2016
Annual
Report
Timbercreek
Financial
Portfolio
>$1.0 billion
123 total
mortgages
83% first
mortgage
positions
$0.171 in
quarterly
dividends
(7.8% annualized yield)
2016 HIGHLIGHTS
86% of portfolio
secured by
income-producing
properties
66% weighted
average
loan-to-value
68% of new
business
from repeat
borrowers*
*Since inception. Inception date of April 2008 to December 31 2016.
Timbercreek Financial Annual Report 2016
1
CORPORATE PROFILE
Timbercreek Financial is a leading
non-bank lender providing shorter-duration,
structured financing solutions to commercial
real estate investors. Through our sophisticated
service-oriented approach, we provide faster
execution and more flexible terms than those
typically provided by Canadian financial
institutions. Borrowers are willing to pay
higher rates and fees for access to this
speed and flexibility.
We Deliver High Returns with Low Risk
Our People
Our origination team has
completed more than $5.3 billion
in mortgage loans at Timbercreek.
The team looks at opportunities
across Canada, generating
significant repeat business from
existing borrowers and new
deal-flow from our extensive
network of borrowers, mortgage
brokers and investment bankers.
We look to deliver the best risk-
adjusted returns by leveraging the
full capabilities of the Manager,
Timbercreek Asset Management.
Our Strategy
Our investment focus is to preserve
shareholder capital and provide
strong risk-adjusted returns.
We do this by lending primarily
against income-producing
commercial and investment
real estate, diversifying our
portfolio by geography, asset
type and borrower, maintaining a
conservative loan-to-value ratio,
and passing all lender fees through
to investors.
Superior
Customer Service
We work directly with borrowers to
develop customized solutions and
formulate strong exit strategies
to help ensure a successful
investment from start to finish.
This commitment, combined
with ongoing communication
with borrowers throughout the
lifecycle of each loan, has earned
Timbercreek a reputation for
exceptional customer service.
TRANSFORMATIONAL STRATEGIC TRANSACTION
In June 2016, Timbercreek Mortgage Investment Corporation and
Timbercreek Senior Mortgage Investment Corporation came together
to create Timbercreek Financial, a leading commercial real estate lender
and the largest publicly traded MIC in Canada. The merger provided
significant benefits to shareholders of both companies. Less than a year
later, we have made great progress realizing the benefits of the merger.
Merger Benefit
Enhanced Capital Markets Profile
Timbercreek Financial has a greater market
capitalization, increased trading volume and better
access to capital. These are key factors in attracting
institutional investors, acquisition opportunities and
research coverage.
Book Value and Earnings Per Share Accretion
Timbercreek Financial is targeting to distribute
approximately 95% of annual earnings, reinvesting
the remainder to grow book value and earnings.
Superior Diversified Portfolio Delivering Strong
Risk-Adjusted Yield
The Company’s portfolio of more than $1 billion
provides greater diversification for investors.
Simplified Structure with Cost Synergies
The combination resulted in a single entity, reducing
market confusion between the different portfolios and
creating operational synergies.
2
Timbercreek Financial
Progress Report
Enhanced Capital Markets Profile
• Market capitalization of $644 million at year end
• Increased research coverage from one to three analysts
• Added to MSCI Canada Index
• Increased average daily trading volume to ~180,0001 shares, post-merger
• Grew share price 5.2% from closing of merger to year-end
• Completed two bought-deal convertible debenture financings
post-merger, totaling $91.8 million (gross)
Book Value and Earnings Per Share Accretion
• Delivered earnings per share of $0.70 basic and diluted in 2016
• Book value increased to $647 million
Superior Diversified Portfolio Delivering Strong
Risk-Adjusted Yield
• 123 mortgages in the portfolio
• Average mortgage size of $8.2 million
• Well diversified by geography, borrower and asset type
• Yield of 7.84% as at December 30, 2016
Simplified Structure with Cost Synergies
• Eliminated performance fees
• Reduced management fee to 0.85% of total assets
• Realized approximately $1 million of annualized cost-savings,
post-merger
1 30-day average, as at December 31, 2016
Annual Report 2016
3
CASE STUDIES
Oakville
Whitby
B.C.
Hamilton
Office
Amount: $2,022,300
2nd Mortgage
6 Months
LTV: 65%
Retirement
Amount: $16,300,000
1st Mortgage
24 Months
LTV: 69%
Retail Portfolio
Amount: $12,000,000
2nd Mortgage
36 Months
LTV: 75%
Multi-Residential
Amount: $3,920,000
1st Mortgage
25 Months
LTV: 73%
Calgary
Scarborough
Saskatoon
Waterloo
Multi-Residential
Amount: $7,250,000
2nd Mortgage
24 Months
LTV: 62%
Industrial
Amount: $2,100,000
1st Mortgage
36 Months
LTV: 79%
Multi-Residential
Amount: $1,800,000
1st Mortgage
24 Months
LTV: 78%
Multi-Residential
Amount: $24,800,000
1st Mortgage
24 Months
LTV: 83%
4
Timbercreek Financial
Dear Fellow Shareholder,
2016 was a transformational year for the company as we
combined Timbercreek MIC and Timbercreek Senior
MIC to create Timbercreek Financial, a leading non-
bank lender that provides shorter-duration, structured
financing solutions to commercial real estate investors.
At the time of this writing, it has been eight months since
the merger and already we are seeing significant benefits.
We are more than twice the size of the next largest public
mortgage investment corporation, which has helped to
significantly raise our capital markets profile. Our market
cap and share price are up more than 10% since the
merger, daily trading volume is up, we were added to the
MSCI Canada Index and we have increased our research
coverage from one analyst to three.
We have also grown our capital base, by increasing
the size of our credit facility to $350.0 million and
completing two convertible debenture financings
for gross proceeds of more than $91 million. These
transactions give us an opportunity to increase portfolio
returns while at the same time lowering overall portfolio
risk. The additional leverage enables us to invest in
lower-yielding investments, which are inherently lower-
risk, while still increasing returns on a per share basis.
As before, our investment focus remains set on
preserving shareholder capital and providing strong risk-
adjusted returns. With a portfolio size of greater than $1.0
billion in value, we have more investment opportunities
today than at any time in the past and our portfolio is
now more diversified than it has ever been.
Strong Financial Performance
Post-merger, our results were characterized by solid
earnings and cash flow. We generated $0.18 in earnings
per share in the fourth quarter, which equates to $0.72
per share annualized and meets the target we set at the
time of the merger. Our dividends paid in the fourth
quarter of $0.171 per share, equates to $0.684 per share
annualized, which translates to a pay-out ratio of 96.6%
on an earnings per share basis.
Diversified Portfolio Holdings
A cornerstone of our approach to risk management is to
maintain a portfolio that is well diversified by borrower,
property type and geography. At year-end, we had 123
loans in the portfolio with an average size of $8.2 million.
An investment of that size represents less than 1% of the
portfolio’s total assets.
At year-end, 85.8% of our mortgage investments were
secured by properties with existing rental income, with
approximately 50% of the entire portfolio secured by
multi-residential real estate – or rental apartments. We
focus on income-producing assets, and in particular
rental apartments, as they provide stable cash flow
streams due to the strong and unwavering demand for
living space in our target geographies. Other income-
producing segments we focus on include retail, office,
retirement and hotel.
LETTER TO SHAREHOLDERS
Our exposure to first mortgages was 83.3% at year-end,
again, well ahead of our internal target of 75%. Our
weighted average loan-to-value ratio was 65.7% and
our weighted-average interest rate in the fourth quarter
was 7.4%, both were in-line with our expectations. Our
forecast contemplates a weighted-average interest
rate in the low-to-mid 7% range in order for us to
consistently meet our target earnings per share of $0.72
per share.
Geographically, our top three markets at the end of the
year were: 53.4% in Ontario, 12.7% in Quebec, 12.2% in BC,
and, our exposure to Alberta remains low at 8.2%.
We had strong deal flow in the second half of the
year – funding over $303 million of investments -
which reflects our ability to attract and identify quality
investment opportunities.
Growing Market Opportunity
We believe that fundamentals in the commercial
mortgage market remain healthy. We remain cautious
in some markets, such as Alberta, but our overall
assessment is based on the ongoing demand seen
for investment properties from domestic and foreign
investors – both institutional and private.
Demand for our type of loans is growing. Traditional
financial institutions now have to contend with stricter
regulations and certain structural issues, and therefore
find themselves less competitive in the mid-market. This
is opening-up new opportunities for us.
Our outlook for interest rates is that short-term rates will
likely remain low and relatively stable over the near-
term. While five- and ten-year rates have increased,
the cost of capital for most short-term borrowers has
not changed, nor do we see significant changes on the
horizon for them.
In closing, we’re very pleased with how the business has
performed since the merger. The business is operating
efficiently with reduced expenses, we are meeting our
earnings targets and the quality of our loan portfolio is
better than ever. We are very excited about the potential
for our platform.
On behalf of management and the Board of Directors,
thank you for your continued support and we look
forward to reporting to you in 2017.
Sincerely,
Andrew Jones
Chief Executive Officer
Timbercreek Financial
April 2017
Annual Report 2016
5
Management’s Discussion and Analysis
For the year ended December 31, 2016
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
FORWARD-LOOKING STATEMENTS
Forward-looking statement advisory
The terms, the “Company”, “we”, “us” and “our” in the following Management Discussion & Analysis (“MD&A”)
refer to Timbercreek Financial Corp. (the “Company” or “Timbercreek Financial”). This MD&A may contain
forward-looking statements relating to anticipated future events, results, circumstances, performance or
expectations that are not historical facts but instead represent our beliefs regarding future events. These
statements are typically identified by expressions like “believe”, “expects”, “anticipates”, “would”, “will”, “intends”,
“projected”, “in our opinion” and other similar expressions. By their nature, forward-looking statements require
us to make assumptions which include, among other things, that (i) the Company will have sufficient capital
under management to effect its investment strategies and pay its targeted dividends to shareholders, (ii) the
investment strategies will produce the results intended by the manager, (iii) the markets will react and perform
in a manner consistent with the investment strategies and (iv) the Company is able to invest in mortgages of a
quality that will generate returns that meet and/or exceed the Company’s targeted investment returns.
Forward-looking statements are subject to inherent risks and uncertainties. There is significant risk that
predictions and other forward-looking statements will prove not to be accurate. We caution readers of this
MD&A not to place undue reliance on our forward-looking statements as a number of factors could cause
actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates
or intentions expressed or implied in the forward-looking statements. Actual results may differ materially from
management expectations as projected in such forward-looking statements for a variety of reasons, including
but not limited to, general market conditions, interest rates, regulatory and statutory developments, the effects of
competition in areas that the Company may invest in and the risks detailed from time to time in the Company’s
public disclosures. For more information on risks, please refer to the “Risks and Uncertainties” section in this
MD&A, and the “Risk Factors” section of our Annual Information Form (“AIF”), which can be found on the System
for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com.
We caution that the foregoing list of factors is not exhaustive and that when relying on forward-looking
statements to make decisions with respect to investing in the Company, investors and others should carefully
consider these factors, as well as other uncertainties and potential events and the inherent uncertainty of
forward-looking statements. Due to the potential impact of these factors, the Company and Timbercreek Asset
Management Inc. (the “Manager”) do not undertake, and specifically disclaim any intention or obligation to
update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise, unless required by applicable law.
This MD&A is dated February 27, 2017. Disclosure contained in this MD&A is current to that date, unless
otherwise noted. Additional information on the Company, its dividend reinvestment plan and its mortgage
investments is available on the Company’s website at www.timbercreekmic.com. Additional information about
the Company, including its AIF, can be found at www.sedar.com.
6
Timbercreek Financial
BUSINESS OVERVIEW
Timbercreek Financial Corp, previously known as Timbercreek Mortgage Investment Corporation (“TMIC”), is
a leading non-bank lender providing financing solutions to qualified real estate prospective borrowers who are
generally in a transitional phase of the investment process.
Timbercreek Financial fulfills a financing requirement for real estate investors that is not well serviced by
the commercial banks: primarily shorter duration, structured financing. Real estate investors typically use
short-term loans to bridge a period (generally one to five years) during which they conduct property repairs,
redevelop the property, or purchase another investment. These short-term “bridge” loans are typically repaid
with traditional bank mortgages (lower cost and longer-term debt) once the transitional period is over or a
restructuring is complete or from proceeds generated on the sale of assets.
Timbercreek Financial, through its Manager, has established preferred lender status with many active real
estate investors by providing prompt response to requests made by borrowers to facilitate quick execution on
investment opportunities and by providing market loan terms that combine the flexibility required by borrowers
in order to maximize their efficiencies in executing on opportunities and realizing on profits. Timbercreek
Financial works with borrowers throughout the terms of their loans to ensure that their capital requirements
are met and, if requested, considers modifications of or extensions to the terms of their loans to accommodate
additional opportunities that may arise or changes that may occur.
The Company is, and intends to continue to be, qualified as a mortgage investment corporation (“MIC”) as
defined under Section 130.1(6) of the Income Tax Act (Canada) (“ITA”).
BASIS OF PRESENTATION
This MD&A has been prepared to provide information about the financial results of the Company for the year
ended December 31, 2016 (the “Year”). This MD&A should be read in conjunction with the audited consolidated
financial statements for the years ended December 31, 2016 and 2015, which are prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
The functional and reporting currency of the Company is Canadian dollars and unless otherwise specified, all
amounts in this MD&A are in thousands of Canadian dollars, except per share and other non-financial data.
Copies of these documents have been filed electronically with securities regulators in Canada through SEDAR
and may be accessed through the SEDAR website at www.sedar.com.
NON-IFRS MEASURES
The Company prepares and releases consolidated financial statements in accordance with IFRS. In this MD&A,
as a complement to results provided in accordance with IFRS, the Company discloses certain financial measures
not recognized under IFRS and that do not have standard meanings prescribed by IFRS (collectively the “non-
IFRS measures”). These non-IFRS measures are further described below. The Company has presented such non-
IFRS measures because the Manager believes they are relevant measures of the Company’s ability to earn and
distribute cash dividends to shareholders and to evaluate its performance.
These non-IFRS measures should not be construed as alternatives to total net income and comprehensive
income or cash flows from operating activities as determined in accordance with IFRS as indicators of the
Company’s performance.
