ATRIUM MoRTgAge InvesTMenT CoRpoRATIon
C ANADA’S PREMIER NON-BANK LENDER TM
ANNUAL
REPORT
2013
PRESS RELEASE
ATRIUM MORTGAGE INVESTMENT CORPORATION
ANNOUNCES STRONG 2013 RESULTS AND CONFIRMS $0.05 SPECIAL DIVIDEND
TORONTO: February 11, 2014 – Atrium Mortgage Investment Corporation (TSX: AI) today released its
financial results for the year ended December 31, 2013 and confirmed its previously-announced special
dividend.
Highlights
• $0.05 per share special dividend to shareholders of record December 31, 2013
• $0.85 earnings per share in 2013
• $0.85 dividends per share in 2013 for a yield of 8.5% on book value, approximately 7.9% on
market price
• Regular monthly dividend increased to $0.82 annual rate
• Mortgage portfolio increased 40% year-over-year to $282 million at December 31, 2013
• High quality mortgage portfolio
o 90.9% of portfolio in first mortgages
o 98.3% of loan portfolio is less that 75% loan to value
o Increased emphasis on single family sector
“Atrium has demonstrated a consistent level of earnings of $0.22 per share over the past three quarters,”
noted Robert Goodall, CEO of Atrium. He continued, “We are very pleased with these financial results.
Atrium is well positioned to increase our earnings per share as we grow our mortgage portfolio and use a
conservative amount of incremental debt to fund that growth.”
Interested parties are invited to participate in a conference call with management on Wednesday,
February 12 at 4:00 p.m. EDT. Please refer to call-in information at the end of the news release.
1
Results of operations – twelve months ended December 31, 2013
For the twelve months ended December 31, 2013, mortgage interest and fees were $23.8 million,
compared to $17.2 million in the same period in the previous year, an increase of 37.9%. The weighted
average yield on the mortgage portfolio declined from 8.9% at the end of 2012 to 8.7% at the end of 2013
as Atrium continues to focus on high quality investments and targets house and apartment loans. The
weighted average yield has been very consistent at 8.70% - 8.74% over the past three quarters.
Earnings and dividends declared were each $18.0 million for the twelve months ended December 31,
2013, an increase of 34% from the same period in the previous year. Total assets at December 31, 2013
were $282.0 million, compared to $212.6 million at December 31, 2012. Mortgages receivable consisted
of 131 mortgage loans and aggregated $282 million at December 31, 2013, an increase of 40% from
December 31, 2012. The average loan size has decreased from $2.6 million at December 31, 2012 to $2.2
million at December 31, 2013.
Net earnings for the year ended December 31, 2013 were $18.0 million, an increase of 34.7% from net
earnings of $13.4 million in the prior year. Basic and diluted earnings per common share were $0.85 for
the year ended December 31, 2013, compared with basic and diluted earnings of $0.86 per share in the
previous year.
During the year ended December 31, 2013, Atrium funded mortgages totalling $186.7 million. Of these
advances, $171.8 million were first mortgages, representing 92.0% of the total loans funded. Eleven of
these advances were on properties in British Columbia, nine were on properties in Alberta, two were non-
GTA Ontario, and the remaining 88 were made in the Greater Toronto Area. There were $107.4 million
of repayments during the period.
Results of operations – three months ended December 31, 2013
For the three-month period ended December 31, 2013, mortgage interest and fees were $6.5 million,
compared to $4.8 million in the same period in the previous year, an increase of 37.5%. The weighted
average yield on the mortgage portfolio declined from 8.9% at the end of 2012 to 8.7% in the fourth
quarter of 2013, as we continue our focus on the highest quality assets.
Net earnings for the three months ended December 31, 2013 were $4.6 million, an increase of 27.5%
from net earnings of $3.6 million in the same period in the previous year. Basic and diluted earnings per
share were $0.22 per common share for the three months ended December 31, 2013, compared with basic
and diluted earnings of $0.21 per share for the same period the previous year.
During the three-month period ended December 31, 2013, Atrium funded mortgages aggregating $47.6
million. Of these advances, $41.6 million were first mortgages, representing 87.4% of the total loans
funded. Nine of these advances were on properties in British Columbia, six were on properties in Alberta,
and the remaining 42 were made in the Greater Toronto Area. There were $42.5 million of repayments
during the period. The total mortgage portfolio increased from $277.2 million to $282.4 million during
the period.
2
Mortgage portfolio
Atrium’s mortgages consist of 131 mortgage loans and aggregated $282.4 million at December 31, 2013, an increase
of 40.1% from December 31, 2012.
December 31, 2013
December 31, 2012
Mortgage category
Mixed use /commercial
House and apartment
Low rise residential
High rise residential
Construction
Midrise residential
Condominium corporation
Mortgage portfolio
Number
27
59
17
5
9
3
11
131
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgage receivable
Outstanding
amount
$ 89,475,297
69,484,828
58,465,947
32,966,568
22,093,399
7,440,000
2,433,526
282,359,565
1,562,173
(338,480)
(724,452)
(1,150,667)
$281,708,139
% of
Portfolio Number
31.7%
24.6%
20.7%
11.7%
7.8%
2.6%
0.9%
100%
15
31
8
4
4
5
10
77
Outstanding
amount
$ 69,334,931
43,061,190
24,302,272
23,686,000
15,087,981
24,381,184
1,629,664
201,483,222
% of
Portfolio
34.4%
21.4%
12.0%
11.8%
7.5%
12.1%
0.8%
100.0%
2,589,639
(385,508)
(644,735)
(1,087,667)
$201,954,951
Atrium actively manages its exposure, and has continued to shift its portfolio towards commercial/mixed use, low
rise residential properties and single family homes and apartments, which represents 77.0% of the mortgage
portfolio at December 31, 2013, an increase of 9.2% since December 31, 2012.
An analysis of mortgages by size is presented below.
December 31, 2013
December 31, 2012
Mortgage amount
$0 – $2,500,000
$2,500,001 - $5,000,000
$5,000,001 - $7,500,000
$7,500,001 +
Number
95
24
7
5
131
% of
Portfolio Number
Outstanding
amount
$ 98,811,649
81,089,475
46,820,000
35.0%
28.7%
16.6%
55,638,441 19.7%
100%
$282,359,565
50
16
5
6
77
Outstanding
amount
$ 48,628,362
55,814,860
30,670,000
66,370,000
$201,483,222
% of
Portfolio
24.2%
27.7%
15.2%
32.9%
100%
As of December 31, 2013,the average outstanding balance was $2.2 million and the median outstanding balance was
$1.4 million.
Further information
For further details please refer to Atrium’s financial statements for the year ended December 31, 2013,
and its management’s discussion and analysis for the same period, available on SEDAR at
www.sedar.com, and on the company’s website at www.atriummic.com.
3
Conference call
Interested parties are invited to participate in a conference call with management on Wednesday,
February 12 at 4:00 p.m. EDT. To participate or listen to the conference call live, please call 1 (866) 544-
4631 or (416) 849-5571. For a replay of the conference call (available until February 22, 2014) please
call 1 (866) 245-6755, Passcode 506575.
About Atrium
As a mortgage investment corporation, Atrium is a non-bank provider of residential and commercial
mortgages that lends in major urban centres in Canada where the stability and liquidity of real estate are
high. Atrium’s objectives are to provide its shareholders with stable and secure dividends and preserve
shareholders’ equity by lending within conservative risk parameters.
For additional information, please contact:
Robert G. Goodall
President and Chief Executive Officer
Jeffrey D. Sherman
Chief Financial Officer
(416) 607-4200
ir@atriummic.com
www.atriummic.com
4
ATRIUM MoRTgAge InvesTMenT CoRpoRATIon
C ANADA’S PREMIER NON-BANK LENDER TM
FINANCIAL
STATEMENTS
YEAR ENDED
DECEMBER 31, 2013
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Atrium Mortgage Investment Corporation
We have audited the accompanying financial statements of Atrium Mortgage Investment Corporation, which
comprise the statements of financial position as at December 31, 2013 and December 31, 2012 and the statements of
comprehensive income, changes in equity, and cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Atrium
Mortgage Investment Corporation as at December 31, 2013 and December 31, 2012, and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Crowe Soberman LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 11, 2014
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
To the shareholders of
Atrium Mortgage Investment Corporation
The management of Atrium Mortgage Investment Corporation is responsible for the preparation,
presentation and integrity of these financial statements, and the accompanying Management’s Discussion
and Analysis. This responsibility includes the selection and consistent application of appropriate
accounting principles and methods in addition to making the judgments and estimates necessary to
prepare the financial statements in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
Management of Atrium is responsible to provide reasonable assurance that assets are safeguarded and that
relevant and reliable financial information is produced. Management is required to design a system of
internal controls and certify as to the design and operating effectiveness of internal controls over financial
reporting. Management has implemented a system of internal controls that it believes provides reasonable
assurance in all material respects that transactions are authorized, assets are safeguarded and financial
records are reliable for producing financial statements. Crowe Soberman LLP was appointed as the
independent auditor by a vote of Atrium’s shareholders to audit the financial statements.
The Board of Directors, through the Audit Committee comprised solely of independent directors, is
responsible for determining that management fulfills its responsibilities in the preparation of these
financial statements and the financial control of operations. The Audit Committee recommends the
independent auditors for appointment by the shareholders. The Audit Committee meets regularly with
senior and financial management to discuss internal controls and financial reporting matters. The
independent auditors have unrestricted access to the Audit Committee.
These financial statements and accompanying Management’s Discussion and Analysis have been
approved by the Board of Directors based upon the review and recommendation of the Audit Committee.
Toronto, Canada
February 11, 2014
“Robert G. Goodall”
Robert G. Goodall
President and Chief Executive Officer
“Jeffrey D. Sherman”
Jeffrey D. Sherman
Chief Financial Officer
FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 9
STATEMENTS OF FINANCIAL POSITION
(Expressed in Canadian dollars)
Notes
2013
2012
December 31
Assets
Cash
Mortgages receivable
Prepaid expenses
Liabilities
Bank indebtedness
Operating line
Accounts payable and accrued liabilities
Dividends payable
Due to related party
Convertible debentures
Shareholders’ equity
Share capital
Contributed surplus and other equity
Equity component of convertible debentures
Retained earnings
5
6
6
7
8
9
$
–
281,708,139
272,615
$ 281,980,754
$
325,930
35,910,000
459,209
2,473,437
182,437
30,610,763
69,961,776
210,659,880
898,827
397,539
62,732
212,018,978
$ 281,980,754
$ 10,628,383
201,954,951
19,577
$ 212,602,911
$
–
–
460,568
1,826,813
205,605
–
2,492,986
209,383,307
693,199
–
33,419
210,109,925
$ 212,602,911
Commitments
5, 6
The accompanying notes are an integral part of these financial statements.
