndication activity and lower funding costs helped offset lower benchmark interest rates and elevated credit-loss provisions tied to staged loans.
Chief Executive Officer Blair Tamblyn said the company advanced approximately C$154 million during the quarter and generated net investment income of C$24.9 million. Distributable income was C$14.6 million, or C$0.18 per share, compared with C$14.5 million in the first quarter. The payout ratio was 97.7%.
“We believe our current earnings profile continues to support the monthly dividend,” Tamblyn said, adding that earnings could improve as capital tied to staged positions is redeployed into performing investments.
Portfolio yield supported by loan floors
Chief Investment Officer Scott Rowland said more than 81% of the portfolio was invested in cash-flowing properties at quarter-end, while multi-residential assets accounted for about 60% of investments. First mortgages represented approximately 94% of investments, and the weighted-average loan-to-value ratio was 68.3%.
The portfolio’s weighted-average interest rate was 7.6% in the second quarter, down from 7.7% in the first quarter and 8.6% a year earlier. Rowland attributed the decline primarily to lower benchmark rates and repayments of certain higher-rate investments.
About 90% of the portfolio remained in floating-rate loans with contractual floors, and substantially all of those loans were operating at their floor rates, according to Rowland. He said those provisions continued to support portfolio yields in a lower-rate environment.
The company said lower benchmark rates had been partly offset by greater syndication activity, healthy fee generation and lower borrowing costs. Geographically, 97% of invested capital was concentrated in Ontario, British Columbia, Quebec and Alberta, with an emphasis on major urban markets.
Stage 3 balances decline as resolutions advance
Timbercreek Financial continued to work through its Stage 2 and Stage 3 loans, with Stage 3 balances declining more than 51% since year-end. During the quarter, the company resolved two Calgary Stage 3 positions through receiver-led sales processes.
Rowland said a significant portion of the quarter’s expected credit losses related to the Vancouver retail portfolio, reflecting carrying costs associated with preparing the asset for sale and advancing an exit strategy. The company also updated valuation assumptions on certain Victoria assets based on transaction activity and evolving sale processes.
Net income and comprehensive income totaled C$7.8 million, down from C$12.4 million in the prior period, as expected credit losses increased. However, Chief Financial Officer Tracy Johnston said net income before expected credit losses was stable at C$14.5 million, or C$0.18 per share, versus C$0.17 per share in the comparable period last year.
Tamblyn told analysts the company has visibility into resolving its remaining staged positions and expects most, if not all, to have better visibility toward resolution by year-end or to be resolved. He said the effort is being measured in quarters rather than years, with the objective of returning staged loans to a more typical range.
Originations and syndication activity increase
Head of Canadian Originations and Global Syndications Geoff McTait said commercial real estate activity improved during the quarter, supported by higher transaction volumes, more stable financing markets and healthy borrower demand.
The company completed 11 new mortgage investments during the quarter, in addition to advances on existing relationships. Year-to-date advances totaled approximately C$350 million through 24 new investments, representing an increase from the same period last year.
Quarterly repayments totaled approximately C$250 million. McTait said the repayments were consistent with the turnover characteristics of a transitional lending portfolio and created capacity to recycle capital into new loans while generating fee income.
Timbercreek Financial’s net mortgage investments totaled about C$1.14 billion at quarter-end, up approximately C$30 million from a year earlier. Management said an additional C$100 million net was deployed in early July, bringing the current portfolio balance to approximately C$1.24 billion.
McTait said multi-residential lending remains the company’s primary focus, followed by industrial properties. The company is also seeing more opportunities in retail and office properties, though it is approaching office lending cautiously. Other areas of activity include student residences, retirement homes, self-storage and manufactured housing.
Syndication demand from institutional partners has remained elevated since late last year, McTait said. Management uses syndication to manage exposure on individual loans, expand origination capacity and enhance yields, particularly when its credit facility is fully utilized.
Outlook points to active second half
Management said the originations pipeline remains strong through August and September and expects the second half of the year to account for a larger share of lending activity, consistent with the company’s typical seasonal pattern.
Rowland said the company’s priorities for the remainder of 2026 are disciplined originations, staged-loan resolutions and redeploying recovered capital into investments that enhance earnings generation. He noted that Timbercreek Financial had completed more than C$314 million of originations year-to-date and continued to see opportunities across its core lending categories.
About Timbercreek Financial (TSE:TF)
Timbercreek Financial 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.
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