• Net mortgage investments – represents total mortgage investments, net of mortgage syndication liabilities
and before adjustments for interest receivable, unamortized lender fees and allowance for mortgage
investments loss as at the reporting date;
• Average net mortgage investment portfolio – represents the daily average of net mortgage investments for
the stated period;
• Weighted average loan-to-value – a measure of advanced and unadvanced mortgage commitments on a
mortgage investment, including priority or pari-passu debt on the underlying real estate, as a percentage of
the fair value of the underlying real estate collateral at the time of approval of the mortgage investment. For
construction/redevelopment mortgage investments, fair value is based on an “as completed” basis;
Annual Report 2016
7
• Turnover ratio – represents total mortgage repayments during the stated period, expressed as a percentage
of the average net mortgage investment portfolio for the stated period;
• Leverage – represents the total of gross convertible debentures and the total credit facility balance divided by
total assets less mortgage syndication liabilities;
• Weighted average interest rate for the period – represents the weighted average of daily interest rates (not
including lender fees) on the net mortgage investments for the daily period;
• Weighted average lender fees – represents the cash lender fees received on individual mortgage investments
during the stated period, expressed as a percentage of the Company’s advances on those mortgage
investments. If the entire lender fee is received but the mortgage investment is not fully funded, the
denominator is adjusted to include the Company’s unadvanced commitment;
• Net interest income – represents interest income, fee income and other income exluding any income, fee
income and other income from mortgage syndications;
•
Income from operations – represents income before non-operating items such as net operating gain
(loss) from foreclosed properties held for sale (“FPHFS”), fair value adjustments on FPHFS, termination
of management contracts, transaction costs relating to the Amalgamation, bargain purchase gain and
financing costs;
• Adjusted total net income and comprehensive income – represents total net income and comprehensive
income for the stated period excluding termination of management contracts, transaction costs relating to
the Amalgamation and bargain purchase gain;
• Adjusted earnings per share – represents the total adjusted total net income and comprehensive income
divided by the weighted average outstanding shares for the stated period;
• Distributable income – represents the Company’s ability to generate recurring cash flows for dividends by
removing the effect of lender fees, amortization, accretion, unrealized fair value adjustments, provisions
for mortgage investments loss, termination of management contracts, transaction costs relating to the
Amalgamation and bargain purchase gain from total net income and comprehensive income;
• Distributable income per share – represents the total distributable income divided by the weighted average
common outstanding shares for the stated period;
• Expense ratio – represents total expenses excluding financing costs, net operating (gain) loss on FPHFS,
fair value adjustment on FPHFS, provision for mortgage investments loss, termination of management
contracts, transaction costs relating to the Amalgamation and bargain purchase gain for the stated period,
expressed as an annualized percentage of total assets less mortgage syndication liabilities;
•
Fixed expense ratio – represents expenses as calculated under expense ratio, less performance fees, for the
stated period, expressed as an annualized percentage of total assets less mortgage syndication liabilities; and
• Payout ratio on earnings per share – represents total common share dividends paid and declared for
payment, divided by total net income and comprehensive income for the stated period.
• Payout ratio on distributable income – represents total common share dividends paid and declared for
payment, divided by distributable income for the stated period.
RECENT DEVELOPMENTS AND OUTLOOK
2016 included two full quarters - Q3 and Q4 - of operations for Timbercreek Financial. As one of Canada’s largest
non-bank commercial mortgage lenders, our vision is to be the preferred provider of short-term custom financing
solutions to commercial real-estate investors and to generate strong risk-adjusted returns for our shareholders.
Financial and operational results in the second half of the year reflect progress towards achieving that vision.
Portfolio Activity
The net value of our commercial mortgage portfolio was approximately $1.0 billion at the end of Q4 2016. Risk
management remains a top priority for our portfolio, which is achieved through a variety of strategies, including
a focus on lending against income-producing assets. At quarter end, 85.8% of the mortgage investments were
secured by properties with existing rental income, which is in-line with management’s expectations. At year-
end, 48.8% of the portfolio was secured by multi-residential real estate (apartment buildings), which we believe is
an asset class with good yields and highly stable cash-flow streams.
8
Timbercreek Financial
Our exposure to first mortgages, which are lower risk, was 83.3%, up from 82.3% in Q3 2016, and well ahead of
our internal target of 75%. Our weighted average loan-to-value ratio was 65.7%, which compares favorably to our
internal target of below 70%. Our weighted average interest rate during Q4 2016 was 7.4%.
With a seasoned origination team and national platform, Timbercreek Financial continues to see strong new
transaction activity. We funded 12 new loans in the quarter totaling $74.3 million and had additional advances
of $34.8 million. Portfolio turnover was 12.2% in Q4 2016, compared to 7.4% in Q3 2016. Portfolio turnover in Q4
2016 was at more traditional levels and we expect it to remain around that level in future quarters. Our draw on
the credit facility stood at $300.6 million at the end of Q4 2016 compared to $307.7 million at the end of Q3 2016
and $235.0 million at the end of Q2 2016.
Diversification remains a key component of our risk management strategy and we continue to focus on
maintaining portfolio diversification by geography, property type and borrower. Exposure in Alberta remained
steady in Q4 2016, compared to Q3 2016. While we are starting to see more quality investment opportunities in
Alberta, we continue to exercise caution in that market.
Market Activity
We believe that fundamentals in the commercial mortgage market generally remain healthy. Our market
assessment is based primarily on the continued demand we see for investment properties from both domestic
and foreign institutional investors. For domestic investors, low mortgage rates are a stimulative force, while
foreign investors are also attracted by the low Canadian dollar.
To capitalize on this favourable market environment, subsequent to year-end, on January 18, 2017, we
announced a $46 million bought-offering of convertible debentures. The bought-offering was completed to
further support our overall corporate vision and objectives. It will allow us to further diversify our portfolio and
we believe it will also be accretive to earnings per share.
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
FINANCIAL POSITION
FINANCIAL POSITION
As at
KEY FINANCIAL POSITION INFORMATION
Mortgage investments, including mortgage syndications
Total assets
Credit facility balance
Convertible debentures
Total liabilities
CAPITAL STRUCTURE
Shareholders' equity
Convertible debentures, par
Credit facility limit
Leverage1
COMMON SHARE INFORMATION
Number of common shares outstanding
Closing trading price
Market capitalization
Operating Results
Net interest income1
Income from operations1
Total net income and comprehensive income
(basic and diluted)
Earnings per share (basic and diluted)
Adjusted total net income and comprehensive income
(basic and diluted)1
Dividends to shareholders
Dividends per common share
Payout ratio on earnings per share1
Distributable income1
Distributable income per share1
Payout ratio on distributable income1
1 Refer to non-IFRS measures section, where applicable.
$
$
$
$
$
$
$
$
$
$
December 31,
December 31,
December 31,
2016
2015
2014
1,559,677
1,573,970
300,580
76,757
927,298
646,672
80,300
350,000
37.0%
$
$
$
$
$
$
$
$
750,704
766,734
53,812
32,778
404,405
362,329
34,500
60,000
19.3%
$
$
$
$
$
$
$
$
616,174
634,069
9,075
32,387
269,123
364,946
34,500
35,000
10.5%
73,858,499
40,523,728
40,701,528
8.72
644,046
$
$
7.58
307,170
$
$
8.32
338,637
$
$
$
$
$
$
$
$
$
$
Three months ended
December 31,
Year ended December 31,
2016
2015
2016
2015
2014
20,583 $
10,814 $
61,422 $ 43,003 $
36,710
17,940 $
8,427 $
51,231 $
32,750 $
28,272
13,078 $
6,905 $ 45,999 $
0.18 $
0.17 $
0.80 $
28,021 $
24,917
Annual Report 2016
0.69 $
0.63
9
13,162 $
6,905 $ 39,940 $
28,021 $
24,917
12,630 $
7,296 $ 39,895 $
29,253 $ 30,263
0.171 $
0.180 $
0.702 $
0.720 $
0.762
96.6%
105.7%
86.7%
104.4%
121.5%
13,911 $
7,256 $
42,681 $ 29,484 $
27,899
0.19 $
0.18 $
0.74 $
0.73 $
0.71
90.8%
100.6%
93.5%
99.2%
108.5%
TIMBERCREEK FINANCIAL 6
Adjusted earnings per share (basic and diluted) 1
0.18 $
0.17 $
0.70 $
0.69 $
0.63
FINANCIAL HIGHLIGHTS
FINANCIAL POSITION
As at
KEY FINANCIAL POSITION INFORMATION
Mortgage investments, including mortgage syndications
Total assets
Credit facility balance
Convertible debentures
Total liabilities
CAPITAL STRUCTURE
Shareholders' equity
Convertible debentures, par
Credit facility limit
Leverage1
COMMON SHARE INFORMATION
Number of common shares outstanding
Closing trading price
Market capitalization
OPERATING RESULTS
Operating Results
Net interest income1
Income from operations1
Total net income and comprehensive income
(basic and diluted)
Earnings per share (basic and diluted)
Adjusted total net income and comprehensive income
(basic and diluted)1
Adjusted earnings per share (basic and diluted) 1
Dividends to shareholders
Dividends per common share
Payout ratio on earnings per share1
Distributable income1
Distributable income per share1
Payout ratio on distributable income1
1 Refer to non-IFRS measures section, where applicable.
December 31,
December 31,
December 31,
2016
2015
2014
1,559,677
1,573,970
300,580
76,757
927,298
646,672
80,300
350,000
37.0%
$
$
$
$
$
$
$
$
750,704
766,734
53,812
32,778
404,405
362,329
34,500
60,000
19.3%
$
$
$
$
$
$
$
$
616,174
634,069
9,075
32,387
269,123
364,946
34,500
35,000
10.5%
73,858,499
40,523,728
40,701,528
8.72
644,046
$
$
7.58
307,170
$
$
8.32
338,637
$
$
$
$
$
$
$
$
$
$
Three months ended
December 31,
Year ended December 31,
2016
2015
2016
2015
2014
20,583 $
10,814 $
61,422 $ 43,003 $
36,710
17,940 $
8,427 $
51,231 $
32,750 $
28,272
13,078 $
6,905 $ 45,999 $
28,021 $
24,917
0.18 $
0.17 $
0.80 $
0.69 $
0.63
13,162 $
6,905 $ 39,940 $
28,021 $
24,917
0.18 $
0.17 $
0.70 $
0.69 $
0.63
12,630 $
7,296 $ 39,895 $
29,253 $ 30,263
0.171 $
0.180 $
0.702 $
0.720 $
0.762
96.6%
105.7%
86.7%
104.4%
121.5%
13,911 $
7,256 $
42,681 $ 29,484 $
27,899
0.19 $
0.18 $
0.74 $
0.73 $
0.71
90.8%
100.6%
93.5%
99.2%
108.5%
$
$
$
$
$
$
$
$
$
$
ACQUISITION OF TSMIC
On June 30, 2016 (the “Effective Date”), TMIC amalgamated with Timbercreek Senior Mortgage Investment
Corporation (“TSMIC”) to form a single entity called Timbercreek Financial Corp. under the laws of the Province of
Ontario. The registered office of the Company is 25 Price Street, Toronto, Ontario M4W 1Z1. The common shares of
the Company are publicly traded on the Toronto Stock Exchange (“TSX”) under the symbol “TF”.
TIMBERCREEK FINANCIAL 6
On the Effective Date, TMIC and TSMIC amalgamated to form the Company under the laws of the Province of
Ontario by Articles of Arrangement (the “Amalgamation”). As a result of the Amalgamation, the Company has
become a leading non-bank commercial real estate lender. The synergies and scale of the Company will create
a larger float and better liquidity, improved prospects for earnings and dividend growth, improved portfolio
characteristics and cost savings.
The Amalgamation resulted in each TMIC shareholder receiving one share of the Company for each TMIC share
held and each TSMIC shareholder receiving 1.035 shares of the Company for each TSMIC share held.
For financial reporting purposes, the Amalgamation is considered a business combination in accordance with
International Financial Reporting Standards 3 – Business Combinations (“IFRS 3”) with TMIC considered as the
“acquirer” and TSMIC as the “acquiree”. Accordingly, on the Effective Date, TMIC is considered to have acquired
all of the issued and outstanding common shares of TSMIC. The total purchase price paid by the TMIC consisted
of 32,551,941 common shares of TMIC (representing 31,451,154 TSMIC shares at an exchange ratio of 1:1.035) and
were valued at $8.34 per share, representing TMIC’s closing share price as at June 29, 2016. Under IFRS 3, the share
consideration is required to be measured based on the trading price of TMIC’s common shares on the closing date
of the business combination; whereas, the actual consideration pursuant to the terms of the Amalgamation was
based on the adjusted book value per share of TMIC and TSMIC as at March 31, 2016.
The Company recorded the identifiable assets and liabilities of TSMIC at fair value resulting in the recognition of
a bargain purchase gain of $15.2 million, representing an excess in the fair value of net assets acquired over the
consideration transferred for TSMIC at $8.34 per TMIC share as at the June 29, 2016 closing share price.
10
Timbercreek Financial
The fair value of the acquired identifiable net assets and bargain purchase gain are as follows:
Fair value of net assets acquired
Mortgage investments, including mortgage syndications
Other assets
Accounts payable and accrued expenses
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility
Mortgage syndication liabilities
Total net assets acquired
Consideration transferred
32,551,941 common shares issued
Excess of net assets acquired over consideration transferred
(bargain purchase gain)
In connection with the Amalgamation:
Total
$ 545,112
606
(1,303)
(1,573)
(441)
(15)
(504)
(181,650)
(73,595)
$ 286,637
$ 271,483
$ 15,154
• Each of the TMIC credit facility and the TSMIC credit facility were amended and restated in their entirety under
the new credit facility
• TMIC’s management agreement with the Manager was terminated and a new management agreement was
entered as of the Effective Date. The new management agreement has a management fee that equals to 0.85%
per annum and a servicing fee equal to 0.10% per annum on certain syndicated senior tranches of mortgages
that are held by third parties. The new management agreement does not have any performance fees and
has a significantly lower management fee when compared with the old agreement. As consideration of the
termination of the management agreement, TMIC agreed to pay the Manager a one-time termination fee of
$7.4 million which was settled in cash of $0.9 million for HST payable and the balance payable to the Manager
in 782,830 TMIC shares valued at $8.34 per share, representing TMIC’s closing share price as of June 29, 2016.
Performance fees of $1.2 million accrued for the period prior to the Amalgamation is payable to the Manager
upon the termination of the management agreement and was paid by TF in August 2016
• TMIC and TSMIC agreed that each party will pay all fees, costs and expenses incurred by each party with
respect to the Amalgamation; however, they will share equally in the payment of expenses such as filing fees,
proxy solicitation services, and applicable taxes payable in respect of any application, notification or other
filing made in respect of any regulatory process contemplated by the Amalgamation. As a result, TMIC’s share
of transaction costs relating to the Amalgamation was $1.6 million and was accrued by TMIC prior to the
Amalgamtion
Had the Amalgamation of TSMIC occurred as of January 1, 2016, the Company’s net interest income for 2016
would have been approximately $76.0 million and the net income for the year would have been $53.7 million,
inclusive of $4.8 million of net non-recurring gains and costs related to the Amalgamation.
As part of the Amalgamation, all mortgage investments held by TSMIC were acquired by TMIC. As the TMIC
and TSMIC portfolios are not maintained separately and had various co-invested mortgage investments, it is
impracticable for TF to disclose the income and expenses of TSMIC since the acquisition date included in the
consolidated statement of net income and comprehensive income.
TIMBERCREEK FINANCIAL 8
The year ended December 31, 2016 include the financial positions and operations of TSMIC beginning on
June 30, 2016, the Effective Date. Results prior to June 30, 2016, reflect the operations of the Company formerly
known TMIC only.
Annual Report 2016
11
For the three months ended December 31, 2016 (“Q4 2016”) and December 31, 2015 (“Q4 2015”)
• The Company funded 12 new net mortgage investments (Q4 2015 – 10) totalling $74.3 million (Q4 2015 – $62.6
million), made additional advances on existing mortgage investments totalling $34.8 million (Q4 2015 – $23.8
million) and received full repayments on 10 mortgage investments (Q4 2015 – 20) and partial repayments
totalling $119.6 million (Q4 2015 – $91.2 million). As a result, the net mortgage investment portfolio as at
December 31, 2016 has decreased by $10.5 million to $1,010.0 million (September 30, 2016 – $1,020.5 million), or
1.0% from September 30, 2016.