Approved on behalf of the board of directors:
“Rob Goodall”
Rob Goodall, Director
“Mark Silver”
Mark Silver, Director
10 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Expressed in Canadian dollars)
Common shares
Notes
Number
Balance, December 31, 2011
Shares issued
Shares issued under dividend reinvestment plan
Issue costs
Share based payments
Earnings and comprehensive income
Dividends declared
Balance, December 31, 2012
Shares issued under dividend reinvestment plan
Shares issued under employee share purchase plan
Shares issued under deferred share incentive plan
Share based payments
Shares subscribed
Equity component of convertible debentures issued
Issue costs attributable to equity component of
convertible debentures issued
Earnings and comprehensive income
Dividends declared
Balance, December 31, 2013
10
10
10
11
7
10
10
10
11
10
9
9
7
$
14,357,437
6,643,200
77,900
–
–
–
–
21,078,537
116,765
3,328
2,203
–
–
–
Amount
142,141,036
70,343,058
787,875
(3,888,662)
–
–
–
209,383,307
1,217,479
34,921
24,173
–
–
–
–
–
–
21,200,833
–
–
–
210,659,880
$
$
Contributed
surplus and
other equity
645,023
$
–
–
–
48,176
–
–
693,199
–
–
(24,183)
204,248
25,563
–
–
–
–
898,827
Equity
component
of convertible
debentures
$
–
–
–
–
–
–
–
–
–
–
–
–
–
418,606
$
Retained
earnings
60,353
–
–
–
–
13,358,327
(13,385,261)
33,419
Total
$ 142,846,412
70,343,058
787,875
(3,888,662)
48,176
13,358,327
(13,385,261)
210,109,925
–
–
–
–
–
–
1,217,479
34,921
(10)
204,248
25,563
418,606
(21,067)
–
–
397,539
$
–
17,999,888
(17,970,575)
62,732
(21,067)
17,999,888
(17,970,575)
$ 212,018,978
$
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 11
STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Expressed in Canadian dollars)
Notes
2013
2012
Years ended December 31
Revenues
Mortgage interest and fees
Operating expenses
Mortgage servicing and management fees
Interest and other bank charges
Interest on convertible debentures
Transfer agent, TSX fees and investor relations
Share based payments
Accounting, audit and legal fees
Directors’ fees
Administration and general
Provision for mortgage losses
Non-offering prospectus and initial TSX listing
Earnings and comprehensive income for the year
Earnings per common share
Basic
Diluted
$ 23,759,620
$ 17,235,060
8
8, 11
8
5
2,467,672
1,318,474
1,065,078
223,713
204,248
170,109
147,464
99,974
63,000
–
5,759,732
$ 17,999,888
1,567,879
1,180,713
–
67,712
48,176
206,426
85,434
63,284
193,291
463,818
3,876,733
$ 13,358,327
12
12
$
$
0.85
0.85
$
$
0.86
0.86
The accompanying notes are an integral part of these financial statements.
12 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
Cash provided by (used in):
Operating activities
Earnings and comprehensive income for the year
Add (subtract) non-cash items
Share based payments
Interest capitalized on mortgages
Amortization of mortgage discount
Amortization of mortgage origination fees
Non-cash portion of interest on convertible debentures
Provision for mortgage losses
Changes in operating assets and liabilities
Accrued interest receivable
Prepaid expenses
Accounts payable and accrued liabilities
Additions to mortgage discount
Additions to mortgage origination fees
Cash provided by operating activities
Investing activities
Advances of mortgages receivable
Repayment of mortgages receivable
Cash used by investing activities
Financing activities
Operating line advanced
Operating line repaid
Increase (decrease) in due to related party
Issuance of common shares
Common share issue costs
Issuance of convertible debentures
Convertible debenture issue costs
Dividends paid
Cash provided by financing activities
Increase (decrease) in cash
Cash, beginning of year
Cash (bank indebtedness), end of year
Cash provided by operating activities includes:
Interest received
Interest paid
Years ended December 31
2013
2012
$
17,999,888
$
13,358,327
205,628
(1,611,503)
(207,828)
(881,347)
148,846
63,000
15,716,684
1,027,466
(253,038)
(1,359)
160,800
961,064
1,894,933
17,611,617
48,176
(693,797)
(97,979)
(773,304)
–
193,291
12,034,714
(519,018)
(11,247)
248,022
407,430
903,128
1,028,315
13,063,029
(186,702,516)
107,437,676
(79,264,840)
(128,379,556)
84,497,520
(43,882,036)
267,777,500
(231,867,500)
(23,168)
1,276,573
–
32,500,000
(1,640,544)
(17,323,951)
50,698,910
117,370,000
(129,970,000)
33,394
71,130,933
(3,888,662)
–
–
(14,543,292)
40,132,373
(10,954,313)
9,313,366
10,628,383
1,315,017
(325,930)
$
10,628,383
19,697,031
2,088,401
$
$
15,205,131
1,080,975
$
$
$
The accompanying notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 13
1.
NATURE OF OPERATIONS
Atrium Mortgage Investment Corporation is a corporation domiciled in Canada, incorporated under the
Ontario Business Corporations Act. The address of the company’s registered head office and principal
place of business is Suite 900, 20 Adelaide Street East, Toronto, Ontario M5C 2T6.
The company is a Mortgage Investment Corporation (MIC) as defined in Section 130.1(6) of the Canada
Income Tax Act (ITA). Accordingly, the company is not taxed on income provided that its taxable income
is paid to its shareholders in the form of dividends within 90 days after December 31 each year. Such
dividends are generally treated by shareholders as interest income, so that each shareholder is in the same
position as if the mortgage investments made by the company had been made directly by the shareholder.
The company’s common shares are listed on the Toronto Stock Exchange (TSX) under the symbol “AI”
and its convertible debentures are listed under the symbol “AI.DB.”
2.
BASIS OF PRESENTATION
(a) Statement of compliance
These financial statements have been prepared by management in accordance with Canadian generally
accepted accounting principles and International Financial Reporting Standards (IFRS), as set out in Part 1
of the CPA Canada Handbook – Accounting. These annual financial statements were authorized for
issuance by the Board of Directors on February 11, 2014.
(b) Basis of measurement
These financial statements are prepared on the historical cost basis.
(c) Functional and presentation currency
These financial statements are presented in Canadian dollars, which is also the company’s functional
currency.
(d) Use of estimates and judgements
The preparation of financial statements in accordance with IFRS requires management to make estimates,
assumptions and judgements that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the reporting date and the reported amounts of revenue and expenses
during the reporting period. The most subjective of these estimates relates to: (a) valuation of mortgages
receivable, which is affected primarily by the provision for mortgage losses which is determined by
management’s estimate as to the required general and specific reserves; and (b) the measurement of the
liability and equity components of the convertible debentures which depend upon the estimated market
interest rates for a comparable debenture without the convertibility feature. Management believes that its
estimates are appropriate; however, actual results could differ from the amounts estimated. Estimates and
underlying assumptions are reviewed each quarter. Revisions to accounting estimates are recognized in the
period in which the estimate is revised and in any future periods affected.
14 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • NOTES TO THE FINANCIAL STATEMENTS
3.
SIGNIFICANT ACCOUNTING POLICIES
The company’s accounting policies and its standards of financial disclosure set out below are in accordance
with IFRS and have been applied consistently.
(a) Revenue recognition
Mortgage interest and fees revenue are recognized in the statement of earnings and comprehensive income
using the effective interest method. Mortgage interest and fees revenue includes the company’s share of
any fees received, as well as the effect of any discount or premium received on the mortgage.
The effective interest method discounts the estimated future cash payments and receipts through the
expected life of the mortgage receivable to its carrying amount. When estimating future cash flows for this
calculation, the contractual terms of the mortgage are considered although possible future credit losses are
ignored (see note 3(c)).
(b) Financial assets – classification, recognition and measurement
Classification of financial assets depends on the purpose for which the financial assets were acquired.
Management determines the classification of financial assets at initial recognition. All of the company’s
financial assets are classified as loans and receivables.
All financial assets are subject to review for impairment quarterly, and written down when there is evidence
of impairment.
Loans and receivables
Classification
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. Assets in this category consist of cash and mortgages receivable.
Recognition and measurement
Loans and receivables are initially recognized at fair value plus transaction costs and subsequently carried
at amortized cost using the effective interest method. At each reporting date, management considers
whether any reserves for credit impairment or due to changes in market interest rates are required.
(c) Mortgages receivable
A mortgage receivable, carried at amortized cost, is considered impaired when there is objective evidence
that there has been a deterioration of credit quality subsequent to its initial recognition to the extent that the
company no longer has reasonable assurance as to the timely collection of the full amount of principal and
interest. The company assesses mortgages receivable for objective evidence of impairment both
individually and collectively. Provision for mortgage losses represents management’s best estimate of
impairment of mortgages receivable at each reporting date. Judgement is required as to the timing of
designating a mortgage as impaired and the amount of any provision required. If there is no objective
evidence of impairment for an individual mortgage receivable, it is included in a group of mortgages with
similar credit risk characteristics and collectively assessed for impairment for losses incurred but not
identified.
NOTES TO THE FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 15
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Mortgages receivable (continued)
The company reviews mortgages receivable quarterly for impairment. An impairment loss is calculated as
the difference between the carrying amount of the mortgage receivable and the present value of the
estimated future cash flows discounted at the original effective interest rate. Losses are charged to the
statements of earnings and comprehensive income and are reflected in the provision for mortgage losses.
When a subsequent event causes the amount of impairment loss to decrease, the provision for mortgage
losses is reversed through the statements of earnings and comprehensive income.
(d) Convertible debentures
The convertible debentures can be converted into common shares of the company at the option of the
investor. They are compound financial instruments with two components: a financial liability, and a call
option which is an equity instrument. The fair value of the liability component is measured as of the date
that the debentures were issued, and the equity instrument is valued on that date based upon the difference
between the fair value of the convertible debenture and the fair value of the liability component. The
measurement of the fair value of the liability component is based upon market rates of interest on similar
debt instruments without the conversion feature. Expenses of issue are allocated between the two
components on a pro-rata basis. The book value of the debt is accreted up to its face value over the life of
the debentures using the effective interest method, which provides for the application of a constant interest
rate over the life of the debenture. The value of the equity component is not remeasured subsequent to its
initial measurement date.
(e) Other financial liabilities
Other financial liabilities are non-derivative liabilities recognized initially at fair value, net of transaction
costs, and are subsequently stated at amortized cost using the effective interest method. The company has
classified bank indebtedness, operating line, accounts payable and accrued liabilities, dividends payable,
due to related party and the liability component of convertible debentures as other financial liabilities.