• Non-refundable cash lender fees received was $1.5 million (Q4 2015 – $0.9 million) or a weighted average
lender fee of 0.8% (Q4 2015 – 1.4%) which is in-line with management’s expectations.
• Net interest income earned was $20.6 million (Q4 2015 – $10.8 million), an increase of $9.8 million, or 90.3%
from Q4 2015. The increase is mainly attributable to the Amalgamation as Q4 2016 is the second full quarter in
operations after the Amalgamation.
• The Company generated income from operations of $17.9 million (Q4 2015 – $8.4 million), an increase of $9.5
million or 112.9% from Q4 2015. The increase is mainly attributable to the Amalgamation as Q4 2016 is the
second full quarter in operations reflects the results of the Amalgamation.
• The Company generated total net income and comprehensive income of $13.1 million (Q4 2015 – $6.9 million)
or earnings per share $0.18 (Q4 2015 – $0.17). The Company declared $12.6 million in dividends (Q4 2015 – $7.3
million) to common shareholders resulting in a payout ratio of 96.6% (Q4 2015 – 105.7%) on an earnings per
share basis. Total dividends to common shareholders has increased as a direct result of the Amalgamation.
The Company generated distributable income of $13.9 million (Q4 2015 – $7.3 million) or distributable income
per share of $0.19 (Q4 2015 – $0.18) resulting in a payout ratio of 90.8% (Q4 2015 – 100.6%) on a distributable
income basis.
• The Company recorded $500 (Q4 2016 – $374 in Quebec) in unrealized fair value loss on one of its FPHFS
located in British Columiba.
• On February 7, 2017, the Company closed on an unsecured convertible debenture offering for gross proceeds
of $40.0 million plus additional $6.0 million from the over-allotment option and net proceeds of $43.5 million.
The unsecured convertible debentures will mature on March 31, 2022 and pay interest semi-annually on March
31 and September 30 at a rate of 5.45% per annum.
For the years ended December 31, 2016 (“2016”) and December 31, 2015 (“2015”)
• As part of the Amalgamation, the Company acquired the net mortgage investment portfolio of $469.5 million
from TSMIC on June 30, 2016. In addition, the Company funded 58 new net mortgage investments (2015 – 50)
totalling $336.4 million (2015 – $262.6 million), made additional advances on existing mortgage investments
totalling $104.2 million (2015 – $70.9 million), and received full repayments on 41 mortgage investments
(2015 – 55) and partial repayments totalling $339.6 million (2015 – $291.3 million). As a result, the net mortgage
investment portfolio as at December 31, 2016 has increased by $570.5 mllion or 129.8% to $1,010.0 million
(December 31, 2015– $439.5 million), or an increase of $570.5 million or 129.8% from December 31, 2015.
• Non-refundable cash lender fees received was $5.9 million (2015 – $4.3 million) or a weighted average lender
fee of 1.1% (2015 – 1.2%).
• Net interest income was $61.4 million (2015 – $43.0 million), an increase of $18.4 million or 42.8%, from 2015.
The increase is mainly attributable to the Amalgamation as Q4 2016 is the second full quarter in operations
after the Amalgamation.
• The Company generated income from operations of $51.2 million (2015 – $32.8 million), an increase of $18
million or 56.4%, from 2015. The increase is mainly attributable to the Amalgamation as Q4 2016 is the second
full quarter in operations after the Amalgamation.
• The Company generated total net income and comprehensive income of $46.0 million (2015 – $28.0 million)
or basic and diluted earnings per share of $0.80 in 2016 (2015 – $0.69, basic and diluted). The adjusted earnings
per share for 2016 was $0.70 (2015 – $0.69), which removes the net impact of $6.1 million resulting from
bargain purchase gain, termination of management contracts and transaction costs associated for the 2016
total net income and comprehensive income. The Company declared $39.9 million in dividends (2015 – $29.3
million) to common shareholders resulting in a payout ratio of 86.7% (2015 – 104.4%) on an earnings per share
basis. Total dividends to common shareholders has increased as a direct result of the Amalgamation.
12
Timbercreek Financial
• During 2016, the Company generated distributable income of $42.6 million (2015 – $29.5 million) resulting in a
payout ratio of 93.5% (2015 – 99.2%) on a distributable income basis.
• The Company recorded $1,075 of unrealized fair value loss on two of its FPHFS located in Saskatchewan and
British Columbia (2015 – $524 in Quebec and Saskatchewan).
• On July 29, 2016, the Company closed on an unsecured convertible debenture offering for gross proceeds of
$40 million. The unsecured convertible debentures will mature on July 31, 2021 and pay interest semi-annually
on January 31 and July 31 at a rate of 5.40% per annum. On August 3, 2016, the underwriters exercised the over-
allotment option for an additional $5.8 million.
• Commencing June 30, 2016, the Company has instituted a non-executive director deferred share unit plan
(the “Plan”) whereby up to 100% of the compensation for a director may be paid to the director in the form of
deferred share units (“DSUs”), payable quarterly in arrears. The independent directors have elected to receive
100% of their director’s fees in DSU or $37 in DSUs. This Plan will create better alignment with shareholders of
the Company.
• On July 14, 2016, the Company implemented a dividend reinvestment plan (“DRIP”). The DRIP provides eligible
beneficial and registered holders of common shares of the Company to reinvest cash dividends in additional
common shares. The Manager can elect to purchase common shares on the open market or issue common
shares from treasury.
Analysis of Financial Information for the Period
ANALYSIS OF FINANCIAL INFORMATION FOR THE PERIOD
Distributable income
DISTRIBUTABLE INCOME
Three months ended
December 31,
Year ended
December 31,
Total net income and comprehensive income
$
13,078
$
6,905 $
45,999
$
2016
2015
2016
Less: amortization of lender fees
Add: lender fees received
Add: amortization of financing costs, credit facility
Add: amortization of financing costs, debentures
Add: accretion expense, debentures
Add: net operating (gain) loss from FPHFS
Add: unrealized fair value adjustments on FPHFS
Add: foreign exchange (gain) loss
Add: provision for mortgage investments loss
Add: termination of management contracts
Add: transaction costs relating to the Amalgamation
Less: bargain purchase gain
Distributable income1
Less: dividends on common shares
Under (over) distribution
Distributable income per share
1 Refer to non-IFRS measures section, where applicable.
$
$
(1,814)
1,543
280
214
41
(3)
500
(18)
-
-
84
-
13,905
(12,630)
(1,076)
950
57
(10)
29
28
374
-
-
-
-
-
7,256
(7,296)
(5,720)
5,905
775
566
135
(23)
1,075
(17)
–
7,438
1,657
(15,154)
42,635
(39,895)
1,275
$
(40) $
2,740
$
2015
28,021
(4,966)
4,280
221
277
113
114
524
-
900
–
–
–
29,484
(29,253)
231
0.19
$
0.18 $
0.74
$
0.73
The distributable income reconciliation above provides a link between the Company’s IFRS reporting requirements and its
The distributable income reconciliation above provides a link between the Company’s IFRS reporting
ability to generate recurring cash flows for dividends.
requirements and its ability to generate recurring cash flows for dividends.
Annual Report 2016
13
TIMBERCREEK FINANCIAL 11
Statement of net income and comprehensive income
STATEMENT OF NET INCOME AND COMPREHENSIVE INCOME
Net interest income1
Expenses
Income from operations1
Net operating gain (loss) from FPHFS
Unrealized fair value adjustment of FPHFS
Termination of management contracts
Transaction costs relating to the
Amalgamation
Bargain purchase gain
Financing costs:
Interest on credit facility
Interest on convertible debentures
Total net income and comprehensive
Three months ended
December 31,
%
Change
Year ended
%
December 31, Change
2016
2015
2016
2015
$
20,583 $
10,814
90.3% $
61,422 $
43,003
42.8%
(2,643)
17,940
3
(500)
0
(84)
0
(2,387)
(10.7%)
8,427
(28)
112.9%
110.7%
(374)
(33.7%)
–
(10,191)
51,232
23
(1,075)
(7,438)
(10,253)
0.6%
32,750
56.4%
(114)
120.2%
(524)
(105.2%)
– (100.00%)
(100.0%)
–
(1,657)
15,154
– (100.00%)
–
100.00%
0
0
0
(2,833)
(1,448)
(554)
(411.4%)
(566)
(155.8%)
(6,281)
(3,958)
(1,520)
(313.2%)
(2,571)
(53.9%)
income (basic and diluted)
$
13,078 $
6,905
89.4% $
45,999 $
28,021
64.2%
Adjusted total net income and
comprehensive income (basic and
diluted) 1
Earnings per share (basic and diluted)
Adjusted earnings per share
(basic and diluted) 1
$
$
$
1 Refer to non-IFRS measures section, where applicable.
13,162 $
6,905
90.6% $
39,940 $
28,021
42.5%
0.18 $
0.17
0.18 $
0.17
$
$
0.80 $
0.69
0.70 $
0.69
Net interest income 2
For Q4 2016 and 2016, the Company earned net interest income of $20.6 million and $61.4 million (Q4 2015 –
$10.8 million; 2015 – $43.0 million). Net interest income includes the following:
(a) Interest income
During Q4 2016 and 2016, the Company earned $18.7 million and $55.5 million (Q4 2015 – $9.7 million;
2015 – $37.9 million) in interest income on the net mortgage investments. For Q4 2016 and 2016, the increase
is mainly partially attributable to the Amalgamation, as Q4 2016 is the second full quarter in operations after
the Amalgamation, offset by a decrease in the weighted average interest rate to 7.4% and 7.9% (Q4 2015 and
2015 – 8.9% and 9.1%) which is in-line with management’s expectations.
(b) Lender fee income
During Q4 2016 and 2016, the Company received non-refundable cash lender fees of $1.5 million and $5.9
million (Q4 2015 – $0.9 million; 2015 – $4.3 million), or a weighted average lender fee of 0.8% and 1.1%,
respectively (Q4 2015 – 1.4%; 2015 – 1.2%). Lender fees are amortized using the effective interest rate method
over the expected life of the mortgage investments to lender fee income but are received upfront. For Q4
2016 and 2016, lender fees of $1.5 million and $5.9 million (Q4 2015 – $1.1 million; 2015– $5.0 million) were
amortized to lender fee income. Lender fees continue to be a significant component of income as a result of
mortgage investment turnover. The Manager does not retain any portion of the lender fees in order to ensure
management’s interests are aligned with the shareholders.
Expenses
For Q4 2016 and 2016, the expense ratio was 1.0% (Q4 2015 – 2.1%; 2015 – 2.0%), including a fixed expense ratio
of 1.0% and 0.9% (Q4 2015 – 1.6%; 2015 – 1.5%). The decrease in expense ratio is mainly driven by higher total
assets base in 2016 compared to 2015. Concurrent with the Amalgamation, the Company has entered into a
new management agreement with the Manager, which has reduced management fees from 1.20% to 0.85% and
included a removal of performance fees. As a result, the Company expects to see a lower expense ratio going
forward from 2015 levels.
TIMBERCREEK FINANCIAL 12
2 For analysis purposes, net interest income and its component parts are discussed net of payments made on account
of mortgage syndications to provide the reader with a more representative reflection of the Company’s perfor-
mance. Refer to non-IFRS measures.
14
Timbercreek Financial
Management fees
(a) Management fees
Concurrently with the Amalgamation, the Company and the Manager entered into a new management
agreement. The new management fee is equal to 0.85% per annum of the gross assets of the Company,
calculated and paid monthly in arrears, plus applicable taxes. Gross Assets is defined as the total assets of
the Company before deducting any liabilities, less any amounts that are reflected as mortgage syndication
liabilities related to syndicated mortgage investments that are held by third parties.
The previous management agreement between TMIC and the Manger was terminated on the Effective Date
and the old management fee was 1.20% per annum of the gross assets of TMIC, plus applicable taxes.
For Q4 2016 and 2016, the Company incurred management fees of $2.5 million and $7.9 million (Q4 2015
– $1.6 million; 2015 – $6.0 million). The increase is directly related to the increase in gross assets averaging
$703.9 million in 2016, compared to $444.2 million in 2015.
Servicing and performance fees
(a) Servicing fees
As part of the new management agreement, the Manager is entitled to a servicing fee equal to 0.10% per
annum, plus applicable taxes, of the amount of any senior tranche of a mortgage asset that is syndicated
by the Manager to a third party investor on behalf of the Company, where the Company retains the
corresponding subordinated portion.
For Q4 2016 and 2016, the Company incurred $0.2 and $0.3 million in servicing fees.
(b) Performance fees
Under the management agreement prior to the Amalgamation, the Manager was entitled to a performance
fee from TMIC equal to 20%, plus applicable taxes, of the net earnings available for distribution to
shareholders in excess of the hurdle rate (the “Hurdle Rate”), which is defined as the average two-year
Government of Canada Bond Yield for the 12-month period then ended plus 450 basis points. Under the new
management agreement, the Manger does not receive any performance fees.
Performance fees of $1.2 million were accrued up to June 29, 2016, prior to the Amalgamation and were paid
to the Manager upon termination of the management agreement in August 2016. During Q4 2015 and 2015,
the Company incurred performance fees of $0.6 million and $2.4 million.
As consideration for the termination of the performance fee and the reduction in management fees from
1.2% to 0.85% under the new management agreement, TMIC issued a one-time payment to the Manager in
the form of 782,830 TMIC shares and $0.9 million for the related HST portion in cash.
General and administrative
For Q4 2016 and 2016, the Company incurred general and administrative expenses of $218 and $758 (Q4 2015 –
$228 ; 2015 – $967) offset by a one-time adjustment of provincial tax recovery from the Canada Revenue Agency
of $240 during Q4 2016 and 2016. General and administrative expenses consist mainly of audit fees, professional
fees, director fees, other operating costs and administration of the mortgage investments portfolio.
Net operating gain (loss) from foreclosed properties held for sale
The Company consolidates the operating activities of the FPHFS. The net operating gain from FPHFS for Q4
2016 and 2016 was $3 and $23 (Q4 2015 – loss of $28; 2015 – loss of $114).
Fair value adjustment on foreclosed properties held for sale
During Q4 2016 and 2016, the Company recorded an unrealized fair value loss of $500 and $1,075 (Q4 2015 –
$374; 2015 – $524), respectively on FPHFS.
Annual Report 2016
15
Interest on credit facility
The Company actively monitors its advances and repayments while efficiently using bankers’ acceptances for
the majority of its borrowings to minimize interest costs. Financing costs include interest paid on amounts drawn
on the credit facility, standby fees charged on unutilized credit facility amounts and amortization of financing
costs which were incurred on closing of the credit facility. Financing costs for Q4 2016 and 2016 relating to the
credit facility were $2.8 million and $6.3 million (Q4 2015 – $0.6 million; 2015 – $1.5 million). The increase over
the comparable 2015 periods is directly related to the increase in credit facility utilization in 2016 . During Q4 2016
and 2016, the average credit utilization, including credit facility balance assumed as part of the Amalgamtion, was
$307.4 million and $156.9 million compared to $51.4 million $30.9 million during Q4 2015 and 2015.
In connection with the Amalgamation, the TMIC credit facility and the TSMIC credit facility were amended
and restated in their entirety under the new credit facility. The interest rates incurred on the new credit facility
have decreased from TMIC’s previous credit facility. Interest rates have been lowered to either the prime rate of
interest plus 1.25% per annum (December 31, 2015 – 1.50%) or bankers’ acceptances with a stamping fee of 2.25%
(December 31, 2015 – 2.50%).
Interest on convertible debentures
The Company has $34.5 million of 6.35% convertible unsecured subordinated debentures outstanding as at
September 30, 2016. Interest costs related to the debentures are recorded in financing costs using the effective
interest rate method.
On July 29, 2016, the Company issued an unsecured convertible debenture bearing interest at a fixed rate of 5.4%
for gross proceeds of $40 million. The unsecured convertible debentures will mature on July 31, 2021 and pay
interest semi-annually on January 31 and July 31. On August 3, 2016, an additional $5.8 million of the debentures
were issued from an over-allotment option.
For 2016, interest on the debentures of $1.4 million and $4.0 million (Q4 2015 – $0.6 million; 2015 – $2.6 million),
is made up of the following:
Interest on the convertible debentures
Amortization of issue costs
Accretion of the convertible debentures
Interest on the convertible debentures
Amortization of issue costs
Accretion of the convertible debentures
$
$
$
$
Three months ended
December 31,
2016
1,193 $
2015
Three months ended
December 31,
(10)
2015
29
548 $
214
2016
41
1,193 $
1,448 $
214
41
548 $
567 $
(10)
29
Year ended
December 31,
2016
3,257 $
2015
Year ended
2,181
December 31,
277
2015
113
2,181
2,571
277
566
2016
135
3,257 $
3,958 $
566
135
113
2,571
1,448 $
567 $
3,958 $
Earnings per share
For Q4 2016 and 2016, basic and diluted earnings per share were $0.18 and $0.80 (Q4 2015– $0.17; 2015 – $0.69)
and the adjusted basic and diluted earning per share were $0.18 and $0.70 (Q4 2015 – $0.17; 2015 – $0.69 ) after
removing the effects of one-time amounts for the Amalgamation which includes termination of management
contracts, transaction costs and bargain purchase gain.
Statements of Financial Position
On the Effective Date, all of TSMIC’s mortgage investments were amalgamated with the mortgage investments
of the Company. Of the 62 TSMIC mortgage investments, 56 of the mortgage investments had been co-invested
with the Company prior to Amalgamation
Net mortgage investments
The balance of net mortgage investments is as follows:
December 31, 2016
December 31, 2015
Mortgage investments, including mortgage syndications
$
1,559,677
Mortgage syndication liabilities
Mortgage investments, including mortgage syndications
Interest receivable
Mortgage syndication liabilities
Unamortized lender fees
Allowance for mortgage investments loss
Interest receivable
Net mortgage investments
Unamortized lender fees
Allowance for mortgage investments loss
16
Net mortgage investments
Timbercreek Financial
$
(543,505)
December 31, 2016
1,016,172
1,559,677
(14,159)
(543,505)
6,856
1,016,172
1,150
(14,159)
1,010,019
6,856
$
1,150
$
1,010,019
$
$
$
$
750,703
(310,049)
December 31, 2015
440,654
750,703
(6,534)
(310,049)
4,204
440,654
1,150
(6,534)
439,474
4,204
1,150
439,474
TIMBERCREEK FINANCIAL 15
TIMBERCREEK FINANCIAL 15
Three months ended
Year ended
December 31, December 31, December 31, December 31,
Year ended
December 31, December 31, December 31, December 31,
2016
2015
Three months ended
2016
2015
Net mortgage investments statistics and ratios1
Total number of net mortgage investments
Net mortgage investments statistics and ratios1
Total number of net mortgage investments
Average net mortgage investment
Average net mortgage investment portfolio
Average net mortgage investment
Weighted average interest rate for the period
Average net mortgage investment portfolio
Weighted average lender fees
Weighted average interest rate for the period
$
$
$
$
Turnover ratio
Weighted average lender fees
Weighted average term (years)
Turnover ratio
Remaining term to maturity (years)
Weighted average term (years)
Net mortgage investments secured by
Remaining term to maturity (years)
cash-flowing properties
Net mortgage investments secured by
Weighted average loan-to-value
cash-flowing properties
1.
Weighted average loan-to-value
Refer to non-IFRS measures section, where applicable.
2016
123
8,212 $
123
1,016,152 $
8,212 $
7.4%
1,016,152 $
0.8%
7.4%
2015
100
4,395
100
435,374
4,395
8.9%
435,374
1.4%
8.9%
$
$
$
$
2016
123
2015
100
8,212 $
123
4,395
100
701,659 $
8,212 $
7.9%
701,659 $
1.1%
7.9%
415,840
4,395
9.1%
415,840
1.2%
9.1%
12.2%
0.8%
2.3
12.2%
1.3
2.3
21.1%
1.4%
2.1
21.1%
1.2
2.1
48.9%
1.1%
2.3
48.9%
1.3
2.3
69.2%
1.2%
2.1
69.2%
1.2
2.1
1.3
85.8%
65.7%
85.8%
65.7%
1.2
87.2%
70.4%
87.2%
70.4%
1.3
85.8%
65.7%
85.8%
65.7%
1.2
87.2%
70.4%
87.2%
70.4%
1.
Refer to non-IFRS measures section, where applicable.
Portfolio allocation
The Company’s net mortgage investments, excluding FPHFS, were allocated across the following categories:
(a) Security Position
First mortgages
Non-first mortgages
First mortgages
Non-first mortgages
(b)! Region
(b)! Region
(b)! Region
(b) Region
ON
ON
ON
QC
QC
QC
BC
BC
BC
AB
AB
AB
SK
SK
SK
OT
OT
OT
NS
NS
NS
MB
MB
MB
(c) Maturity
Maturing 2016
Maturing 2016
Maturing 2016
Maturing 2017
Maturing 2017
Maturing 2017
Maturing 2018
Maturing 2018
Maturing 2018
Maturing 2019
Maturing 2019
Maturing 2019
Maturing 2020
Maturing 2020
Maturing 2020
Maturing 2021 and thereafter
Maturing 2021 and thereafter
Maturing 2021 and thereafter
Multi-residential
Multi-residential
Multi-residential
Retail
Retail
Retail
Hotels
Hotels
Hotels
Retirement
Retirement
Retirement
Office
Office
Office
Unimproved land
Unimproved land
Unimproved land
Other-residential
Other-residential
Other-residential
Industrial
Industrial
Industrial
Other
Other
Other
Self-storage
Self-storage
Self-storage
Single-family residential
Single-family residential
Single-family residential
December 31, 2016
December 31, 2015
# of Net
December 31, 2016
% of Net
# of Net
December 31, 2015
% of Net
Investments
# of Net
Investments
102
Investments
% of Net
83.3%
Investments
21
102
123
21
123
16.7%
83.3%
100.0%
16.7%
100.0%
Investments
# of Net
Investments
82
18
82
100
18
100
Investments
% of Net
78.0%
Investments
22.0%
78.0%
100.0%
22.0%
100.0%
# of Net
# of Net
# of Net
Investments
Investments
Investments
60
60
60
21
21
21
13
13
13
9
9
9
10
10
10
4
4
4
2
2
2
4
4
4
123
123
123
December 31, 2016
December 31, 2016
December 31, 2016
% of Net
% of Net
% of Net
Investments
Investments
Investments
53.4%
53.4%
53.4%
12.7%
12.7%
12.7%
12.2%
12.2%
12.2%
8.2%
8.2%
8.2%
6.8%
6.8%
6.8%
4.2%
4.2%
4.2%
2.1%
2.1%
2.1%
0.4%
0.4%
0.4%
100.0%
100.0%
100.0%
# of Net
# of Net
# of Net
Investments
Investments
Investments
36
36
36
22
22
22
12
12
12
7
7
7
9
9
9
4
4
4
2
2
2
8
8
8
100
100
100
December 31, 2015
December 31, 2015
December 31, 2015
% of Net
% of Net
% of Net
Investments
Investments
Investments
35.1%
35.1%
35.1%
19.9%
19.9%
19.9%
9.4%
9.4%
9.4%
5.7%
5.7%
5.7%
15.3%
15.3%
15.3%
9.5%
9.5%
9.5%
0.9%
0.9%
0.9%
4.2%
4.2%
4.2%
100.0%
100.0%
100.0%
# of Net
# of Net
# of Net
Investments
Investments
Investments
–
–
–
63
63
63
38
38
38
17
17
17
2
2
2
3
3
3
123
123
123
December 31, 2016
December 31, 2016
December 31, 2016
% of Net
% of Net
% of Net
Investments
Investments
Investments
–
–
–
47.1%
47.1%
47.1%
31.9%
31.9%
31.9%
15.1%
15.1%
15.1%
2.9%
2.9%
2.9%
3.0%
3.0%
3.0%
100.0%
100.0%
100.0%
December 31, 2015
December 31, 2015
December 31, 2015
% of Net
% of Net
% of Net
Investments
Investments
Investments
TIMBERCREEK FINANCIAL 16
45.4%
45.4%
45.4%
TIMBERCREEK FINANCIAL 16
35.8%
35.8%
35.8%
18.8%
18.8%
18.8%
–
–
–
# of Net
# of Net
# of Net
Investments
Investments
Investments
41
41
41
49
49
49
10
10
10
–
–
–
–
–
–
100
100
100
–
–
–
100.0%
100.0%
100.0%
# of Net
# of Net
# of Net
Investments
Investments
Investments
December 31, 2016
December 31, 2016
December 31, 2016
% of Net
% of Net
% of Net
Investments
Investments
Investments
# of Net
# of Net
# of Net
Investments
Investments
Investments
December 31, 2015
Annual Report 2016
December 31, 2015
December 31, 2015
% of Net
% of Net
% of Net
Investments
Investments
Investments
17
70
70
70
13
13
13
5
5
5
5
5
5
7
7
7
9
9
9
3
3
3
7
7
7
1
1
1
1
1
1
2
2
2
123
123
123
48.8%
48.8%
48.8%
15.8%
15.8%
15.8%
8.7%
8.7%
8.7%
7.8%
7.8%
7.8%
5.7%
5.7%
5.7%
5.6%
5.6%
5.6%
3.3%
3.3%
3.3%
2.4%
2.4%
2.4%
1.0%
1.0%
1.0%
0.6%
0.6%
0.6%
0.3%
0.3%
0.3%
100.0%
100.0%
100.0%
59
59
59
12
12
12
2
2
2
5
5
5
8
8
8
6
6
6
3
3
3
3
3
3
–
–
–
1
1
1
1
1
1
100
100
100
60.7%
60.7%
60.7%
17.9%
17.9%
17.9%
1.3%
1.3%
1.3%
2.2%
2.2%
2.2%
8.9%
8.9%
8.9%
5.7%
5.7%
5.7%
0.7%
0.7%
0.7%
0.9%
0.9%
0.9%
–
–
–
0.8%
0.8%
0.8%
0.9%
0.9%
0.9%
100.0%
100.0%
100.0%
TIMBERCREEK FINANCIAL 17
TIMBERCREEK FINANCIAL 17
TIMBERCREEK FINANCIAL 17
(b)! Region
ON
QC
BC
AB
SK
OT
NS
MB
Maturing 2016
Maturing 2017
Maturing 2018
Maturing 2019
Maturing 2020
Maturing 2021 and thereafter
(d) Asset Type
Multi-residential
Retail
Hotels
Retirement
Office
Unimproved land
Other-residential
Industrial
Other
Self-storage
Single-family residential
December 31, 2016
December 31, 2015
# of Net
% of Net
# of Net
% of Net
Investments
Investments
Investments
Investments
123
100.0%
100
100.0%
December 31, 2016
December 31, 2015
# of Net
% of Net
# of Net
% of Net
Investments
Investments
Investments
Investments
60
21
13
9
10
4
2
4
–
63
38
17
2
3
123
53.4%
12.7%
12.2%
8.2%
6.8%
4.2%
2.1%
0.4%
–
47.1%
31.9%
15.1%
2.9%
3.0%
100.0%
36
22
12
7
9
4
2
8
41
49
10
–
–
100
35.1%
19.9%
9.4%
5.7%
15.3%
9.5%
0.9%
4.2%
45.4%
35.8%
18.8%
–
–
100.0%
December 31, 2016
December 31, 2015
# of Net
% of Net
# of Net
% of Net
Investments
Investments
Investments
Investments
70
13
5
5
7
9
3
7
1
1
2
48.8%
15.8%
8.7%
7.8%
5.7%
5.6%
3.3%
2.4%
1.0%
0.6%
0.3%
59
12
2
5
8
6
3
3
–
1
1
60.7%
17.9%
1.3%
2.2%
8.9%
5.7%
0.7%
0.9%
–
0.8%
0.9%
123
100.0%
100
100.0%
Mortgage syndication liabilities
The Company enters into certain mortgage participation agreements with third party lenders, using senior
and subordinated participation, whereby the third party lenders take the senior position and the Company
retains the subordinated position. These agreements generally provide an option to the Company to repurchase
the senior position, but not the obligation, at a purchase price equal to the outstanding principal amount of
the lenders’ proportionate share together with all accrued interest. The Company has mortgage syndication
liabilities of $545.5 million (December 31, 2015 – $310.0 million). In general, mortgage syndication liabilities
vary from quarter to quarter and are dependent on the type of investments seen at any particular time, and not
necessarily indicative of a future trend.
TIMBERCREEK FINANCIAL 17
Foreclosed properties held for sale
The fair value of the remaining FPHFS as at December 31, 2016 is $11.0 million (December 31, 2015 – $12.8
million). The Company has engaged third party managers to operate the properties while they are held for sale.
During 2016, the Company sold five residential units (2015 – three) from one of the foreclosed properties for net
proceeds of $0.7 million (2015 – $0.6 million). During 2016, the Company recorded an unrealized fair value loss
of $1.1 million on two (2015 – two) foreclosed properties (2015 – $0.5 million).
Allowance for mortgage investments loss
As at December 31, 2016, the Company has concluded that there is no objective evidence of impairment on any
individual mortgage investment. At a collective level, the Company assesses for impairment to identify losses
that have been incurred, but not yet identified, on an individual basis. As part of the Company’s analysis, it has
grouped mortgage investments with similar risk characteristics, including geographical exposure, collateral
type, loan-to-value, counterparty and other relevant groupings, and assesses them for impairment using
statistical data. Based on the amounts determined by the analysis, the Company uses judgement to determine
whether or not the actual future losses are expected to be greater or less than the amounts calculated. No
additional collective impairment was recognized during 2016 (2015 – nil).
As at December 31, 2016, the Company has a specific impairment allowance of $0.9 million (December 31,
2015 – $0.9 million) and a collective impairment allowance of $0.25 million (December 31, 2015 –$0.25 million).
During the year ended December 31, 2015, the Company had recognized a specific impairment allowance of
$0.9 million relating to one impaired mortgage investment, which represented the outstanding principal and
accrued interest as at December 31, 2015.
During the year ended December 31, 2016, the borrower of a first mortgage investment of $27.6 million
(December 31, 2015 – $47.9 million) located in Saskatchewan filed for protection under the Companies’ Creditor
Arrangement Act in order to stay all creditors and prepare a plan of arrangement. The Manager has evaluated the
current status of borrower, mortgage and as well as the value of the underlying assets and concluded that there
is no objective evidence of impairment.