(f) Income taxes
The company qualifies as a Mortgage Investment Corporation under the ITA, and as such is not taxed on
income provided that its taxable income is distributed to its shareholders in the form of dividends within 90
days after December 31 each year. It is the company’s policy to pay such dividends to remain non-taxable.
Accordingly, no provision for current or future income taxes is required.
(g) Earnings per common share
Basic earnings per common share is calculated by dividing earnings during the period by the weighted
average number of common shares outstanding during the period. Diluted earnings per share is calculated
by adjusting the earnings attributable to common shareholders and the weighted average number of
common shares outstanding for the effects of all dilutive items such as convertible debentures and deferred
share incentive plans.
(h) Share based payments
The company has an equity-settled share based compensation plan for grants to eligible directors, officers,
senior management and consultants under its deferred share incentive plan. No awards have been issued to
consultants. Grants are measured based upon the fair value of the awards granted, based on the volume
weighted average trading share price for the five trading days prior to date of the grant.
16 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • NOTES TO THE FINANCIAL STATEMENTS
4.
RECENT ACCOUNTING PRONOUNCEMENTS
Certain pronouncements have been issued by the IASB (International Accounting Standards Board) or
IFRIC (IFRS Interpretations Committee) that will be effective for future accounting periods. Many of these
are not applicable to the company and so are not listed below. Adopting this new pronouncement will not
have a material impact on the company’s financial statements. The following is a brief summary of the new
standard:
IFRS 9 – Financial Instruments: Classification and measurement is the first part of a new standard on
classification and measurement of financial assets that will replace IAS 39, Financial Instruments:
Recognition and Measurement. The effective date has been deferred pending completion of the remaining
sections of the standard. IFRS 9 has two measurement categories: amortized cost and fair value. All equity
instruments are measured at fair value. A debt instrument is recorded at amortized cost only if the entity is
holding the instrument to collect contractual cash flows and the cash flows represent principal and interest.
Otherwise it is recorded at fair value through profit or loss.
5.
MORTGAGES RECEIVABLE
December 31, 2013
Outstanding % of
December 31, 2012
Outstanding % of
Number
27
59
17
5
9
3
11
131
Mortgage category
Commercial/mixed use
House and apartment
Low rise residential
High rise residential
Construction
Midrise residential
Condominium corporation
Mortgage portfolio
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgages receivable
amount
89,475,297
69,484,828
58,465,947
32,966,568
22,093,399
7,440,000
2,433,526
282,359,565
1,562,173
(338,480)
(724,452)
(1,150,667)
$ 281,708,139
Portfolio Number
amount
31.7%
24.6%
20.7%
11.7%
7.8%
2.6%
0.9%
100.0%
15 $ 69,334,931
43,061,190
31
24,302,272
8
23,686,000
4
15,087,981
4
24,381,184
5
1,629,664
10
201,483,222
77
2,589,639
(385,508)
(644,735)
(1,087,667)
$201,954,951
Portfolio
34.4%
21.4%
12.0%
11.8%
7.5%
12.1%
0.8%
100.0%
The aggregate portfolio has a weighted average yield of 8.72% (December 31, 2012 – 8.93%) and maturity
dates between 2014 and 2024 with a weighted average term to maturity of 13.5 months at December 31,
2013 (December 31, 2012 – 13.0 months).
The company has committed to advance additional funds under existing mortgages aggregating
$51,436,540 and new mortgages aggregating $46,727,500 at December 31, 2013 (December 31, 2012 –
$15,999,642, 33,940,000). Generally, outstanding commitments are expected to be funded within the next
24 months. However, the experience of the company has been that a portion of the unfunded amounts on
existing mortgages will never be drawn.
Principal repayments based on contractual maturity dates are as follows:
Year ending December 31, 2014
2015
2016
2017
2018
Thereafter
$ 131,887,764
123,852,819
24,185,455
180,048
67,699
2,185,780
$ 282,359,565
NOTES TO THE FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 17
5.
MORTGAGES RECEIVABLE (continued)
Provision for mortgage losses
Balance, beginning of year
Increase in provision during the year
Balance, end of year
December 31,
2013
$ (1,087,667)
(63,000)
$ (1,150,667)
December 31,
2012
(894,376)
(193,291)
$ (1,087,667)
$
One mortgage is in default at December 31, 2013 (two mortgages were in default at December 31, 2012).
The increase in the provision for mortgage losses during the year is based upon management’s assessment
as to market conditions, the value of real property securing the mortgage and the likely amount ultimately
recoverable, as well as management’s assessment as to an appropriate reserve for mortgages in the portfolio
that are not in default.
6.
CREDIT FACILITY
At December 31, 2013, the company had a credit facility from Canadian financial institutions of
$80,000,000 (December 31, 2012 – $50,000,000). Advances may be obtained under the credit facility by
way of a maximum $500,000 overdraft, a bank loan, bankers’ acceptances or letters of credit. The
committed credit facility was effective October 10, 2013, has a term of one year, and is subject to certain
conditions of drawdown and other covenants. (See Note 16 – Subsequent events.)
The credit facility is secured by a lien over all of the company’s assets by means of a general security
agreement. The amount that may be drawn down under the credit facility is determined by the aggregate
value of mortgages that are acceptable to the lender. Under the terms of the credit facility, covenants must
be met in respect of shareholders’ equity, debt to total assets and interest coverage. At December 31, 2013,
the company was in compliance with these covenants.
The company has letters of credit (LCs) outstanding under the credit facility as at December 31, 2013 of
$2,679,631 (December 31, 2012 – $357,458) which have been committed to clients. The LCs reduce the
maximum availability under the credit facility by the amount of the LCs drawn. LCs represent irrevocable
assurances that the company’s bank will make payments in the event that a customer cannot meet its
obligations to third parties. LCs carry the same credit risk, recourse and collateral security requirements as
mortgages extended to customers.
Credit facility
Bankers’ acceptances
Bank loan
Operating line
Bank indebtedness
Total borrowing under credit facility
Letters of credit
Total credit facility utilization
December 31,
2013
$ 20,000,000
15,910,000
35,910,000
325,930
36,235,930
2,679,631
$ 38,915,561
$
December 31,
2012
nil
nil
nil
nil
nil
357,458
357,458
$
18 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • NOTES TO THE FINANCIAL STATEMENTS
7.
DIVIDENDS
The company follows a dividend policy so that it is non-taxable under the provisions of the Income Tax Act
related to Mortgage Investment Corporations. Dividends aggregated $0.85 per share for the year ended
December 31, 2013 (2012 – $0.85).
Dividends payable, beginning of year
Dividends declared during the year
Dividends paid during the year
Dividends payable, end of year
8.
RELATED PARTY TRANSACTIONS
$
December 31,
2013
1,826,813
17,970,575
(17,323,951)
2,473,437
$
$
December 31,
2012
2,984,844
13,385,261
(14,543,292)
1,826,813
$
The company pays management and mortgage servicing fees to Canadian Mortgage Servicing Corporation
(“CMSC”), a subsidiary of Canadian Mortgage Capital Corporation (“CMCC”) the manager of the
company, which is responsible for the day to day management of the company. The majority beneficial
owner and CEO of the manager is also CEO of the company. The company incurred management and
mortgage servicing fees from CMSC of $2,455,463 for the year ended December 31, 2013 (2012 –
$1,567,072). The management agreement between the company and CMCC contains provisions for the
payment of termination fees to the manager in the event that the management agreement is terminated in
certain circumstances. Unpaid amounts are in the normal course of business, non-interest bearing and due
on demand. Balances due to related parties are due to CMCC and its subsidiaries and were paid with 30
days of year end.
Guarantees aggregating $4,542,000 at December 31, 2013 (2012 – $8,290,000) have been provided on
mortgages owned by the company from a major development company of which one of the directors of the
company is a director and officer. All of these loans are in good standing.
Key management includes directors and officers of the company. Compensation expenses for key
management personnel include:
Directors’ fees
Share based payments to directors (note 11)
Share based payments to officers (note 11)
$
December 31,
2013
147,464
97,752
92,499
337,715
$
$
December 31,
2012
85,434
23,528
24,648
133,610
$
Related party transactions are recorded at the exchange amount, which is the amount of consideration
established and agreed to by the related parties, which represents fair value in the opinion of management.
NOTES TO THE FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 19
9.
CONVERTIBLE DEBENTURES
Issued (see note below)
Equity component
Issue costs
Issue costs attributed to equity component
Convertible debentures
Accretion for the year
Convertible debentures, end of year
$
Year ended
December 31,
2013
32,500,000
(418,606)
(1,640,544)
21,067
30,461,917
148,846
30,610,763
$
$
Year ended
December 31,
2012
–
–
–
–
–
–
–
$
On June 18, 2013, the company completed a public offering of $30,000,000 with an overallotment option
of $2,500,000 that was completed July 9, 2013, of 5.25%, unsecured convertible debentures due June 30,
2020. The interest on the debentures is payable on June 30 and December 31 each year. Debentures are
convertible into common shares at the option of the holder at any time prior to their maturity at a
conversion price of $13.50 per share, subject to various adjustments in accordance with the trust indenture.
The debentures may not be redeemed by the company before June 30, 2016. After June 30, 2016 and prior
to June 30, 2018, the debentures may be redeemed, in whole or in part, from time to time at the company’s
option at par plus accrued interest provided that the weighted average trading price of the common shares is
not less than 125% of the conversion price. After June 30, 2018, the company may, at its option, redeem
the debentures, in whole or in part, at par plus accrued and unpaid interest.
On issuance, the company recorded a liability of $30,461,917, net of equity component of $418,606 and
issue costs attributable to debt of $1,619,477.
10.
SHARE CAPITAL
The company is authorized to issue an unlimited number of common shares without par value. Common
shares rank equally with each other and have no preference, conversion, exchange or redemption rights.
Common shares participate pro rata with respect to any dividends paid, including distributions upon
termination and dissolution.
The company has an optional dividend reinvestment plan (DRIP) for shareholders, whereby participants
may reinvest cash dividends in additional common shares of the company at the volume weighted average
price for five days prior to distribution, less a 2% discount. Shares issued under the DRIP are issued by the
company from treasury.
On February 21, 2013 the board of directors approved an employee share purchase plan (ESPP). Each
participant may contribute up to the stated annual maximum to the ESPP and CMCC will match 50% of the
participant’s contribution to the ESPP. Thus, the company does not bear any of the cost of the ESPP, but is
reimbursed by CMCC and the participants. On July 23, 2013, 1,332 common shares were issued for
$13,933. On October 1, 2013, 1,996 common shares were issued for $20,988. As at December 31, 2013,
2,368 common shares had been subscribed for aggregating $25,563 but were unissued.
On November 14, 2013, 2,203 common shares were issued for $24,173 under the deferred share incentive
plan (DSIP) to the estate of the deceased participant in the DSIP.
20 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • NOTES TO THE FINANCIAL STATEMENTS
10.
SHARE CAPITAL (continued)
Shares issued –
DRIP, January 29, 2013
DRIP, February 26, 2013
DRIP, March 21, 2013
DRIP, March 27, 2013
DRIP, April 15, 2013
DRIP, May 15, 2013
DRIP, June 14, 2013
DRIP, July 15, 2013
ESPP, July 23, 2013
DRIP, August 14, 2013
DRIP, September 13, 2013
ESPP, October 1, 2013
DRIP, October 14, 2013
DRIP, November 14, 2013
DSIP, November 14, 2013
DRIP, December 13, 2013
Total shares issued in 2013
DRIP
ESPP
DSIP
Total shares issued in 2013
Shares issued –
DRIP, January 31, 2012
Private placement, February 15, 2012
DRIP, April 30, 2012
DRIP, July 31, 2012
DRIP, October 26, 2012
DRIP, November 28, 2012
Public offering, December 4, 2012
Private placement, December 4, 2012
DRIP, December 27, 2012
Total shares issued in 2012
Private placement
Public offering
Shares issued
DRIP
Total shares issued in 2012
Common shares
Number
Amount
6,580
6,814
1,785
8,889
8,515
8,806
9,228
9,208
1,332
10,721
11,550
1,996
11,580
10,695
2,203
12,394
122,296
116,765
3,328
2,203
122,296
$
$
$
70,801
73,732
19,106
95,120
91,877
94,498
96,711
94,108
13,933
107,215
115,277
20,988
116,967
112,300
24,173
129,766
1,276,572
1,217,479
34,921
24,173
1,276,573
Common shares
Number
Amount
14,720
805,800
17,652
23,181
14,439
3,964
5,405,000
432,400
3,944
6,721,100
1,238,200
5,405,000
6,643,200
77,900
6,721,100
$
$
$
$
147,201
8,058,000
176,524
231,810
148,287
41,894
57,671,350
4,613,708
42,159
71,130,933
12,671,708
57,671,350
70,343,058
787,875
71,130,933
There were no issue costs for common shares issued during 2013.
Issue costs for the February 15, 2012 private placement aggregated $132,950. Issue costs for the December
4, 2012 private placement aggregated $92,274 for commissions, $20,905 for other costs, for a total of
$113,179. Issue costs for December 4, 2012 public offering aggregated $3,171,924 for commissions,
$470,609 for other costs, for a total of $3,642,533. The aggregate costs for issuances during the year ended
December 31, 2012 were $3,888,662.
NOTES TO THE FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 21
11.
SHARE BASED PAYMENTS
Deferred shares granted
Value of grant
Income deferred shares issuable
Share compensation expense:
Year ended December 31, 2013
Year ended December 31, 2012
August 30,
2013 grant
23,000
232,900
–
53,654
–
53,654
$
$
$
August 29,
2012 grant
21,500
236,500
740
150,594
48,176
198,770
$
$
$
Total
44,500
469,400
740
204,248
48,176
252,424
$
$
$
Grants are provided to certain directors and employees under the company’s deferred share incentive plan.
The deferred share units vest annually over three years. Common shares are issued to participants on the
vesting date of each tranche of deferred share units, unless a participant elects to defer the issuance. In
addition, income deferred share units are credited to holders of deferred share units based upon dividends
paid on common shares. The fair value of share based compensation was based upon the volume weighted
average market price of the common shares five days prior to the grant date of $10.13 (August 30, 2013)
and $11.00 (August 29, 2012).
12.
EARNINGS PER SHARE
Basic earnings per share –
Numerator
Earnings for the year
Denominator
Weighted average common shares outstanding
Basic earnings per share
Diluted earnings per share –
Numerator
Earnings for the year
Interest on convertible debentures
Earnings for diluted earnings per share
Denominator
Weighted average common shares outstanding
Convertible debentures
Deferred share incentive plan
Income deferred share units
Weighted average common shares outstanding – diluted basis
Diluted earnings per share
$
Year ended
December 31,
2013
Year ended
December 31,
2012
$
17,999,888
$
13,358,327
21,133,123
0.85
$
15,497,668
0.86
$
2013
2012
$
17,999,888
1,065,078
19,064,966
$
13,358,327
–
13,358,327
21,133,123
1,282,598
29,051
609
22,445,380
0.85
15,497,668
–
6,856
–
15,504,524
0.86
$
22 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • NOTES TO THE FINANCIAL STATEMENTS
13.
FINANCIAL INSTRUMENTS
(a) Classification of financial instruments
All financial assets are classified as loans and receivables. Financial liabilities comprise bank indebtedness,
operating line, accounts payable, accrued liabilities, dividends payable, due to related party and the liability
component of convertible debentures. All financial liabilities are classified as other financial liabilities.
(b) Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between arm’s length market participants at the measurement date. The fair value hierarchy
establishes three levels to classify the inputs to valuation techniques used to measure fair value:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or
liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability,
or inputs that are derived principally from or corroborated by observable market data or other means.
• Level 3 inputs are unobservable (supported by little or no market activity).
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3
inputs. All financial assets are classified as loans and receivables and are recorded at amortized cost. Their
carrying values approximate their fair value due to their relatively short-term maturities and because market
interest rates have not fluctuated significantly since the date at which the loans were entered into. The fair
value of the operating line approximates book value since it bears interest at floating rates. Mortgages
receivable mature between 2014 and 2024 with a weighted average term to maturity of 13.5 months (2012
– 13.0 months). Fair value of mortgages receivable is established by level 3 inputs. The fair value of the
liability component of convertible debentures approximates book value and is established using level 2
inputs. The fair value of other financial assets and liabilities are established using level 3 inputs.
(c) Credit risk
The following asset is exposed to credit risk: mortgages receivable. Credit risk is the risk that a
counterparty to a financial instrument will fail to discharge its obligation or commitment, resulting in a
financial loss to the company.
The company controls the credit risk of mortgages receivable by maintaining strict credit policies including
due diligence processes, credit limits, and documentation requirements, review and approval of new
mortgages by the board of directors or a subgroup thereof, quarterly review of the entire portfolio by the
board of directors, and other credit policies approved by the board of directors. Credit risk is approved by
the board of directors. No single borrower accounts for more than 14.6% (December 31, 2012 – 9.6%) of
mortgages receivable.
NOTES TO THE FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 23
13.
FINANCIAL INSTRUMENTS (continued)
(d) Liquidity risk
Liquidity risk is the risk that the company will not be able to meet its obligations when due. The company’s
liquidity risk is managed on an ongoing basis by CMCC in accordance with the policies and procedures in
place. The company’s significant financial liabilities include bank indebtedness, operating line, accounts
payable and accrued liabilities, dividends payable, due to related party and convertible debentures. The
bank indebtedness and operating line are drawn upon as required to discharge accounts payable and
accrued liabilities as well as to pay out dividends on a monthly basis.
As at December 31, 2013, management considers that the company does not have significant exposure to
liquidity risk as the credit facility is not fully utilized and the company is in compliance with all covenants.
Obligations due at December 31, 2013 are shown below.
Bank indebtedness
Operating line
Accounts payable and
accrued liabilities
Dividends payable
Due to related party
5.25% convertible debentures
Total
(e) Interest rate risk
Total Less than 1 year
$ 325,930
35,910,000
$ 325,930
35,910,000
1-2 years
$ –
3-7 years
$ –
459,209
459,209
–
–
2,473,437
182,437
30,610,763
$ 69,961,776
2,473,437
182,437
–
$ 39,351,013
–
–
–
$ –
–
–
30,610,763
$ 30,610,763
The company is exposed to interest rate risk in that an increase in interest rates will result in increased
interest expense due to its operating line and indebtedness being set at a variable rate but all mortgages
being set at fixed rates. The financial structure of the company results in relatively moderate interest rate
risk because most of the company’s financing is through common shares and convertible debentures, with a
moderate amount of borrowings under the credit facility that bear floating interest rates.
If interest rates on debt had been one percentage point higher (lower) during the year ended December 31,
2013, earnings would have been reduced (increased) by approximately $293,000 during the year, assuming
that no changes had been made to the interest rates at which new mortgage loans were entered into.
However, if new mortgage loans had been entered into at higher (lower) interest rates, the resulting
reduction of earnings would have been less than (greater than) $293,000.
(f) Currency risk
Currency risk is the risk that the value of financial assets and liabilities will fluctuate due to changes in
foreign exchange rates. The company is not currently exposed to significant currency risk as all assets and
liabilities are denominated in Canadian funds.
(g) Changes to risk exposure and management of risk exposure
During the year ended December 31, 2013, the company issued 5.25% convertible debentures with a face
value of $32,500,000 (see note 9), which had the effect of altering its risk exposure profile to be less
sensitive to changes in general market interest rates. The effect will be favourable if general interest rates
increase, and adverse if general interest rates decline.
24 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • NOTES TO THE FINANCIAL STATEMENTS
14.
CAPITAL MANAGEMENT
The company defines capital as total debt plus shareholders’ equity, as shown below:
Bank indebtedness
Operating line
Total bank line
Convertible debentures
Total debt
Shareholders’ equity
Capital employed
$
December 31,
2013
325,930
35,910,000
36,235,930
30,610,763
66,846,693
212,018,978
$ 278,865,671
$
December 31,
2012
–
–
–
–
–
210,109,925
$ 210,109,925
The company’s objectives for managing capital are to:
•
•
•
preserve shareholders’ equity
provide shareholders with stable dividends
use leverage in a conservative manner to improve return to shareholders
The company manages capital by using conservative amounts of financial leverage to improve its return to
shareholders. The company finances growth of its portfolio by issuing common shares and debt. In
addition, a small amount of equity is raised every month through a dividend reinvestment plan for
shareholders.
As bank borrowings increase, the company could expect to raise further funds through public offering of
convertible debentures and/or common shares. The company’s bank indebtedness and operating line are
subject to external covenants as set out in note 6. There has been no change in the company’s capital
management objectives since the prior year.
15.
INCOME TAXES
The company is a Mortgage Investment Corporation (MIC) as defined in Section 130.1(6) of the ITA.
Accordingly, the company is not taxed on its taxable income (as defined in the ITA) provided that it is
distributed as dividends within 90 days of December 31 each year.
Due to certain provisions of the ITA, taxable income does not precisely equal income under IFRS. The
company has tax loss carry forwards available that may serve to permit future distributions to shareholders
to be less than taxable income in the year while preserving its status as a MIC.