18
Timbercreek Financial
Subsequent to December 31, 2016, the Company filed for receivership against a borrower of a first mortgage
investment of $3.4 million (December 31, 2015 - $0.5 million) located in Ontario. The Manager has evaluated the
current status of borrower, mortgage and as well as the value of the underlying assets and concluded that there
is no objective evidence of impairment.
Net working capital
Net working capital increased by $7.6 million to $9.4 million at December 31, 2016 from $1.8 million at December
31, 2015. The increase is mainly due to the increase in interest receivable as a result of the Amalgamation.
Credit facility
Concurrent with the Amalgamation, the Company entered into a new credit facility agreement effective June
30, 2016 and will mature in May 2018. The new credit facility has an available credit limit of $350.0 million
(December 31, 2015 – $60.0 million) with interest at either the prime rate of interest plus 1.25% per annum
(December 31, 2015 – prime rate of interest plus 1.50% per annum) or bankers’ acceptances with a stamping fee
of 2.25% (December 31, 2015 – 2.50%). The new credit facility has a standby fee of 0.5625% per annum (December
31, 2015 – 0.55%) on the unutilized credit facility balance. The credit facility is secured by a general security
agreement over the Company’s assets and its subsidiaries. The credit facility also includes an accordion feature
that allows the available limit to be increased by up to a further $50.0 million, subject to certain conditions. As
at December 31, 2016, the Company’s qualified credit facility limit is $321.5 million and is subject to a borrowing
base as defined in the new amended and restated credit agreement.
The Company incurred financing costs of $2.1 million relating to the new credit facility, which includes upfront
fees, amalgamation fees and legal costs. The financing costs are netted against the outstanding balance of the
credit facility and are amortized over the term of the new credit facility agreement. The unamortized financing
costs from the previous credit facility agreement prior to the Amalgamation have been fully amortized at the
time of the Amalgamation.
Interest on the credit facility is recorded in financing costs using the effective interest rate method. For 2016,
included in financing costs is interest on the credit facility of $2.6 million and $5.5 million (Q4 2015 – $0.5
million; 2015 – $1.3 million) and financing costs amortization of $0.3 million and $0.8 million (Q4 2015 – $0.1
million; 2015 – $0.2 million).
Convertible debentures
(a) Servicing fees
On February 25, 2014, TMIC completed a public offering of $30.0 million, plus an overallotment of $4.5
million on March 3, 2014, of 6.35%, convertible unsecured subordinated debentures for net proceeds of $32.5
million (the “2014 debentures”). The 2014 debentures mature on March 31, 2019 and pays interest semi-
annually on March 31 and September 30 of each year. The debentures are convertible into common shares at
the option of the holder at any time prior to their maturity at a conversion price of $11.25 per common share,
subject to adjustment in certain events in accordance with the trust indenture governing the terms of the
debentures. The 2014 debentures are redeemable on and after March 31, 2017 and prior to the maturity date
by the Company, subject to certain conditions, in whole or in part, from time to time at the Company’s sole
option, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding
the date of redemption.
In accordance with the Amalgamation, the Company has assumed the obligations of TMIC in respect of the
2014 debentures in the aggregate principal amount of $34.5 million.
Upon issuance of the debentures, the liability component of the debentures was recognized initially at the
fair value of a similar liability that does not have an equity conversion option. The difference between these
two amounts, which is $545, has been recorded as equity with the remainder allocated to long-term debt.
The discount on the debentures is being accreted such that the liability at maturity will equal the face
value of $34.5 million. The issue costs of $1.9 million were proportionately allocated to the liability and
equity components. The issue costs allocated to the liability component are amortized over the term of the
debentures using the effective interest rate method.
Annual Report 2016
19
(b) On July 29, 2016, the Company completed a public offering of $40.0 million, plus an overallotment option of $5.8
million on August 5, 2016, of 5.40%, convertible unsecured subordinated debentures for net proceeds of $43.1
million (the “2016 debentures”). The 2016 debentures mature on July 31, 2021 and pays interest semi-annually
on January 31 and July 31 of each year. The debentures are convertible into common shares at the option of the
holder at any time prior to their maturity at a conversion price of $10.05 per common share, subject to adjustment
in certain events in accordance with the trust indenture governing the terms of the debentures.
The 2016 debentures are redeemable on and after July 31, 2019 and prior to July 31, 2020, by the Company, subject
to certain conditions, in whole or in part, from time to time at the Company’s sole option, at a price equal to the
principal amount thereof plus accrued and unpaid interest up to but excluding the date of redemption.
Upon issuance of the debentures, the liability component of the debentures was recognized initially at
the fair value of a similar liability that does not have an equity conversion option. The difference between
these two amounts, which is $226, has been recorded as equity with the remainder allocated to long-term
debt. The discount on the debentures is being accreted such that the liability at maturity will equal the face
value of $45.8 million. The issue costs of $2.3 million were proportionately allocated to the liability and
equity components. The issue costs allocated to the liability component are amortized over the term of the
debentures using the effective interest rate method.
Shareholders’ equity
(a) Common shares
The Company is authorized to issue an unlimited number of common shares. The common shareholders
are entitled to receive notice of and to attend and vote at all meetings of the shareholders of the Company.
The holders of the common shares are entitled to receive dividends as and when declared by the Board of
Directors.
As a result of the Amalgamtion, 40,523,728 the Company’s common shares were issued to shareholders of
TMIC at a ratio of one-to-one; and 32,551,941 of the Company’s common shares were issued to shareholders
of TSMIC at an exchange ratio of 1.035. The Company also issued 782,830 common shares to the Manager in
connection with the termination of management contracts with TMIC. As a result, the number of common
shares outstanding as at December 31, 2016, are 73,858,499.
(b) Dividends
The Company intends to pay dividends on a monthly basis within 15 days following the end of each month.
For the year ended December 31, 2016, TF declared dividends of $39.9 million, or $0.702 per share, to the
holders of TF common shares (2015 – $29.3 million, $0.720 per share). As at December 31, 2016, $4.2 million
in aggregate dividends (December 31, 2015 – $2.4 million) was payable to the holders of common shares
of TF by the Company. Subsequent to December 31, 2016, the Board of Directors of the Company declared
dividends of $0.057 per common share to be paid on February 15, 2017 to the common shareholders of record
on January 31, 2017.
(c) Dividend reinvestment plan
In connection with the Amalgamtion, the DRIP under TMIC was terminated effective June 22, 2016 and a
new DRIP was subsequently adopted by the Company on July 13, 2016.
The new DRIP has terms and conditions substantially similar to those of the terminated plan. The DRIP
provides eligible beneficial and registered holders of common shares with a means to reinvest dividends
declared and payable on such common shares in additional common shares. Under the DRIP, shareholders
could enroll to have their cash dividends reinvested to purchase additional common shares. The common
shares are issued from treasury at a price of 98% of the average of the daily volume weighted average closing
price on the TSX for the 5 trading days preceding payment, the price of which will not be less than the book
value per common share. During Q4 2016 and 2016, 116,428 and 382,306 common shares were purchased on
the open market (Q4 2015 – 106,425; 2015 – 397,612).
20
Timbercreek Financial
(d) Normal course issuer bid
On January 4, 2016, TMIC received TSX approval to commence a normal course issuer bid (the “Bid”) to
purchase for cancellation up to a maximum of 4,105,569 common shares, representing approximately 10%
of the public float of common shares as of December 22, 2015. The Bid commenced on January 6, 2016 and
provides the Company with the flexibility to repurchase common shares for cancellation until its expiration
on January 5, 2017, or such earlier date as the Bid is complete. During 2016, the Company did not acquire any
common shares for cancellation (2015 – 177,800 common shares at a cost of $1.4 million). Pursuant to the
Amalgamation, the Bid was terminated on the Effective Date.
(e) Non-executive director deferred share unit plan
Pursuant to the Amalgamation, on the Effective Date, the DSU plan for TMIC was terminated and the
outstanding DSUs were settled by TMIC in accordance with the terms of the respective plans. As a result,
TMIC’s outstanding DSUs of 30,497 were cancelled and $0.3 million was paid to the directors in July 2016.
Commencing July 1, 2016, the Company instituted a non-executive director deferred share unit plan,
whereby a director can elect up to 100% of the compensation be paid in the form of DSUs, credited quarterly
in arrears. The portion of a director’s compensation which is not payable in the form of DSUs shall be paid by
the Company in cash, quarterly in arrears. The fair market value of the DSU is the volume weighted average
price of a common share as reported on the TSX for the 20 trading days immediately preceding that day
(the “Fair Market Value”). The directors are entitled to also accumulate additional DSUs equal to the monthly
cash dividends, on the DSUs already held by that director determined based on the Fair Market Value of the
common shares on the dividend payment date.
Following each calendar quarter, the director DSU accounts will be credited with the number of DSUs
calculated by multiplying the total compensation payable in DSUs divided by the Fair Market Value. Each
director is also entitled to an additional 25% of DSUs that are issued in the quarter up to a maximum value of
$5 per annum.
The Plan will pay a lump sum payment in cash equal to the number of DSUs held by each director multiplied
by the Fair Market Value as of the 24th business day after publication of the Company’s financial statements
following a director’s departure from the Board of Directors.
For the year ended December 31, 2016, 6,114 units were issued and outstanding and no DSUs were exercised
or cancelled resulting in a DSU expense of $54 based on a Fair Market Value of $8.84 per common share. As at
December 31, 2016, $35 in quarterly compensation was granted in DSUs, which will be issued subsequent to
December 31, 2016 at the Fair Market Value.
STATEMENT OF CASH FLOWS
Cash from operating activities
Cash from operating activities for 2016 was $41.4 million (2015 – $30.9 million) which was attributable to the
Amalgamation as well as an increase in mortgage investments as a result of the 2016 Debentures and the
increased credit facility.
Cash from financing activities
Uses of cash from financing activities for 2016 consisted of the Company’s net advances on the credit facility
of $65.1 million (2015 – $44.7 million). The company received $45.1 millon from the issuance of convertible
debentures after issue costs. The Company paid interest on the debentures and credit facility of $11.8 million
(2015 – $3.7 million) and common share dividends of $39.7 million (2015 – $29.3 million). The Company did not
repurchase any shares for cancellation under the normal course issuer bid of (2015 – $1.4 million). The net cash
provided by financing activities for 2016 was $58.8 million (2015 – $10.4 million).
Cash used in investing activities
Net cash used in investing activities in 2016 was $100.3 million (2015 – $41.6 million) and consisted of the
funding of net mortgage investments of $440.6 million (2015 – $333.5 million), offset by the repayments of net
mortgage investments of $339.6 million respectively, (2015 – $291.3 million), proceeds from disposal of FPHFS of
$720 for YTD 2016 (2015 – $550) offset by capital improvement costs of FPHFS of $60 during YTD 2015.
Annual Report 2016
21
QUARTERLY FINANCIAL INFORMATION
The following is a quarterly summary of the Company’s results for the eight most recently completed quarters:
Q4
Q3
2016
2016
Q2
2016
Q1
2016
Q4
2015
Q3
2015
Q2
2015
Q1
2015
Net interest income1
Expenses
Income from operations1
Net operating gain (loss) from FPHFS
Fair value adjustment of FPHFS
Non-recurring transaction costs
$ 20,583 $ 19,119 $
10,922 $
10,798 $ 10,814 $ 10,161 $ 11,532 $ 10,496
(2,643)
(2,695)
(2,418)
(2,436)
(2,387)
(3,145)
(2,481)
(2,239)
17,940 16,424
8,504
8,362
8,427
7,016
9,051
8,257
3
53
(500)
(575)
(39)
–
5
–
(28)
(374)
25
–
(30)
(150)
(82)
–
relating to the Amalgamation
(84)
–
6,143
–
–
–
–
–
Financing costs:
Interest on credit facility
(2,833)
(2,321)
Interest on convertible debentures
(1,448)
(1,178)
(600)
(667)
(527)
(664)
(554)
(566)
(208)
(673)
(477)
(672)
(281)
(660)
Total financing costs
(4,281)
(3,499)
(1,267)
(1,191)
(1,120)
(881)
(1,149)
(941)
Total net income and comprehensive
income (basic)
$ 13,078 $ 12,403 $ 13,341 $ 7,176 $ 6,905 $ 6,160 $ 7,722 $
7,234
Total net income and comprehensive
income (diluted) 1
Earnings per share (basic)
Earnings per share (diluted)
Adjusted earnings per share
(basic and diluted) 1
$ 14,526 $ 13,581 $ 14,008 $ 7,841 $
7,471 $ 6,833 $ 8,394 $
7,894
$
$
$
0.18 $
0.17 $
0.33 $
0.18 $
0.17 $ 0.15 $
0.19 $
0.18
0.18 $
0.17 $
0.32 $
0.18 $
0.17 $ 0.15 $
0.19 $
0.18
0.18 $
0.17 $
0.18 $
0.18 $
0.17 $ 0.15 $
0.19 $
0.18
1 Refer to non-IFRS measures section, where applicable.
The variations in total net income and comprehensive income by quarter are mainly attributed to the following:
(i) In any given quarter, the Company is subject to volatility from portfolio turnover from both scheduled and
early repayments. As a result, net interest income is susceptible to quarterly fluctuations. The Company
models the portfolio throughout the year factoring in both scheduled and probable repayments, and the
corresponding new mortgage advances, to determine its distributable income on a calendar year basis;
TIMBERCREEK FINANCIAL 22
(ii) Within expenses, the Company accrues the performance fee payable to the Manager. Given that the
performance fee is adjusted for cash items, the volatility of cash receipts in the year (mainly relating to
lender fees) will typically have an impact on the amount expensed in any quarter;
(iii) In any given quarter, the Company is subject to volatility from fair value adjustments to FPHFS and
provision for mortgage investment loan resulting in fluctuations in quarterly total net income and
comprehensive income;
(iv) The utilization of the credit facility to fund mortgage investments results in higher net interest income,
which is partially offset by higher financing costs; and
(v) Q2 2016 and Q4 2016 includes one-time amounts relating to the Amalgamtion which includes termination
of management contracts, transaction costs relating to the Amalgamtion and bargain purchase gain.
RELATED PARTY TRANSACTIONS
As at December 31, 2016, Due to Manager mainly includes management and servicing fees payable of $819. As at
December 31, 2015, Due to Manager included $2.4 million management and performance fees payable.
As at December 31, 2016, included in other assets is $0.8 million (December 31, 2015 – $2.2 million) of cash held
in trust by Timbercreek Mortgage Servicing Inc. (“TMSI”), the Company’s mortgage servicing and administration
provider, a company controlled by the Manager. The balance relates to mortgage funding holdbacks and prepaid
mortgage interest received from various borrowers.
22
Timbercreek Financial
As at December 31, 2016, the Company has four mortgage investments, which an independent director of the
Company is also an officer and/or part-owner of the borrowers of these mortgages:
• A mortgage with a total gross commitment of $84.1 million (December 31, 2015 – nil). The Company’s share of
the commitment is $29.1 million (December 31, 2015 – nil ), of which $7.3 million (December 31, 2015 – nil ) has
been funded as at December 31, 2016.
• A mortgage investment with a total gross commitment of $15.6 million (December 31, 2015 – nil ). The
Company’s share of the commitment is $6.0 million (December 31, 2015 – nil), of which $3.6 million (December
31, 2015 – nil) has been funded as at December 31, 2016.