Earnings and comprehensive income for the year
Non-deductible expenses
Issue costs deductible pursuant to Section 10(1)(e)
of the ITA
Deductible expenses
Change in deferred revenue
Cumulative eligible capital deduction
Taxable income
Less: dividends declared during the year and within
90 days of year end
Tax loss carry forward for the year
Plus tax loss carry forward from previous years
Tax loss carry forward
December 31,
2013
17,999,888
482,550
December 31,
2012
13,358,327
356,298
(1,350,312)
–
79,717
(1,762)
17,210,081
(17,970,575)
(760,494)
(677,527)
(1,438,021)
$
$
(980,272)
(119,337)
129,825
(1,895)
12,742,946
(13,385,261)
(642,315)
(35,212)
(677,527)
$
$
NOTES TO THE FINANCIAL STATEMENTS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 25
16.
SUBSEQUENT EVENTS
On January 1, 2014, the company issued 2,368 common shares subscribed for under the ESPP for proceeds
of $25,563.
On January 14, 2014, the company issued 12,543 common shares ($130,828) under its dividend
reinvestment plan.
On January 31, 2014, the company obtained a $30 million short-term increase in its operating credit
facility; any amounts drawn thereunder are to be repaid on the earlier of April 30, 2014 and the closing of
any public equity or convertible debt issuance by the company.
On February 6, 2014, the company entered into an agreement with a syndicate of underwriters under which
it agreed to purchase $30,000,000 of 6.25% subordinated debentures due March 31, 2019. The offering is
expected to close on February 27, 2014. The company granted the underwriters an overallotment option to
purchase up to an additional $4.5 million of the debentures at any time until 30 days after the offering
closes. At the option of the holders, the debentures may be converted into common shares of Atrium at a
conversion price of $13.30 per share, and the debentures are subject to certain other redemption rights.
ATRIUM MoRTgAge InvesTMenT CoRpoRATIon
C ANADA’S PREMIER NON-BANK LENDER TM
MD&A
MANAGEMENT’S DISCUSSION
AND ANALYSIS
YEAR ENDED
DECEMBER 31, 2013
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 27
MANAGEMENT’S DISCUSSION AND ANALYSIS
(February 11, 2014)
Background and overview
This Management’s Discussion and Analysis (MD&A) is intended to help you understand Atrium Mortgage
Investment Corporation (“Atrium”, the “Company”, “we”, “our” or “us”), its business environment and future
prospects. This MD&A should be read together with our financial statements and the accompanying notes for the
year ended December 31, 2013. Information herein includes any significant developments up to February 11, 2014,
the date on which this MD&A was approved by our directors. Atrium was formed on July 30, 2001 as “DB
Mortgage Investment Corporation #1”; our name was changed to “Atrium Mortgage Investment Corporation” on
March 23, 2012. We are an Ontario corporation and we do not have any subsidiaries.
We are qualified as a “mortgage investment corporation” (MIC) within the meaning of Section 130.1(6) of the
Income Tax Act (Canada) (ITA). Accordingly, we are not taxed on our income provided that at least our taxable
income is paid to our shareholders as dividends within 90 days after December 31 each year. Such dividends are
generally treated by shareholders as interest income, so that each shareholder is in the same position as if the
mortgage investments made by us had been made directly by the shareholder. Our common shares and 5.25%
convertible unsecured subordinated debentures due June 30, 2020 (5.25% debentures) are listed on the Toronto
Stock Exchange (TSX) under the symbols “AI” and “AI.DB”, respectively. We became a reporting issuer and listed
our common shares on the TSX following the issuance of a non-offering prospectus on August 24, 2012. Previously,
we were a private company. In June and July 2013, we completed a public offering of $32.5 million aggregate
principal amount of our 5.25% debentures.
Our financial statements for the year ended December 31, 2013 are prepared in accordance with Canadian generally
accepted accounting principles and IFRS, as set out in Part I of the CPA Canada Handbook - Accounting.
Notice regarding forward-looking information
Certain information included in this MD&A contains forward-looking statements within the meaning of applicable
securities legislation, including statements with respect to management’s beliefs, estimates, and intentions, and
similar statements concerning anticipated future events, results, circumstances, performance or expectations that are
not historical facts. Forward-looking statements generally can be identified by the use of forward-looking
terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intent”, “estimate”, “anticipate”, “believe”,
“should”, “plans” or “continue” or similar expressions suggesting future outcomes or events. Forward looking
statements regarding earnings and mortgage portfolio growth are based upon the following assumptions: that other
factors such as revenues and expenses continue to follow current trends, and that current trends in our mortgage
portfolio growth continue.
All forward-looking statements reflect management’s current beliefs and are based on information currently
available to management. These statements are not guarantees of future performance and are based on our estimates
and assumptions that are subject to risks and uncertainties which could cause our actual results to differ materially
from the forward-looking statements contained in this MD&A. Those risks and uncertainties include risks associated
with mortgage lending, competition for mortgage lending, real estate values, interest rate fluctuations, environmental
matters and the general economic environment. For other risks and uncertainties, please refer to “Risks and
uncertainties” below, and the “Risk Factors” section of our Annual Information Form for the year ended December
31, 2013 which is available at www.sedar.com. We caution that the foregoing list is not exhaustive, as other factors
could adversely affect our results, performance or achievements. The reader is cautioned against undue reliance on
any forward-looking statements.
Although the forward-looking information contained in this MD&A is based upon what management believes are
reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking
statements. Except as required by applicable law, we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events or otherwise.
28 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • MANEGAMENT’S DISCUSSION AND ANALYSIS
Our business
We are a mortgage lender that fills the lending gap caused by the limited number of financial institutions operating
in Canada. We lend in major urban centres where the stability and liquidity of real estate are at the highest levels.
We focus on loans that cannot be placed with financial institutions but that represent an acceptable underwriting
risk. The weighted average loan-to-value ratio of our mortgage portfolio, as a whole, at the time of underwriting
each loan in our portfolio, will not exceed 75%. A typical loan in our portfolio has an interest rate of 8% to 10% per
annum, a one or two-year term and monthly interest-only mortgage payments.
Our basic lending parameters are as follows:
•
•
•
•
•
First or second mortgages on income-producing real estate up to a maximum of 85% of value.
Mortgages on residential and commercial properties up to a maximum of 75% of appraised value.
Loans on single family residences up to 75% of appraised value.
Construction loans up to a maximum of 90% of cost.
Loans to condominium corporations.
Mortgage loan amounts are generally $300,000 to a maximum of $20,000,000. The largest single mortgage in our
mortgage portfolio as at December 31, 2013 was $12.1 million. For loan amounts in excess of $15 to $20 million,
we generally co-lend with a financial institution or private lender. The parameters listed above are our maximum
mortgage lending parameters. At December 31, 2013, the weighted average loan-to-value ratio of the mortgage
portfolio was 64.1%, compared to 66.7% at December 31, 2012.
Our investment policies, which may be changed by our board of directors, are as follows:
•
•
•
•
•
•
•
•
•
•
•
•
•
We invest only in residential mortgages, commercial mortgages, commercial mortgage backed securities
and certain related investments.
All investments must be in mortgages on the security of real property situated within Canada, or in
certain permitted interim investments.
Commercial mortgages may not constitute more than 50% of our total assets at any time.
The term of the mortgage must be no greater than ten years.
The maximum mortgage or portion of a mortgage is $20,000,000.
No single borrower may account for more than 15% of our total assets.
All mortgages are supported by external appraisals by a qualified appraiser. All mortgages, except
mortgages secured against a single residence, are supported by environmental audits.
The maximum initial loan-to-value ratio of a mortgage is 85%, including any prior ranking
encumbrances, and the maximum weighted average loan-to-value ratio of our mortgage portfolio, as a
whole, at the time of underwriting each loan in our portfolio, is 75%.
Our ratio of debt to equity must be less than 1:1.
We do not invest directly in real property, although real property may be acquired through foreclosing
on a mortgage.
Any investment: (i) of $1,000,000 or more requires approval of the board; (ii) of between $500,000 and
$1,000,000 requires approval of three members of the board, including at least two independent
directors; (iii) of $500,000 or less requires approval of any one member of the board; and (iv) for a
mortgage previously approved by the board but where the mortgage amount exceeds the amount so
approved by up to $100,000, requires approval of three members of the board. However, we may invest
in interim investments that are guaranteed by the Government of Canada or of a province or territory of
Canada or deposits or certificates of deposits, acceptances and other similar instruments issued, endorsed
or guaranteed by a Schedule I Bank in any amount without prior board approval.
We may not make unsecured loans to, nor invest in securities issued by, our manager or its affiliates, nor
make loans to the directors or officers of the manager.
We may not make any investment, or incur any indebtedness, that would result in our not qualifying as a
MIC.
Our investment objectives are to preserve our shareholders’ equity and to provide our shareholders with
stable and secure dividends from our investments in mortgage loans within the criteria mandated for a MIC.
Working within conservative risk parameters, we endeavour to maximize income and dividends through the
sourcing and efficient management of our mortgage investments.
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 29
We are a non-bank lender and invest in mortgages secured by all types of residential, multi-residential and
commercial real property located in Canada, subject to compliance with our investment policies. The types of
properties that we finance include residential houses, small multi-family residential properties comprised of six or
fewer units, residential apartment buildings, mixed-use residential apartments and store-front properties, commercial
properties, residential and commercial land development sites and construction projects. We also invest in short-
term bridge financing for real estate developers. Our strategy is to grow in a controlled manner by diversifying
geographically, and focusing on real estate sector with the lowest risk profiles.
We are qualified as a MIC and we are restricted from any activity that would result in us failing to qualify as a MIC.
In order to qualify as a MIC, we must satisfy the requirements in subsection 130.1(6) of the ITA throughout the
taxation year. Among the requirements are:
•
•
•
•
•
•
We can only invest or manage funds and cannot manage or develop real property.
We cannot own debts secured on real property situated outside Canada, debts owing by non-residents
unless such debts were secured on real property situated in Canada, shares of the capital stock of
corporations not resident in Canada, or real property situated outside of Canada or any leasehold interest
in such property.
No shareholder (together with related persons, as defined in the ITA) may at any time own, directly or
indirectly, more than 25% of our common shares.
The cost for tax purposes of cash on hand, debts secured on specified residential properties, and funds on
deposit with a Canada Deposit Insurance Fund or Régie de l’assurance-dépôts du Québec-insured
institution or credit union must constitute at least 50% of the cost of all of our property.
The cost for tax purposes of any interests in real property (including leaseholds but excepting real or
immovable property acquired by foreclosure after default by the mortgagor) may not exceed 25% of the
cost of all of our property.
There are certain restrictions as to our maximum debt-to-equity ratio.
We are managed by Canadian Mortgage Capital Corporation (the “manager” or “CMCC”), which is our exclusive
manager and arranges and services our mortgage loans and otherwise directs our affairs and manages our business.
For explanations as to some of the terms used herein, please refer to our Annual Information Form for the year
ended December 31, 2013, which is available at www.sedar.com.
Highlights for the year ended December 31, 2013
•
•
•
•
•
For the year ended December 31, 2013, our revenue from mortgage interest and other fees was $23.8
million, compared to $17.2 million for the year ended December 31, 2012. For the year ended
December 31, 2013, we earned $18.0 million ($0.85 per share, basic and diluted), compared to $13.4
million ($0.86 per share, basic and diluted) for the year ended December 31, 2012.
During 2013, we actively managed the risk profile of our mortgage portfolio, and currently target
commercial real estate, low rise infill developments and single family mortgages. Infill development
loans and single family mortgages were, until recently, dominated by the banks, who have been
pressured politically to reduce their exposure to real estate. Their reduced involvement has allowed
Atrium to increase its mortgage business in these low risk sectors.
We paid a regular dividend of $0.066667 per share every month in 2013, a rate of $0.80 per year. In
2013, our total dividends paid, including the special dividend at year-end, aggregated $0.85 per share.
Subsequent to year end, we announced that we were increasing our regular monthly cash dividends,
from an annual rate of $0.80 to $0.82 per share (or $0.068333 per share monthly), beginning with our
January 2014 monthly dividend payable on February 13, 2014.
We had $281.7 million of mortgages receivable at December 31, 2013, an increase of 40.1% from
December 31, 2012 mortgages receivable of $201.9 million.
In June and July 2013, we completed a public offering of $32.5 million 7-year 5.25% convertible
debentures, the net proceeds of which were used to repay indebtedness under our operating credit
facility.
30 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • MANEGAMENT’S DISCUSSION AND ANALYSIS
•
On October 10, 2013 we entered into a revised operating credit facility with a syndicate of lenders
increasing the facility to $80 million, from $50 million. The revised operating credit facility is for a one
year term ending October 9, 2014. Subsequent to year end, we obtained a $30 million short-term
increase in our operating credit facility, which amount is required to be repaid on the earlier of April 30,
2014 and the closing of any public equity or convertible debt issuance by us. We believe these
significant increases in our operating credit facility reflect our lenders’ confidence in us, and will allow
us to create additional value for shareholders by investing in mortgages yielding far higher rates than the
cost of the bank line.
Highlights for the three months ended December 31, 2013
•
•
•
Earnings for the three months ended December 31, 2013 aggregated $4.6 million, an increase of 27.5%
from net earnings of $3.6 million in the same period in the previous year. Basic and diluted earnings per
share were $0.22 per common share for the three months ended December 31, 2013, compared with
basic and diluted earnings of $0.21 per common share for the same period the previous year.
For the three months ended December 31, 2013, revenue from mortgage interest and other fees
aggregated $6.5 million, compared to $4.8 million in the same period in the previous year, an increase of
37.5%. The weighted-average yield of our mortgage portfolio declined from 8.9% at December 31, 2012
to 8.7% at December 30, 2013, in line with our focus on reducing our risk profile.
On October 10, 2013 we entered into a revised operating credit facility as described above.
Investment portfolio
Our mortgage portfolio consists of 131 mortgage loans and aggregated $282.4 million at December 31, 2013, an
increase of 40.1% from December 31, 2012.
December 31, 2013
December 31, 2012
Number
27
59
17
5
9
3
11
131
Mortgage category
Commercial/mixed use
House and apartment
Low rise residential
High rise residential
Construction
Midrise residential
Condominium corporation
Mortgage portfolio
Accrued interest receivable
Mortgage discount
Mortgage origination fees
Provision for mortgage losses
Mortgage receivable
Outstanding
amount
$ 89,475,297
69,484,828
58,465,947
32,966,568
22,093,399
7,440,000
2,433,526
282,359,565
1,562,173
(338,480)
(724,452)
(1,150,667)
$281,708,139
% of
Portfolio Number
31.7%
24.6%
20.7%
11.7%
7.8%
2.6%
0.9%
100%
15
31
8
4
4
5
10
77
Outstanding
amount
$ 69,334,931
43,061,190
24,302,272
23,686,000
15,087,981
24,381,184
1,629,664
201,483,222
% of
Portfolio
34.4%
21.3%
12.1%
11.8%
7.5%
12.1%
0.8%
100%
2,589,639
(385,508)
(644,735)
(1,087,667)
$201,954,951
We actively manage the exposure of our mortgage portfolio, and continued to shift our mortgage portfolio towards
lower risk sectors in 2013 such as commercial/mixed use, low rise residential properties and single family homes
and apartments, which represented 77.0% of our mortgage portfolio at December 31, 2013, an increase of 9.2%
since December 31, 2012.
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 31
An analysis of our mortgages by size is presented below.
December 31, 2013
December 31, 2012
Mortgage amount
$0 - $2,500,000
$2,500,001 - $5,000,000
$5,000,001 - $7,500,000
$7,500,001 +
Number
95
24
7
5
131
% of
Portfolio Number
Outstanding
amount
$ 98,811,649
81,089,475
46,820,000
35.0%
28.7%
16.6%
55,638,441 19.7%
100%
$282,359,565
50
16
5
6
77
Outstanding
amount
$ 48,628,362
55,814,860
30,670,000
66,370,000
$201,483,222
% of
Portfolio
24.2%
27.7%
15.2%
32.9%
100%
As of December 31, 2013, the average outstanding mortgage balance was $2.2 million and the median outstanding
mortgage balance was $1.4 million.
Analyses of our mortgages as at December 31, 2013 by type of mortgage, nature of the underlying property, and
location of the underlying property is set out below:
Description
Type of mortgage
First mortgages
Second and third mortgages
Nature of underlying property
Residential
Commercial
Location of underlying property
Greater Toronto Area
Non-GTA Ontario
British Columbia
Alberta
Number
of
mortgages
Amount
Percentage
Weighted
average
yield
118
13
131
104
27
131
111
6
7
7
131
$256,648,472
25,711,093
$282,359,565
$192,884,267
89,475,298
$282,359,565
$228,390,535
22,464,599
6,594,285
24,910,146
$282,359,565
90.9%
9.1%
100.0%
68.3%
31.7%
100.0%
80.9%
8.0%
2.3%
8.8%
100.0%
8.5%
11.4%
8.7%
8.7%
8.8%
8.7%
8.6%
9.1%
10.8%
8.6%
8.7%
The exceptionally high percentage of our first mortgages is a core strategy and is unmatched by our peer group. The
average loan-to-value in our mortgage portfolio improved further to 64.1%, with 98.3% of the portfolio below 75%
loan-to-value.
Conventional first mortgages
Conventional second and third
mortgages
Non-conventional mortgages
Other
December 31
2013
$249,328,347
25,711,093
4,886,599
2,433,526
$282,359,565
%
88.3%
9.1%
1.7%
0.9%
100.0%
December 31
2012
$156,322,551
29,340,438
14,190,569
1,629,664
$201,483,222
%
77.6%
14.6%
7.0%
0.8%
100.0%
% change
59.5%
(12.8)%
(65.6)%
49.3%
40.1%
The weighted average term remaining for our mortgages receivable at December 31, 2013 is 13.5 months
(December 31, 2012 – 13.0 months).
The current level of non-conventional mortgages (mortgages greater than 75% loan-to-value) is at an historic low of
only 1.7%, which illustrates the conservative nature of our portfolio. Conventional first mortgages aggregated 88.3%
of the mortgage portfolio as at December 31, 2013, compared to 77.6% at December 31, 2012, and conventional
second and third mortgages decreased to 9.1% at December 31, 2013.
32 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • MANEGAMENT’S DISCUSSION AND ANALYSIS
Financial summary
Revenue
Operating expenses
Earnings and total comprehensive income
Basic earnings per share
Diluted earnings per share
Dividends declared
Mortgages receivable, end of period
Total assets, end of period
Shareholders’ equity, end of period
Twelve months
ended
December 31, 2013
Twelve months
ended
December 31, 2012
Twelve months
ended
December 31, 2011
$ 23,759,620
5,759,732
17,999,888
0.85
0.85
17,970,575
281,708,139
281,980,754
212,018,978
$ 17,235,060
3,876,733
13,358,327
0.86
0.86
13,385,261
201,954,951
212,602,911
210,109,925
$ 11,414,661
1,973,850
9,440,811
0.88
0.88
9,456,254
157,492,666
158,816,013
142,846,412
Revenue
Operating expenses
Earnings and total comprehensive income
Basic earnings per share
Diluted earnings per share
Dividends declared
Mortgages receivable, end of period
Total assets, end of period
Shareholders’ equity, end of period
Three months
ended
December 31, 2013
(unaudited)
Three months
ended
December 31, 2012
(unaudited)
$ 6,544,813
1,898,409
4,646,404
0.22
0.22
5,297,717
281,708,139
281,980,754
212,018,978
$ 4,759,646
1,115,162
3,644,484
0.21
0.21
3,858,184
201,954,952
212,602,911
210,109,925
Results of operations – twelve months ended December 31, 2013
For the twelve months ended December 31, 2013, mortgage interest and fees aggregated $23.8 million, compared to
$17.2 million in the same period in the previous year, an increase of 37.9%. The weighted average yield on the
mortgage portfolio declined from 8.9% at the end of 2012 to 8.7% at the end of 2013.
Operating expenses, including interest, were $5.8 million, or 24.2% of revenues, compared to $3.9 million or 22.5%
of revenues in the prior year. Operating expenses include mortgage servicing and other fees paid to the manager
(that is, the management fee plus HST) that aggregated $2.5 million for the year ended December 31, 2013,
compared with $1.6 million in the prior year period, reflecting the growth of our mortgage portfolio. Another
element of operating expense was interest, which increased from $1.1 million to $2.4 million primarily due to the
issuance of the convertible debenture during the year, and increased utilization of our line of credit.
Net earnings for the year ended December 31, 2013 aggregated $18.0 million, an increase of 34.7% from net
earnings of $13.4 million in the prior year. Basic and diluted earnings per common share were $0.85 for the year
ended December 31, 2013, compared with basic and diluted earnings of $0.86 per common share in the same period
the previous year.
During the year ended December 31, 2013, we funded mortgages aggregating $186.7 million. Of these advances,
$171.8 million were first mortgages, representing 92.0% of the total loans funded. Eleven of these advances were on
properties in British Columbia, nine were in properties in Alberta, two were non-GTA Ontario, and the remaining 88
were made in the Greater Toronto Area. There were $107.4 million of repayments during the year. The total
mortgage portfolio increased from $202.0 million to $282.4 million during the year.