• A mortgage investment with a total gross commitment of $6.0 million (December 31, 2015 – nil), where one
independent director of the Company is an officer of an indirect investor in the borrower. The Company’s
share of the commitment is $5.1 million (December 31, 2015 – nil), of which $2.0 million (December 31, 2015 –
nil) has been funded as at December 31, 2016.
• A mortgage investment with a total gross commitment of $1.9 million (December 31, 2015 – nil). The
Company’s share of the commitment is $1.9 million (December 31, 2015 – nil), of which $1.9 million
(December 31, 2015 – nil) has been funded as at December 31, 2016.
As at December 31, 2016, the Company, Timbercreek Four Quadrant Global Real Estate Partners (“T4Q”), Timbercreek
Global Real Estate Fund and Timbercreek Canadian Direct LP, related parties as all are managed by the Manager,
co-invested in ten gross mortgage investments totaling $254.9 million (December 31, 2015 – $702.6 million). As at
December 31, 2016, the Company’s share in these gross mortgage investments is $109.5 million (December 31, 2015
– $286.3 million). Included in these amounts are two (December 31, 2015 – one) net mortgage investments of $17.7
million (December 31, 2015 – $1.3 million) loaned to a limited partnership in which T4Q is invested.
The above related party transactions are in the normal course of business and are recorded at the exchange
amount, which is the amount of consideration established and agreed to by the related parties.
COMMITMENTS AND CONTINGENCIES
In the ordinary course of business activities, the Company may be contingently liable for litigation and claims
arising from investing in mortgage investments and loans. Where required, management records adequate
provisions in the accounts.
Although it is not possible to accurately estimate the extent of potential costs and losses, if any, management
believes that the ultimate resolution of such contingencies would not have a material adverse effect on the
Company’s financial position.
CRITICAL ACCOUNTING ESTIMATES
In the preparation of the consolidated financial statements, the Manager has made judgments, estimates and
assumptions that affect the application of the Company’s accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ from these estimates.
In making estimates, the Manager relies on external information and observable conditions where possible,
supplemented by internal analysis as required. Those estimates and judgments have been applied in a manner
consistent with the prior period and there are no known trends, commitments, events or uncertainties that we
believe will materially affect the methodology or assumptions utilized in making those estimates and judgments
in the consolidated financial statements. The significant estimates and judgments used in determining the
recorded amount for assets and liabilities in the consolidated financial statements are as follows:
Mortgage investments
The Company is required to make an assessment of the impairment of mortgage investments. Mortgage
investments are considered to be impaired only if objective evidence indicates that one or more events (“loss
events”) have occurred after its initial recognition, that have a negative effect on the estimated future cash flows
of that asset. Specifically, the Company will consider loss events including, but not limited to: (i) payment default
by a borrower; (ii) whether security of the mortgage negatively impacted by some event; and (iii) financial
difficulty experienced by a borrower. The estimation of future cash flows includes assumptions about local
Annual Report 2016
23
real estate market conditions, market interest rates, availability and terms of financing, underlying value of
the security and various other factors. These assumptions are limited by the availability of reliable comparable
market data, economic uncertainty and the uncertainty of future events. Accordingly, by their nature, estimates
of impairment are subjective and may not necessarily be comparable to the actual outcome. Should the
underlying assumptions change, the estimated future cash flows could vary.
The Company applies judgment in assessing the relationship between parties with which it enters into
participation agreements in order to assess the derecognition of transfers relating to mortgage investments.
Measurement of fair values
The Company’s accounting policies and disclosures require the measurement of fair values for both financial
and non-financial assets and liabilities.
When measuring the fair value of an asset or liability, the Company uses market observable data where possible.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation
techniques as follows:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices).
• Level 3: Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs).
The Manager reviews significant unobservable inputs and valuation adjustments. If third party information,
such as broker quotes or appraisals are used to measure fair values, the Manager will assess the evidence
obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS,
including the level in the fair value hierarchy in which such valuations should be classified.
Information about the assumptions made in measuring fair value is included in notes 5, 6 and 18 to the
consolidated financial statements for the year ended December 31, 2016.
Convertible debentures
The Manager exercises judgement in determining the allocation of the debt and liability components of
convertible debentures. The liability allocation is based upon the fair value of a similar liability that does not have
an equity conversion option and the residual is allocated to the equity component.
Business Combinations
The Manager exercised judgement in determining the accounting treatment of the Amalgamation as described
in note 4 of the consolidated financial statements for the year ended December 31, 2016, which was accounted
for in accordance with IFRS 3 – Business Combinations (“IFRS 3”). The Manager considered the guidance in IFRS
3 in determining which entity is considered the “acquirer” based on the relative voting rights in the combined
entity after the transaction, the composition of the governing body of the combined entity and the terms of the
exchange of equity interests, among others.
FUTURE CHANGES IN ACCOUNTING POLICIES
A number of new standards, amendments to standards and interpretations are effective in future periods and
have not been applied in preparing these consolidated financial statements. Those which may be relevant to the
Company are set out below. The Company does not plan to adopt these standards early.
(i) Annual Improvements to IFRS (2014-2016) Cycle
On December 8, 2016 the IASB issued narrow-scope amendments to IFRS 12 Disclosures of Interests in
Other Entities (“IFRS 12”) as part of its annual improvements process. A clarification was made that IFRS 12
also applies to interests that are classified as held for sale, held for distribution, or discontinued operations,
effective retrospectively for annual periods beginning on or after January 1, 2017. The Company intends to
adopt these amendments in its financial statements for the annual period beginning on January 1, 2017.
The extent of the impact of adoption of the amendments has not yet been determined.
24
Timbercreek Financial
(ii) Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
On June 20, 2016, the IASB issued amendments to IFRS 2 Share-based Payment, clarifying how to account
for certain types of share-based payment transactions. The amendments apply for annual periods beginning
on or after January 1, 2018. As a practical simplification, the amendments can be applied prospectively.
Retrospective, or early, application is permitted if information is available without the use of hindsight.
The amendments provide requirements on the accounting for:
•
•
•
the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments;
share-based payment transactions with a net settlement feature for withholding tax obligations; and
a modification to the terms and conditions of a share-based payment that changes the classification of the
transaction from cash-settled to equity-settled.
The Company intends to adopt the amendments to IFRS 2 in its financial statements for the annual period beginning
on January 1, 2018. The extent of the impact of adoption of the amendments has not yet been determined.
(iii) IFRS 9, Financial Instruments (“IFRS 9”)
On July 24, 2014, the IASB issued IFRS 9 (2014). IFRS 9 (2014) introduces new requirements for the
classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified and
measured based on the business model in which they are held and the characteristics of their contractual
cash flows. The standard introduces additional changes relating to financial liabilities. It also amends the
impairment model by introducing a new “expected credit loss” model for calculating impairment. The
mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 and must be
applied retrospectively with some exemptions with early adoption permitted. The restatement of prior periods
is not required and is only permitted if information is available without the use of hindsight. The Company
intends to adopt IFRS 9 (2014) in its financial statements for the annual period beginning on January 1, 2018.
The extent of the impact of adoption of the standard has not yet been determined.
(iv) IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
In May 2014, the IASB issued IFRS 15 which provides a comprehensive framework for recognition,
measurement and disclosure of revenue from contracts with customers. It does not apply to insurance
contracts, financial instruments or lease contracts, which fall within the scope of other IFRSs. The new standard
is effective for annual periods beginning on or after January 1, 2018 and is to be applied retrospectively with
earlier application permitted. IFRS 15 will replace IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of
Assets from Customers, and SIC 31 Revenue: Barter Transactions Involving Advertising Services. The Company
intends to adopt IFRS 15 in its financial statements for the annual period beginning on January 1, 2018. The
Company does not expect the new standard to have a material impact on the financial statements
(v) Disclosure Initiative (Amendments to IAS 7)
On January 7, 2016 the IASB issued Disclosure Initiative (Amendments to IAS 7). The amendments apply
prospectively for annual periods beginning on or after January 1, 2017. Earlier application is permitted. The
amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising
from financing activities, including both changes arising from cash flow and non-cash changes. The Company
will adopt the amendments to IAS 7 in its financial statements for the annual period beginning on January 1, 2017.
The Company does not expect the amendments to have a material impact on the financial statements.
OUTSTANDING SHARE DATA
As at February 27, 2017, the Company’s authorized capital consists of an unlimited number of common shares,
of which 73,895,518 are issued and outstanding.
CAPITAL STRUCTURE AND LIQUIDITY
Capital structure
The Company manages its capital structure in order to support ongoing operations while focusing on its
primary objectives of preserving shareholder capital and generating a stable monthly cash dividend to
Annual Report 2016
25
shareholders. The Company believes that the conservative amount of structural leverage gained from the
debentures and credit facility is accretive to net earnings, appropriate for the risk profile of the business. The
Company anticipates meeting all of its contractual liabilities (described below) using its mix of capital structure
and cash flow from operating activities.
The Company reviews its capital structure on an ongoing basis and adjusts its capital structure in response to mortgage
investment opportunities, the availability of capital and anticipated changes in general economic conditions.
Liquidity
Access to liquidity is an important element of the Company as it allows the Company to implement its
investment strategy. The Company is, and intends to continue to be, qualified as a MIC as defined under
Section 130.1(6) of the ITA and, as a result, is required to distribute not less than 100% of the taxable income of
the Company to its shareholders. The Company manages its liquidity position through various sources of cash
flows including cash generated from operations and the credit facility. The Company has a borrowing ability
of $350 million through its credit facility and intends to utilize the credit facility to fund mortgage investments,
and other working capital needs. As at December 31, 2016, the Company is in compliance with its credit facility
covenants and expects to remain in compliance going forward.
The Company routinely forecasts cash flow sources and requirements, including unadvanced commitments, to
ensure cash is efficiently utilized.
The following are the contractual maturities of financial liabilities as at December 31, 2016, including expected
interest payments:
Carrying
Contractual Within
Following
Values
cash flows
a year
year
3-5 years
Accounts payable and accrued expenses
$
2,188 $
2,188 $
2,188
$
– $
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility1
Convertible debentures2
Total liabilities
Unadvanced gross mortgage commitments3
Total contractual liabilities
4,210
819
137
682
299,000
76,757
4,210
4,210
819
137
682
819
137
682
317,365
87,237
11,873
37,521
–
–
–
–
305,492
$
$
383,793 $
412,638 $
57,430
$ 307,965 $
47,243
-
164,607
164,607
–
–
383,793 $
577,245 $ 222,037
$ 307,965 $ 47,243
2,473
47,243
–
–
–
–
–
–
1
2
3
Includes interest based upon the current prime interest rate plus 1.25% on the credit facility, assuming the outstanding balance is not
repaid until its maturity on May 6, 2018.
The 2014 debentures are assumed to be redeemed on March 31, 2017 as they are redeemable on and after March 31, 2017 and the 2016
debentures are assumed to be redeemed on July 31, 2019 as they are redeemable on and after July 31, 2019
Unadvanced mortgage commitments include syndication commitments from third party investors totaling $82.3 million.
In connection with the Amalgamation, the Company increased it’s credit facility to $350 million (December 31,
2015 – $60.0 million). As at December 31, 2016, the Company had a cash position of $61 (December 31, 2015 –
$0.1 million) and an unutilized credit facility of $49.0 million (December 31, 2015 – $6.2 million). The Company
is confident that it will be able to finance its operations using the cash flow generated from operations and the
credit facility. Included within the unadvanced mortgage commitments, $82.3 million (December 31, 2015 –
$75.3 million) is related to the Company’s syndication partners. The Company expects the syndication partners
to fund this amount.
FINANCIAL INSTRUMENTS
Financial assets
The Company’s cash and cash equivalents, other assets and mortgage investments, including mortgage
syndications, are designated as loans and receivables and are measured at amortized cost. The fair values of cash
and cash equivalents and other assets approximate their carrying amounts due to their short-term nature. The
fair value of mortgage investments, including mortgage syndications, approximate their carrying value given
the mortgage investments consist of short-term loans that are repayable at the option of the borrower without
yield maintenance or penalties.
26
Timbercreek Financial
TIMBERCREEK FINANCIAL 28
Financial liabilities
The Company’s accounts payable and accrued expenses, dividends payable, due to Manager, mortgage funding
holdbacks, prepaid mortgage interest, credit facility, convertible debentures and mortgage syndication liabilities
are designated as other financial liabilities and are measured at amortized cost. With the exception of convertible
debentures and mortgage syndication liabilities, the fair value of these financial liabilities approximate their
carrying amounts due to their short-term nature. The fair value of mortgage syndication liabilities approximate
their carrying value given the mortgage investments consist of short-term loans that are repayable at the option
of the borrower without yield maintenance or penalties. The fair value of the convertible debentures is based on
the market trading price of convertible debentures at the reporting date.
RISKS AND UNCERTAINTIES
The Company is subject to certain risks and uncertainties that may affect the Company’s future performance
and its ability to execute on its investment objectives. We have processes and procedures in place in an attempt
to control or mitigate certain risks, while other 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 investments at rates consistent with rates historically achieved, not having adequate
mortgage investment opportunities presented to us, and not having adequate sources of bank financing
available. There have been no changes to the Company, which may affect the overall risk of the Company.
(a) Interest-rate risk
Interest rate risk is the risk that the fair value or future cash flows of financial assets or financial liabilities will
fluctuate because of changes in market interest rates. As of December 31, 2016, $132.7 million of net mortgage
investments bear interest at variable rates. Of these, $122.2 million of net mortgage investments include a “floor
rate” to protect their negative exposure or a “ceiling rate”, while two mortgage investments totalling $10.5 million
bear interest at a variable rate without a “floor rate”. If there were a decrease of 0.50% in interest rates, with all other
variables constant, the impact from variable rate mortgage investments would be a decrease in net income of
$53. However, if there were a 0.50% increase in interest rates, with all other variables constant, it would result in
an increase in net income of $664. The Company manages its sensitivity to interest rate fluctuations by generally
entering into fixed rate mortgage investments or adding a “floor-rate” to protect its negative exposure.
In addition, the Company is exposed to interest rate risk on the credit facility, which has a balance of $300.6 million
as at December 31, 2016. Based on the outstanding credit facility balance as at December 31, 2016, a 0.50% decrease or
increase in interest rates, with all other variables constant, will increase or decrease net income by $1,503 annually.
The Company’s other assets, interest receivable, accounts receivable other, accounts payable and accrued
expenses, prepaid mortgage interest, mortgage funding holdbacks, dividends payable and due to Manager
have no exposure to interest rate risk due to their short-term nature. Cash and cash equivalents carry a
variable rate of interest and are subject to minimal interest rate risk and the debentures have no exposure to
interest rate risk due to their fixed interest rate.
(b) Credit risk
Credit risk is the possibility that a borrower may be unable to honour its debt commitments as a result of a
negative change in market conditions that could result in a loss to the Company. The Company mitigates
this risk by the following:
(i) adhering to the investment restrictions and operating policies included in the asset allocation model
(subject to certain duly approved exceptions);
(ii) ensuring all new mortgage investments are approved by the investment committee before funding; and
(iii) actively monitoring the mortgage investments and initiating recovery procedures, in a timely manner,
where required.
The maximum exposure to credit risk at December 31, 2016 is the carrying values of its net mortgage
investments, in addition to interest receivable recorded within other assets of $951 (December 31, 2015 –
$343) , amounting to $1,025.1 million (December 31, 2015 – $446 million). The Company has recourse under
these mortgage investments in the event of default by the borrower, in which case the Company would have
a claim against the underlying collateral.
Annual Report 2016
27
(c) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as
they become due. This risk arises in normal operations from fluctuations in cash flow as a result of the
timing of mortgage investment advances and repayments and the need for working capital. Management
routinely forecasts future cash flow sources and requirements to ensure cash is efficiently utilized. For a
discussion of the Company’s liquidity, cash flow from operations and mitigation of liquidity risk, see the
“Capital Structure and Liquidity” section in this MD&A.
For a full discussion of the risks and uncertainties affecting the Company, please also refer to the “Risk
Factors” section of our AIF for the Year.
DISCLOSURE CONTROLS AND PROCEDURES & INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Company maintains appropriate information systems, procedures and controls to ensure that information
that is publicly disclosed is complete, reliable and timely. The Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”) of the Company evaluated, or caused to be evaluated under their direct supervision, the design
of the Company’s disclosure controls and procedures (as defined in National Instrument 52-109 – Certification
of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”)) at December 31, 2016 and, based on that
evaluation, have concluded that the design of such disclosure controls and procedures was appropriate.
The Manager is responsible for establishing adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the financial
statements for external purposes in accordance with IFRS. The CEO and the CFO assessed, or under their direct
supervision caused an assessment of, the design of the Company’s internal controls over financial reporting as
at December 31, 2016 in accordance with the COSO Internal Control – Independent Framework (2013), published
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment they
determined that the design of the Company’s internal controls over financial reporting was appropriate.
There were no changes made in our design of internal controls over financial reporting during the year ended
December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
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. Given 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) that controls may be circumvented by the
unauthorized acts of individuals, by collusion of two or more people, or by management override.
ADDITIONAL INFORMATION
Phone
Carrie Morris, Managing Director Capital Markets & Corporate Communications at 1-844-304-9967
Shareholders who wish to enroll in the DRIP or who would like further information about the plan should
contact Corporate Communications at (416) 923-9967 ext. 7266 (collect if long distance).
Internet
Visit SEDAR at www.sedar.com; or the Company’s website at www.timbercreekfinancial.com
Mail
Write to the Company at:
Timbercreek Financial
Attention: Corporate Communications
25 Price Street
Toronto, Ontario M4W 1Z1
28
Timbercreek Financial
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Timbercreek Financial Corp.
We have audited the accompanying consolidated financial statements of Timbercreek Financial Corp. (the
“Company”) formerly Timbercreek Mortgage Investment Corporation, which comprise the consolidated statement
of financial position as at December 31, 2016 and December 31, 2015, the consolidated statements of net income
and comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and notes,
comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of the consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the consolidated 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 consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgment, including the assessment of
the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making
those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the
consolidated 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 consolidated 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 consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as at December 31, 2016 and December 31, 2015, and its consolidated financial
performance and its consolidated cash flows for the years then ended, in accordance with International Financial
Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
February 27, 2017
Toronto, Canada
Annual Report 2016
29
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
In thousands of Canadian dollars
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
In thousands of Canadian dollars
Note
December 31, 2016 December 31, 2015
AASSSSEETTSS
Cash and cash equivalents
Other assets
Mortgage investments, including mortgage syndications
Foreclosed properties held for sale
Total assets
LIABILITIES AND EQUITY
Accounts payable and accrued expenses
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility
Convertible debentures
Mortgage syndication liabilities
Total liabilities
SShhaarreehhoollddeerrss’’ eeqquuiittyy
Total liabilities and equity
Commitments and contingencies
Subsequent events
$
$
$
14(b)
5
6
9(b)
14(a)
7
8
5
61 $
3,191
1,559,677
11,041
1,573,970 $
2,188 $
4,210
819
137
682
299,000
76,757
543,505
927,298
646,672
$
1,573,970 $
5, 9(b) and 20
9(b), 10 and 21
140
3,054
750,704
12,836
766,734
1,104
2,431
2,426
822
1,170
53,625
32,778
310,049
404,405
362,329
766,734
SSeeee aaccccoommppaannyyiinngg nnootteess ttoo tthhee ccoonnssoolliiddaatteedd ffiinnaanncciiaall ssttaatteemmeennttss..
30
Timbercreek Financial
TIMBERCREEK FINANCIAL 2
CONSOLIDATED STATEMENT OF NET INCOME AND
COMPREHENSIVE INCOME
In thousands of Canadian dollars, except per share amounts
In thousands of Canadian dollars, except per share amounts
Interest income:
Interest, including mortgage syndications
Fees and other income, including mortgage syndications
Gross interest income
Interest and fees expense on mortgage syndications
Net interest income
Expenses:
Management fees
Servicing fees
Performance fees
Provision for mortgage investment loss
General and administrative
Total expenses
Income from operations
Net operating gain (loss) from foreclosed properties held for sale
Fair value adjustment on foreclosed properties held for sale
Termination of management contracts
Transaction costs relating to the Amalgamation
Bargain purchase gain
Financing costs:
Interest on credit facility
Interest on convertible debentures
Total financing costs
YYeeaarrss EEnnddeedd DDeecceemmbbeerr 3311,,
Note
2016
2015
$
76,120 $
49,292
6,882
83,002
(21,580)
61,422
5,901
55,193
(12,190)
43,003
11
11
11
5(c)
6
4
4
4
7
8
7,926
300
1,207
–
758
10,191
51,231
23
(1,075)
(7,438)
(1,657)
15,154
6,281
3,958
10,238
5,956
–
2,430
900
967
10,253
32,750
(114)
(524)
–
–
–
1,520
2,571
4,091
Total net income and comprehensive income
$
45,999 $
28,021
EEaarrnniinnggss ppeerr sshhaarree
Basic and diluted
SSeeee aaccccoommppaannyyiinngg nnootteess ttoo tthhee ccoonnssoolliiddaatteedd ffiinnaanncciiaall ssttaatteemmeennttss..
12 $
0.80 $
0.69
TIMBERCREEK FINANCIAL 3
Annual Report 2016
31
CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN
In thousands of Canadian dollars
SHAREHOLDERS’ EQUITY
In thousands of Canadian dollars
Year Ended
December 31, 2016
Note
Common
Shares
Retained
Earnings
Balance, December 31, 2015
$
369,162
$
(7,378)
$
Issuance of convertible debentures
Common shares issued as part of the
acquisition of TSMIC
Common shares issued to the Manager
4
4
Dividends
Issuance of common shares under dividend
reinvestment plan
Repurchase of common shares under
dividend reinvestment plan
Total net income and comprehensive
income
–
271,483
6,528
–
–
–
–
(39,893)
3,156
(3,156)
–
–
–
45,999
Balance, December 31, 2016
$
647,173
$
(1,272)
$
Equity Component
of Convertible
Debentures
Total
545 $ 362,329
226
226
–
–
–
–
271,483
6,528
(39,893)
3,156
–
(3,156)
–
45,999
771 $ 646,672
Year Ended
December 31, 2015
Common
Shares
Retained
Earnings
Equity Component
of Convertible
Debentures
Total
Balance, December 31,2014
$
370,547
$
(6,146) $
545 $
364,946
Dividends
Issuance of common shares under dividend
reinvestment plan
Repurchase of common shares under
dividend reinvestment plan
Repurchase of common shares under
dividend reinvestment plan
Total net income and comprehensive
income
–
(29,253)
3,161
–
(3,161)
(1,385)
–
–
–
28,021
Balance, December 31, 2015
$
369,162 $
(7,378) $
SSeeee aaccccoommppaannyyiinngg nnootteess ttoo tthhee ccoonnssoolliiddaatteedd ffiinnaanncciiaall ssttaatteemmeennttss..
–
–
(29,253)
3,161
–
(3,161)
–
(1,385)
–
28,021
545 $
362,329
32
Timbercreek Financial
TIMBERCREEK FINANCIAL 4
CONSOLIDATED STATEMENT OF CASH FLOW
Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
CONSOLIDATED STATEMENT OF CASH FLOW
In thousands of Canadian dollars
Years Ended December 31,
Note
2016
2015
OPERATING ACTIVITIES
Total net income and comprehensive income
$
45,999 $
Amortization of lender fees
Lender fees received
Interest income, net of syndications
Interest income received, net of syndications
Financing costs
Provision for mortgage investments loss
Fair value adjustment on foreclosed properties held for sale
Termination of management contracts
Bargain purchase gain
Net change in non-cash operating items
13
FINANCING ACTIVITIES
Common shares purchased for cancellation
Net credit facility advances
Net proceeds from issuance of convertible debentures
Interest paid
Dividends paid
INVESTING ACTIVITIES
Capital improvements to foreclosed properties held for sale
Proceeds from disposition of foreclosed properties held for sale
Funding of mortgage investments, net of mortgage syndications
Discharges of mortgage investments, net of mortgage syndications
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
SSeeee aaccccoommppaannyyiinngg nnootteess ttoo tthhee ccoonnssoolliiddaatteedd ffiinnaanncciiaall ssttaatteemmeennttss..
(5,720)
5,905
(55,488)
52,656
10,245
–
1,075
6,528
(15,154)
(4,596)
41,450
–
65,118
43,498
(10,167)
(39,688)
58,761
–
720
(440,650)
339,640
(100,290)
(79)
140
$
61 $
28,021
(4,966)
4,280
(37,917)
35,774
4,091
900
524
–
–
204
30,911
(1,385)
44,737
–
(3,680)
(29,263)
10,409
(60)
550
(333,478)
291,345
(41,643)
(323)
463
140
TIMBERCREEK FINANCIAL 5
Annual Report 2016
33
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
1. CORPORATE INFORMATION
Timbercreek Financial Corp. (the “Company”, “TF” or “Timbercreek Financial”), formerly known as
Timbercreek Mortgage Investment Corporation (“TMIC”), is a mortgage investment corporation domiciled in
Canada. The Company is incorporated under the laws of the Province of Ontario. The registered office of the
Company is 25 Price Street, Toronto, Ontario M4W 1Z1. The common shares of the Company are traded on
the Toronto Stock Exchange (“TSX”) under the symbol “TF”.
On June 30, 2016, TMIC and Timbercreek Senior Mortgage Investment Corporation (“TSMIC”) amalgamated
to form the Company under the laws of the Province of Ontario by Articles of Arrangement (the
“Amalgamation”). Details of the Amalgamation are outlined in note 4. For purposes of financial reporting,
TMIC was considered the acquirer and, as a result, these financial statements reflect the assets, liabilities and
results from operations of TMIC prior to June 30, 2016, the effective date of the Amalgamation (the “Effective
Date”). References to the Company relating to periods prior to June 30, 2016 refer to TMIC. Results related to
TSMIC’s operations are included in the Company’s financial results beginning June 30, 2016.
The investment objective of the Company is to secure and grow a diversified portfolio of high quality
mortgage investments, generating an attractive risk adjusted return and monthly dividend payments to
shareholders balanced by a strong focus on capital preservation.
2. BASIS OF PREPARATION
(a) Statement of compliance
These consolidated financial statements have been prepared by management in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”).
The consolidated financial statements were approved by the Board of Directors on February 27, 2017.
(b) Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, including Timbercreek Mortgage Investment Fund and Timbercreek Senior Mortgage Trust.
The financial statements of the subsidiaries included in these consolidated financial statements are from
the date that control commences until the date that control ceases. All intercompany transactions and
balances are eliminated upon consolidation.
(c) Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except for
foreclosed properties held for sale, which are measured at fair value on each reporting date.
(d) Critical accounting estimates, assumptions and judgments
In the preparation of these consolidated financial statements, Timbercreek Asset Management Inc. (the
“Manager”) has made judgments, estimates and assumptions that affect the application of the Company’s
accounting policies and the reported amounts of assets, liabilities, income and expenses.
In making estimates, the Manager relies on external information and observable conditions where
possible, supplemented by internal analysis as required. Those estimates and judgments have been
applied in a manner consistent with the prior period and there are no known trends, commitments,
events or uncertainties that the Manager believes will materially affect the methodology or assumptions
utilized in making those estimates and judgments in these consolidated financial statements. The
significant estimates and judgments used in determining the recorded amount for assets and liabilities in
the consolidated financial statements are as follows:
Measurement of fair values
The Company’s accounting policies and disclosures require the measurement of fair values for both
financial and non-financial assets and liabilities.
34
Timbercreek Financial
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
When measuring the fair value of an asset or liability, the Company uses market observable data where
possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used
in the valuation techniques as follows:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset
or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
• Level 3: Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs).
The Manager reviews significant unobservable inputs and valuation adjustments. If third party
information, such as broker quotes or appraisals are used to measure fair values, the Manager will assess
the evidence obtained from the third parties to support the conclusion that such valuations meet the
requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be
classified.
The information about the assumptions made in measuring fair value is included in the following notes:
Note 5 – Mortgage investments, including mortgage syndications;
Note 6 – Foreclosed properties held for sale; and
Note 18 – Fair value measurements.
Mortgage investments
The Company is required to make an assessment of the impairment of mortgage investments. Mortgage
investments are considered to be impaired only if objective evidence indicates that one or more events (“loss
events”) have occurred after its initial recognition, that have a negative effect on the estimated future cash flows
of that asset. Specifically, the Company will consider loss events including, but not limited to: (i) payment default
by a borrower which is not cured during a reasonable period; (ii) whether security of the mortgage is significantly
negatively impacted by some event; and (iii) financial difficulty experienced by a borrower. The estimation of
future cash flows includes assumptions about local real estate market conditions, market interest rates, availability
and terms of financing, underlying value of the security and various other factors. These assumptions are limited
by the availability of reliable comparable market data, economic uncertainty and the uncertainty of future events.
Accordingly, by their nature, estimates of impairment are subjective and may not necessarily be comparable to the
actual outcome. Should the underlying assumptions change, the estimated future cash flows could vary.
The Company applies judgment in assessing the relationship between parties with which it enters into
participation agreements in order to assess the derecognition of transfers relating to mortgage investments.
Convertible debentures
The Manager exercises judgement in determining the allocation of the debt and liability components of
convertible debentures. The liability allocation is based upon the fair value of a similar liability that does not have
an equity conversion option and the residual is allocated to the equity component.
Business Combinations
The Manager exercised judgement in determining the accounting treatment of the Amalgamation as described
in note 4 which was accounted for in accordance with IFRS 3 – Business Combinations (“IFRS 3”). The Manager
considered the guidance in IFRS 3 in determining which entity is considered the “acquirer” based on the
relative voting rights in the combined entity after the transaction, the composition of the governing body of the
combined entity and the terms of the exchange of equity interests, among others.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and cash equivalents
The Company considers highly liquid investments with an original maturity of three months or less
that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value to be cash equivalents. Cash and cash equivalents are classified as loans and receivables
and carried at amortized cost.
Annual Report 2016
35
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
(b) Mortgage investments
Mortgage investments are recognized initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, the mortgage investments are measured at amortized cost
using the effective interest method, less any impairment losses. Mortgage investments are assessed on
each reporting date to determine whether there is objective evidence of impairment. A financial asset is
considered to be impaired only if objective evidence indicates that one or more loss events have occurred
after its initial recognition that have a negative effect on the estimated future cash flows of that asset.