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 33
Summary of quarterly results (unaudited)
In $000s, except for per share amounts
Revenue
Operating expenses
Earnings
Basic and fully diluted earnings per share
Dividends declared
Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012
4,103
751
3,352
0.23
3,138
4,231
1,226
3,005
0.20
3,044
5,089
900
4,189
0.20
4,219
5,844
1,274
4,570
0.22
4,224
4,142
784
3,357
0.22
3,345
6,545
1,898
4,646
0.22
5,298
6,281
1,688
4,593
0.22
4,230
4,760
1,115
3,644
0.21
3,858
Results of operations – three months ended December 31, 2013
For the three-month period ended December 31, 2013, mortgage interest and fees aggregated $6.5 million, compared
to $4.8 million in the same period in the previous year, an increase of 37.5%. The weighted average yield on the
mortgage portfolio declined from 8.9% at the end of 2012 to 8.7% in the fourth quarter of 2013, as we continue our
focus on the highest quality assets.
Operating expenses, including interest, were $1.9 million, or 29.0% of revenues, compared to $1.1 million or 23.4%
of revenues in the prior year period. Operating expenses included mortgage servicing and other fees paid to the
manager (that is, the management fee plus HST) which aggregated $0.7 million for the three months ended
December 31 2013, compared with $0.5 million in the comparative quarter, reflecting the growth of our mortgage
portfolio. Interest expense on the convertible debenture was $0.5 million in the quarter compared to nil in the same
quarter last year since the debenture was issued during the year. Operating expenses other than interest and bank
charges and convertible debenture interest, aggregated $0.9 million3, which represented 0.3% of the mortgage
portfolio or 1.2% annualized. In other words, operating costs in the quarter were only about 120 basis points.
Net earnings for the three months ended December 31, 2013 were $4.6 million, an increase of 27.5% from net
earnings of $3.6 million in the same period in the previous year. Basic and diluted earnings per share were $0.22 per
common share for the three months ended December 31, 2013, compared with basic and diluted earnings of $0.21
per common share for the same period the previous year. During the three-month period ended December 31, 2013,
we funded mortgages of $47.6 million. Of these advances, $41.6 million were first mortgages, representing 87.4%
of the total loans funded. Nine of these mortgages were on properties in British Columbia, six were on properties in
Alberta, and the remaining 42 were made in the Greater Toronto Area. There were $42.5 million of repayments
during the period. The total mortgage portfolio increased from $277.2 million to $282.4 million during the period.
Liquidity and capital resources
At December 31, 2013, we had bank indebtedness, operating line and convertible debt outstanding with total book
value of $66.8 million. We are in compliance with the covenants required of us in our operating credit facility as at
December 31, 2013, and we expect to remain in compliance with such covenants going forward.
Growth in our mortgage portfolio has historically been financed by the issuance of common shares and by the
issuance of debt. We expect to be able to generate sufficient funds for future mortgage loan investments through a
combination of common share issuances, convertible debt, and the operating credit facility. On October 10, 2013 we
entered into a revised operating credit facility with a syndicate of lenders increasing the facility to $80 million, from
$50 million. The revised operating credit facility is for a one year term ending October 9, 2014. Subsequent to year
end, we obtained a $30 million short-term increase in our operating credit facility, which amount is required to be
repaid on the earlier of April 30, 2014 and the closing of any public equity or convertible debt issuance by us.
Investing activities during the year ended December 31, 2013 consisted of advances on new mortgage loan
investments of $186.7 million, less repayments received of $107.4 million, for net cash used for net new mortgage
loan investments of $79.3 million.
Sources of cash from financing activities during the year ended December 31, 2013 consisted primarily of operating
line and the issuance of our 7-year 5.25% convertible debentures. Draws less repayments under our operating
facility represented a $35.9 million use of cash. In June and July 2013, we issued 7-year 5.25% convertible
debentures which resulted in $30.9 million of cash, net of issue costs. Net cash provided by financing activities was
$50.7 million after paying dividends of $17.3 million for the year ended December 31, 2013.
34 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • MANEGAMENT’S DISCUSSION AND ANALYSIS
Changes in financial position
Cash-on-hand was $nil at December 31, 2013, compared to $10.6 million at December 31, 2012. The cash-on-hand
at December 31, 2012 consisted of uninvested proceeds from the issuance of common shares in December 2012, and
was fully invested in January 2013. Our preferred position is to have no cash-on-hand; rather, any available cash is
normally used to reduce amounts owing under our operating credit facility. Mortgages receivable increased by 40%
to $281.7 million at December 31, 2013 from $202.0 million at December 31, 2012, reflecting the growth in our
portfolio.
Bank indebtedness and operating line increased to a total of $36.2 million at December 31, 2013, from $nil at
December 31, 2012, reflecting our objective of using moderate leverage to improve shareholder returns. In June and
July 2013, we completed a public offering of $32.5 million principal amount of our 5.25% debentures, the net
proceeds of which were used to repay indebtedness under our operating credit facility. Accounts payable and
accrued charges were $0.5 million at December 31, 2013 compared to $0.5 million at December 31, 2012.
Dividends payable increased to $2.5 million at December 31, 2013 from $1.8 million at December 31, 2012, and
represent dividends declared on our common shares during the quarter and paid after each quarter-end. Note that the
December 31, 2013 and 2012 figures include both the regular and the special year-end dividend.
Share capital increased to $210.7 million at December 31, 2013 from $209.4 million at December 31, 2012 as a
result of issuances under our dividend reinvestment plan (DRIP), employee share purchase plan (ESPP) and deferred
share incentive plan (DSIP).
Contractual obligations
Contractual obligations due at December 31, 2013 were as follows:
Bank indebtedness
Operating line
Accounts payable and
accrued liabilities
Dividends payable
Due to related party
5.25% convertible debentures
Total
Total Less than 1 year
$ 325,930
35,910,000
$ 325,930
35,910,000
1-2 years
$ –
3-7 years
$ –
459,209
459,209
–
–
2,473,437
182,437
30,610,763
$ 69,961,776
2,473,437
182,437
–
$ 39,351,013
–
–
–
$ –
–
–
30,610,763
$ 30,610,763
Off-balance sheet arrangements
As at December 31, 2013, we had $2,679,631 of letters of credit (LCs) outstanding which were issued under our
operating credit facility. The LCs reduce the maximum available under our operating credit facility by the amount of
the LCs. The maximum available by way of LCs under our operating credit facility is $3 million. LCs represent
irrevocable assurances that our bank will make payments in the event that a customer cannot meet its obligations to
third parties. LCs carry the same credit risk, recourse and collateral security requirements as mortgages extended to
customers.
Share based payments
Deferred shares granted
Value of grant
Income deferred shares issuable
Share compensation expense:
Year ended December 31, 2013
Year ended December 31, 2012
August 30,
2013 grant
23,000
232,900
–
53,654
–
53,654
$
$
$
August 29,
2012 grant
21,500
236,500
740
150,594
48,176
198,770
$
$
$
Total
44,500
469,400
740
204,248
48,176
252,424
$
$
$
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 35
Grants are provided to certain directors and employees under the company’s deferred share incentive plan. The
deferred share units vest annually over three years. Common shares are issued to participants on the vesting date of
each tranche of deferred share units, unless a participant elects to defer the issuance. In addition, income deferred
share units are credited to holders of deferred share units based upon dividends paid on common shares. The fair
value of share based compensation was based upon the volume weighted average market price of the common
shares five days prior to the grant date of $10.13 (August 30, 2013) and $11.00 (August 29, 2012).
Employee share purchase plan
We have an employee share purchase plan under which participants may purchase our shares within certain limits,
and the manager then matches 50% of their contribution. Thus, we do not bear any of the cost of the ESPP, but issue
shares from treasury upon receipt of the funds. Under the ESPP, on July 23, 2013, 1,332 common shares were issued
for $13,933. On October 1, 2013, 1,996 common shares were issued for $20,988. As at December 31, 2013, 2,368
common shares had been subscribed for aggregating $25,563 but were unissued.
Transactions with related parties
Related party transactions are recorded at the exchange amount, which is the amount of consideration established
and agreed to by the related parties, which represents fair value in the opinion of management.
The manager is responsible for our day-to-day activities. We incurred fees of $2,455,463 for the year ended
December 31, 2013 (December 31, 2012 – $1,567,072) from the manager. Mr. Robert G. Goodall is a director and
part of the key management personnel of the manager and received compensation from the manager and is also a
director of Atrium. The management agreement between us and the manager contains provisions for the payment of
termination fees to the manager in the event that the management agreement is terminated in certain circumstances.
The manager also acts as broker for our mortgages. The manager receives origination fees from the borrowers of up
to 1% of the amount being funded; origination fees in excess of 1% are split equally between the manager and
Atrium.
Guarantees aggregating $4,542,000 at December 31, 2013 (December 31, 2012 – $8,290,000) have been provided
on mortgage loans made by us to a major development company of which one of our directors is an officer and
director. All of these loans are in good standing.
Environmental matters
Under various federal, provincial and municipal laws, an owner or operator of real property could become liable for
the cost of removal or remediation of certain hazardous or toxic substances released on or in its properties or
disposed of at other locations. We do not own any real property and thus would not attract environmental liability to
which an owner would be exposed. In rare circumstances where a mortgage is in default, we may take possession of
real property and may become liable for environmental issues as a mortgagee in possession. As part of the due
diligence performed in respect of our mortgage loan investments, we obtain a Phase I environmental audit on the
underlying real property provided as security for a mortgage, unless the manager has determined that a Phase I
environmental audit is not necessary.
Critical accounting estimates and policies
Our annual financial statements for the years ended December 31, 2013 and 2012 are prepared in accordance with
Canadian generally accepted accounting principles and IFRS, as set out in Part I of the CPA Canada Handbook -
Accounting. Management makes certain estimates and relies upon certain assumptions related to reporting our assets
and liabilities as well as results of operations in conformity with Canadian generally accepted accounting principles
and IFRS. Actual results will differ from these estimates and assumptions.
The most subjective of these estimates relates to the valuation of mortgages receivable, and the provision for
mortgage losses as well as the measurement of the liability and equity components of our 5.25% debentures.
Management believes that its estimates are appropriate; however, actual results could differ from the amounts
estimated. Estimates and underlying assumptions are reviewed each quarter.
36 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • MANEGAMENT’S DISCUSSION AND ANALYSIS
The more significant accounting policies are set out below:
Revenue recognition
Mortgage interest and fees revenue is recognized in the statement of earnings and comprehensive income using the
effective interest method. Mortgage interest and fees revenue may include an origination fee from a borrower for
arranging a mortgage which is included in mortgage interest and fees using the effective interest method. Mortgages
issued at a premium or discount are recorded at their face value, adjusted for such premiums and discounts.
Premiums or discounts are amortized into income over the term of the mortgage.
The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through
the expected life of the mortgage receivable (or, where appropriate, a shorter period) to its carrying amount. When
calculating the effective interest rate, we estimate future cash flows considering all contractual terms of the financial
instrument, but not future credit losses. The calculation of the effective interest rate includes all fees and points paid
or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are
directly attributable to the acquisition or issue of a financial asset or liability.
Mortgages receivable
A mortgage receivable, carried at amortized cost, is considered impaired when there is objective evidence that there
has been a deterioration of credit quality subsequent to its initial recognition to the extent that we no longer have
reasonable assurance as to the timely collection of the full amount of principal and interest. We assess mortgages
receivable for objective evidence of impairment both individually and collectively. Provision for mortgage losses
represents management’s best estimate of impairment in mortgages receivable at each reporting date. Judgement is
required as to the timing of designating a mortgage as impaired and the amount of any provision required. If there is
no objective evidence of impairment for an individual mortgage receivable, it is included in a group of mortgages
with similar credit risk characteristics and collectively assessed for impairment for losses incurred but not identified.
We review the mortgages receivable quarterly for impairment. An impairment loss in respect of the mortgages
receivable measured at amortized cost is calculated as the difference between its carrying amount and the present
value of the estimated future cash flows discounted at the original effective interest rate. Losses are charged to the
statement of comprehensive income and reflected in the allowance account against the mortgages receivable. When
a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed
through the statement of comprehensive income.
5.25% convertible debentures
The 5.25% convertible debentures can be converted into our common shares at the option of the investor. They are
compound financial instruments with two components: a financial liability, and a call option which is an equity
instrument. The fair value of the liability component is measured as of the date that the 5.25% debentures were
issued, and the equity instrument is valued on that date based upon the difference between the fair value of the
5.25% debenture and the fair value of the liability component. The measurement of the fair value of the liability
component is based upon market rates of interest on similar debt instruments without the conversion feature.
Expenses of issue are allocated between the two components on a pro-rata basis. The book value of the debt is
accreted up to its face value over the life of the 5.25% debentures using the effective interest method, which
provides for the application of a constant interest rate over the life of the 5.25% debenture. The value of the equity
component is not re-measured subsequent to its initial measurement date.
Income taxes
We are, and intend to maintain our status as, a MIC, and as such are not taxed on income provided that such income
flows through to our shareholders as dividends during the year or within 90 days after December 31. It is our policy
to pay such dividends out to the shareholders to remain non-taxable. Accordingly, no provision for current or future
income taxes is required.
Responsibility of management and the board of directors
Management is responsible for the information disclosed in this MD&A, and has in place the appropriate
information systems, procedures and controls to ensure that the information used internally by management and
disclosed externally is materially complete and reliable. In addition, our Audit Committee and board of directors
provide an oversight role with respect to our public financial disclosures, and have reviewed and approved this
MD&A and the financial statements as at and for the years ended December 31, 2013 and 2012.
MANAGEMENT’S DISCUSSION AND ANALYSIS • 2013 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 37
Controls and procedures
Our CEO and CFO are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”)
and internal control over financial reporting (“ICFR”), as those terms are defined in National Instrument (“NI”) 52-
109 – Certification of Disclosure in Issuers’ Annual and Interim Filings.
We designed the DC&P and ICFR, the latter of which was using the framework in Internal Control – Integrated
Framework (as published in 1992 then subsequently revised in 2013) to provide reasonable assurance that material
information relating to us is made known to our CEO and CFO during the reporting period; and information
required to be disclosed by us in our filings under securities legislation is recorded, processed, summarized and
reported within the required time periods; and provide reasonable assurance regarding the reliability of financial
reporting and preparation of financial statements for external purposes in accordance with Canadian GAAP.
Our CEO and CFO evaluated the design effectiveness of the DC&P and ICFR, as defined by NI 52-109, as of
December 31, 2013. Based on this evaluation, they concluded that the designs of the DC&P and ICFR were
effective as of December 31, 2013. NI 52-109 also requires Canadian public companies to disclose in their MD&A
any change in ICFR during the most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, ICFR. No such change to ICFR has occurred during most recently completed quarter.
It should be noted that a control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues, including instances
of fraud, if any, have been detected. These inherent limitations include, among other items: (i) that management’s
assumptions and judgments could ultimately prove to be incorrect under varying conditions and circumstances; (ii)
the impact of any undetected errors; and (iii) controls may be circumvented by the unauthorized acts of individuals,
by collusion of two or more people, or by management override. The design of any system of controls is also based
in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions.
Outstanding share data
Our authorized capital consists of an unlimited number of common shares, of which 21,200,833 are issued and
outstanding at December 31, 2013, and 21,215,744 are issued and outstanding as at the date hereof. In addition, as at
the date hereof, 2,407,407 common shares are issuable upon conversion or redemption or in respect of repayment at
maturity of the outstanding 5.25% debentures (using the conversion price of $13.50 for each common share).
We have $32.5 million of convertible debentures issued and outstanding. Those debentures mature on June 30, 2020
and accrue interest at the rate of 5.25% per annum payable semi-annually in arrears on June 30 and December 31
commencing December 31, 2013. At the holder’s option, the 5.25% convertible debentures may be converted into
our common shares at any time prior to the close of business on the earlier of the business day immediately
preceding either the maturity date and, if called for redemption, the date specified by us for redemption of the 5.25%
debentures. The conversion price is $13.50 for each common share, subject to adjustment in certain events. Other
than in certain circumstances set out in the trust indenture, the debentures are not redeemable prior to June 30, 2016.
On and after June 30, 2016, but prior to June 30, 2018, the debentures are redeemable, in whole or in part, from time
to time at our sole option at a price equal to their principal amount, plus accrued and unpaid interest up to, but
excluding, the date of redemption, on not more than 60 days’ and not less than 30 days’ prior written notice,
provided that the volume weighted average trading price of our common shares on the TSX during the 20
consecutive trading days ending on the fifth trading day preceding the date on which the notice of the redemption is
given is not less than 125% of the conversion price. On or after June 30, 2018 and prior to the maturity date, the
debentures are redeemable, in whole or in part, from time to time at our sole option at a price equal to the principal
amount thereof, plus accrued and unpaid interest up to, but excluding, the date of redemption, on not more than 60
days’ and not less than 30 days’ prior written notice. Subject to specified conditions, we have the right to repay the
outstanding principal amount of the 5.25% debentures, on maturity or redemption, through the issuance of our
common shares. We also have the option to satisfy our obligation to pay interest on the 5.25% debentures through
the issuance and sale of our common shares. A summary of additional terms of the debentures is set out in the
section entitled “Description of the Debentures” contained in our (final) prospectus dated June 11, 2013 qualifying
the distribution of the 5.25% debentures, which section is incorporated herein by reference.
38 • ATRIUM MORTGAGE INVESTMENT CORPORATION • 2013 • MANEGAMENT’S DISCUSSION AND ANALYSIS
We also have the ESPP, a deferred share incentive plan and a dividend reinvestment plan pursuant to which
common shares may be issued from time to time. These plans are each described elsewhere in this MD&A.
Risks and uncertainties
We are subject to many risks and uncertainties that may limit our ability to execute our strategies and achieve our
objectives. We have processes and procedures in place in an attempt to control or mitigate certain risks, while others
risks cannot be or are not mitigated. Material risks that cannot be mitigated include a significant decline in the
general real estate market, interest rates changing markedly, being unable to make mortgage loans at rates consistent
with rates historically achieved, not having adequate mortgage loan opportunities presented to us, and not having
adequate sources of bank finance available.
Please also refer to “Notice regarding forward-looking information,” above, and the “Risk Factors” section of our
Annual Information Form for the year ended December 31, 2013 which is incorporated herein by reference and is
available at www.sedar.com.
Dividend Reinvestment Plan
A Dividend Reinvestment Plan (DRIP) is available to holders of our common shares. The DRIP allows participants
to have their monthly cash dividends reinvested in additional common shares, at a discount of 2% from the market
price. Shareholders who wish to enroll or who would like further information about the DRIP should contact their
broker or our agent for the DRIP, Computershare Trust Company of Canada, at 1 (800) 564-6253 or
www.computershare.com.
Additional information
Additional information about Atrium, including our Annual Information Form for the year ended December 31,
2013, is available on SEDAR at www.sedar.com. You may also obtain further information about us from our
website at www.atriummic.com.
BOARD OF DIRECTORS
MANAGEMENT
TRANSFER AGENT
Mark L. Silver
Chair of the Board
Atrium Mortgage Investment
Corporation
President
Optus Capital Corporation
Robert G. Goodall
CEO and President
Atrium Mortgage Investment
Corporation
Peter P. Cohos
President
Copez Properties Ltd.
Michael J. Cooper
Founder and CEO
DREAM Unlimited Corp.
Robert H. DeGasperis
President
Metrus Properties Inc.
Nancy H. O. Lockhart
Director
Loblaw Companies Ltd.
Director
Gluskin Sheff + Associates
David M. Prussky
Director
Carfi nco Financial Group Inc.
Robert G. Goodall
CEO and President
Jeffrey D. Sherman, FCPA, FCA
CFO and Secretary
Michael Lovett
Managing Director – Ontario
Bram Rothman
Managing Director – Ontario
Phil Fiuza
Managing Director –
Ontario, Residential
Daniel Stewart
Managing Director –
Alberta and Saskatchewan
Bruce Weston
Managing Director –
British Columbia
Computershare Trust Co. of Canada
100 University Ave.
9th Floor, North Tower
Toronto, ON M5J 2Y1
T. 800-564-6253
AUDITORS
Crowe Soberman LLP
1100 – 2 St. Clair Ave. E.
Toronto, ON M4T 2T5
T. 416-964-7633
SHARE LISTING
Common Shares, TSX: AI
Convertible debentures 5.25%,
TSX: AI.DB
Atrium offers a dividend reinvestment
plan (DRIP) so that shareholders may
automatically reinvest their dividends
in new shares of Atrium at a 2%
discount from market price and with
no commissions. This provides an
easy way to realize the benefi ts of
compound growth of their investment
in Atrium. Shareholders can enroll in
the DRIP program by contacting their
investment advisor or Computershare.
Suite 900 – 20 Adelaide Street E.
Toronto, ON M5C 2T6
T. 416-867-1053
F. 416-867-1303
Suite 101 – 10th Street NW
Calgary, AB T2N 1V4
T. 403-283-2828
Suite 668 – 1199 West Pender St.
Vancouver, BC V6E 2R1
T. 604-558-2642
www.AtriumMIC.com
ir@atriummic.com
www.AtriumMIC.com
20 Adelaide Street East, Suite 900
Toronto, Ontario
M5C 2T6
Tel 416.867.1053
Fax 416.867.1303
Email ir@atriummic.com