The estimation of future cash flows includes assumptions about local real estate market conditions,
market interest rates, availability and terms of financing, underlying value of the security and various
other factors. These assumptions are limited by the availability of reliable comparable market data,
economic uncertainty and the uncertainty of future events. Accordingly, by their nature, estimates of
impairment are subjective and may not necessarily be comparable to the actual outcome. Should the
underlying assumptions change, the estimated future cash flows could vary materially. The Company
considers evidence of impairment for mortgage investments at both a specific asset and collective level.
All individually significant mortgage investments are assessed for specific impairment. Those found not
to be specifically impaired are then collectively assessed for any impairment that has been incurred but
is not yet identifiable at an individual mortgage level. Mortgage investments that are not individually
significant are collectively assessed for impairment by grouping together mortgage investments with
similar risk characteristics.
An impairment loss in respect of specific mortgage investments is calculated as the difference between
its carrying amount including accrued interest and the present value of the estimated future cash flows
discounted at the investment’s original effective interest rate. Losses are recognized in profit and loss and
reflected in an allowance account against the mortgage investments. When a subsequent event causes the
amount of an impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
The Company applies judgment in assessing the relationship between parties with which it enters
into participation agreements in order to assess the derecognition of transfers relating to mortgage
investments.
(c) Business Combinations
The Company applies the acquisition method in accounting for business combinations. The consideration
transferred by the Company to obtain control of a subsidiary is calculated as the sum, as at the acquisition
date, of the fair values of assets transferred, liabilities incurred and the equity interests issued by the Company,
which includes the fair value of any asset or liability arising from a contingent consideration arrangement,
if applicable. Transaction and restructuring costs are expensed as incurred. The Company recognizes
identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have
been previously recognized in the acquiree’s financial statements prior to the acquisition. Assets acquired
and liabilities assumed are generally measured at their fair values as at the acquisition date. Goodwill, if any,
is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum
of a) fair value of consideration transferred, b) the recognized amount of any non-controlling interest in the
acquiree and c) fair value of any existing equity interest in the acquiree, over the fair values of identifiable net
assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. a
bargain purchase gain) is recognized in profit or loss immediately.
(d) Foreclosed properties held for sale
When the Company obtains legal title of the underlying security of an impaired mortgage investment,
the carrying value of the mortgage investment, which comprises principal, costs incurred, accrued
interest and the related provision for mortgage investment loss, if any, is reclassified from mortgage
investments to foreclosed properties held for sale (“FPHFS”). At each reporting date, FPHFS are measured
at fair value, with changes in fair value recorded in profit or loss in the period they arise. The Company
uses management’s best estimate to determine fair value of the properties, which may involve frequent
inspections, engaging realtors to assess market conditions based on previous property transactions or
retaining professional appraisers to provide independent valuations.
36
Timbercreek Financial
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
Contractual interest on the mortgage investment is discontinued from the date of transfer from mortgage
investments to FPHFS. Net income or loss generated from FPHFS, if any, is recorded as net operating
(gain) loss from FPHFS, while fair value adjustments on FPHFS are recorded separately.
(e) Convertible debentures
The convertible debentures are a compound financial instrument as they contain both a liability and an
equity component.
At the date of issuance, the liability component of the convertible debentures is recognized at its
estimated fair value of a similar liability that does not have an equity conversion option and the residual is
allocated to the equity component. Any directly attributable transaction costs are allocated to the liability
and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition,
the liability component of a convertible debenture is measured at amortized cost using the effective
interest rate method. The equity component is not re-measured subsequent to initial recognition and
will be transferred to share capital when the conversion option is exercised, or, if unexercised at maturity.
Interest, losses and gains relating to the financial liability are recognized in profit or loss.
(f) Income taxes
It is the intention of the Company to qualify as a mortgage investment corporation (“MIC”) for Canadian
income tax purposes. As such, the Company is able to deduct, in computing its income for a taxation
year, dividends paid to its shareholders during the year or within 90 days of the end of the year. The
Company intends to maintain its status as a MIC and pay dividends to its shareholders in the year and
in future years to ensure that it will not be subject to income taxes. Accordingly, for financial statement
reporting purposes, the tax deductibility of the Company’s dividends results in the Company being
effectively exempt from taxation and no provision for current or deferred taxes is required for the
Company and its subsidiaries.
(g) Financial instruments
Financial instruments are classified as one of the following: (i) fair value through profit and loss (“FVTPL”),
(ii) loans and receivables, (iii) held-to-maturity, (iv) available-for-sale, or (v) other liabilities. Financial
instruments are recognized initially at fair value, plus, in the case of financial instruments not classified
as FVTPL, any incremental direct transaction costs. Financial assets and liabilities classified as FVTPL
are subsequently measured at fair value with gains and losses recognized in profit and loss. Financial
instruments classified as held-to-maturity, loans and receivables or other liabilities are subsequently
measured at amortized cost. Available-for-sale financial instruments are subsequently measured at fair
value and any unrealized gains and losses are recognized through other comprehensive income. The
classifications of the Company’s financial instruments are outlined in note 18.
(h) Derecognition of financial assets and liabilities
Financial assets
The Company derecognizes a financial asset when the contractual rights to the cash flows from the
financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the financial asset are transferred, or in
which the Company neither transfers nor retains substantially all the risks and rewards of ownership
and it does not retain control of the financial asset. Any interest in such transferred financial assets that
qualify for derecognition that is created or retained by the Company is recognized as a separate asset or
liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or
the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration
received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or
loss that had been recognized in other comprehensive income is recognized in profit or loss.
The Company enters into transactions whereby it transfers mortgage investments recognized on its
statement of financial position, but retains either all, substantially all, or a portion of the risks and rewards
of the transferred mortgage investments. If all or substantially all risks and rewards are retained, then the
transferred mortgage or loan investments are not derecognized.
Annual Report 2016
37
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
In transactions in which the Company neither retains nor transfers substantially all the risks and
rewards of ownership of a financial asset and it retains control over the asset, the Company continues to
recognize the asset to the extent of its continuing involvement, determined by the extent to which it is
exposed to changes in the value of the transferred asset.
Financial liabilities
The Company derecognizes a financial liability when the obligation under the liability is discharged,
cancelled or expires.
(i) Interest and fee income
Interest income includes interest earned on the Company’s mortgage investments and interest earned
on cash and cash equivalents. Interest income earned on the mortgage investments is accounted
for using the effective interest method. Lender fees received are an integral part of the yield on the
mortgage investments and are amortized to profit and loss over the expected life of the specific mortgage
investment using the effective interest rate method. Forfeited lender fees are taken to profit and loss at
the time a borrower has not fulfilled the terms and conditions of a lending commitment and payment has
been received.
(j) Future changes in accounting policies
A number of new standards, amendments to standards and interpretations are effective in future periods
and have not been applied in preparing these consolidated financial statements. Those which may be
relevant to the Company are set out below. The Company does not plan to adopt these standards early.
(i) Annual Improvements to IFRS (2014-2016) Cycle
On December 8, 2016 the IASB issued narrow-scope amendments to IFRS 12 Disclosures of Interests
in Other Entities (“IFRS 12”) as part of its annual improvements process. A clarification was made
that IFRS 12 also applies to interests that are classified as held for sale, held for distribution, or
discontinued operations, effective retrospectively for annual periods beginning on or after January
1, 2017. The Company intends to adopt these amendments in its financial statements for the annual
period beginning on January 1, 2017. The extent of the impact of adoption of the amendments has
not yet been determined.
(ii) Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
On June 20, 2016, the IASB issued amendments to IFRS 2 Share-based Payment, clarifying how to
account for certain types of share-based payment transactions. The amendments apply for annual
periods beginning on or after January 1, 2018. As a practical simplification, the amendments can
be applied prospectively. Retrospective, or early, application is permitted if information is available
without the use of hindsight.
The amendments provide requirements on the accounting for:
• the effects of vesting and non-vesting conditions on the measurement of cash-settled share-
based payments;
• share-based payment transactions with a net settlement feature for withholding tax obligations;
and
• a modification to the terms and conditions of a share-based payment that changes the
classification of the transaction from cash-settled to equity-settled.
The Company intends to adopt the amendments to IFRS 2 in its financial statements for the annual
period beginning on January 1, 2018. The extent of the impact of adoption of the amendments has
not yet been determined.
(iii) IFRS 9, Financial Instruments (“IFRS 9”)
On July 24, 2014, the IASB issued IFRS 9. IFRS 9 (2014) introduces new requirements for the
classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified
and measured based on the business model in which they are held and the characteristics of their
38
Timbercreek Financial
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
contractual cash flows. The standard introduces additional changes relating to financial liabilities. It
also amends the impairment model by introducing a new “expected credit loss” model for calculating
impairment. The mandatory effective date of IFRS 9 is for annual periods beginning on or after
January 1, 2018 and must be applied retrospectively with some exemptions with early adoption
permitted. The restatement of prior periods is not required and is only permitted if information is
available without the use of hindsight. The Company intends to adopt IFRS 9 (2014) in its financial
statements for the annual period beginning on January 1, 2018. The extent of the impact of adoption
of the standard has not yet been determined.
(iv) IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
In May 2014, the IASB issued IFRS 15 which provides a comprehensive framework for recognition,
measurement and disclosure of revenue from contracts with customers. It does not apply to
insurance contracts, financial instruments or lease contracts, which fall within the scope of other
IFRSs. The new standard is effective for annual periods beginning on or after January 1, 2018
and is to be applied retrospectively with earlier application permitted. IFRS 15 will replace IAS
11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15
Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers, and SIC
31 Revenue: Barter Transactions Involving Advertising Services. The Company intends to adopt IFRS
15 in its financial statements for the annual period beginning on January 1, 2018. The Company does
not expect the new standard to have a material impact on the financial statements.
(v) Disclosure Initiative (Amendments to IAS 7)
On January 7, 2016 the IASB issued Disclosure Initiative (Amendments to IAS 7). The amendments
apply prospectively for annual periods beginning on or after January 1, 2017. Earlier application is
permitted. The amendments require disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities, including both changes arising from cash flow
and non-cash changes. The Company will adopt the amendments to IAS 7 in its financial statements
4. ACQUISITION OF TSMIC
On June 30, 2016, TMIC and TSMIC amalgamated to form the Company. The synergies and scale created
from the combined entity is expected to result in a larger float and better liquidity, improved prospects for
earnings and dividend growth, improved portfolio characteristics and cost savings.
For financial reporting purposes, the Amalgamation was considered a business combination in accordance
with IFRS 3 with TMIC considered as the “acquirer” and TSMIC as the “acquiree”. Accordingly, on the Effective
Date, TMIC is considered to have acquired all of the issued and outstanding common shares of TSMIC. The
Amalgamation resulted in each TMIC shareholder receiving one TF share for each TMIC share held and each
TSMIC shareholder receiving 1.035 TF shares for each TSMIC share held. The total purchase price paid by TMIC
consisted of 32,551,941 common shares of TMIC (representing 31,451,154 TSMIC shares at an exchange ratio of
1:1.035) and were valued at $8.34 per share, representing TMIC’s closing share price as at June 29, 2016. Under
IFRS 3, the share consideration is required to be measured based on the trading price of TMIC’s common
shares on the closing date of the business combination; whereas, the actual consideration pursuant to the
Amalgamation was based on the adjusted book value per share of TMIC and TSMIC as at March 31, 2016.
The Company recorded the identifiable assets and liabilities of TSMIC at fair value resulting in the recognition
of a bargain purchase gain of $15,154, representing an excess in the fair value of net assets acquired over the
consideration transferred for TSMIC.
Annual Report 2016
39
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
The fair value of the acquired identifiable net assets and bargain purchase gain are as follows:
The fair value of the acquired identifiable net assets and bargain purchase gain are as follows:
Fair value of net assets acquired
Mortgage investments, including mortgage syndications
Other assets
Accounts payable and accrued expenses
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility
Mortgage syndication liabilities
Total net assets acquired
Consideration transferred
32,551,941 common shares issued
TToottaall
$ 545,112
606
(1,303)
(1,573)
(441)
(15)
(504)
(181,650)
(73,595)
$ 286,637
$ 271,483
Excess of net assets acquired over consideration transferred (bargain purchase gain)
$ 15,154
In connection with the Amalgamation:
• Each of the TMIC credit facility and the TSMIC credit facility were amended and restated in their entirety under
the new credit facility (note 7)
• TMIC’s management agreement with the Manager was terminated and a new management agreement was
entered as of the Effective Date. As consideration of the termination of the management agreement, TMIC
agreed to pay the Manager a one-time termination fee of $7,438 (note 11) which was settled in cash of $910
for HST payable and the balance payable to the Manager in 782,830 TMIC shares valued at $8.34 per share,
representing TMIC’s closing share price as of June 29, 2016. Performance fees of $1,207 accrued for the period
prior to the Amalgamation was payable to the Manager upon the termination of the management agreement
and was paid by TF in August 2016. The new management agreement has a lower management fee, a
servicing fee and does not have any annual performance fee
• TMIC and TSMIC agreed that each party will pay all fees, costs and expenses incurred by each party with
respect to the Amalgamation; however, they will share equally in the payment of, expenses such as, filing fees,
proxy solicitation services, and applicable taxes payable in respect of any application, notification or other
filing made in respect of any regulatory process contemplated by the Amalgamation. As a result, TMIC’s share
of transaction costs relating to the Amalgamation was $1,657
Had the Amalgamation of TSMIC occurred as of January 1, 2016, the Company’s net interest income for 2016
would have been approximately $75,966 and the net income the year would have been $53,704, inclusive of
$4,803 of net non-recurring gains related to the Amalgamation.
As part of the Amalgamation, all mortgage investments held by TSMIC were acquired by TMIC. As the TMIC
and TSMIC portfolios are not maintained separately and had various co-invested mortgage investments, it is
impracticable for TF to disclose the income and expenses of TSMIC since the acquisition date included in the
consolidated statement of net income and comprehensive income.
TIMBERCREEK FINANCIAL 14
40
Timbercreek Financial
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
5. MORTGAGE INVESTMENTS, INCLUDING MORTGAGE SYNDICATIONS
5. MORTGAGE INVESTMENTS, INCLUDING MORTGAGE SYNDICATIONS
5. MORTGAGE INVESTMENTS, INCLUDING MORTGAGE SYNDICATIONS
As at December 31, 2016
As at December 31, 2016
Mortgage investments, including mortgage syndications
Mortgage investments, including mortgage syndications
Interest receivable
Interest receivable
Note
Note
5(a) and (b)
5(a) and (b)
Unamortized lender fees
Unamortized lender fees
Allowance for mortgage investments loss
Allowance for mortgage investments loss
5(c)
5(c)
Gross
mortgage
Gross
mortgage
investments
investments
1,552,071 $
1,552,071 $
16,611
16,611
1,568,682
1,568,682
(7,855)
(7,855)
(1,150)
(1,150)
1,559,677 $
1,559,677 $
$
$
$
$
Mortgage
syndication
Mortgage
syndication
liabilities
liabilities
Net
Net
(542,052) $ 1,010,019
(542,052) $ 1,010,019
14,159
14,159
1,024,178
1,024,178
(6,856)
(6,856)
(1,150)
(1,150)
(543,505) $ 1,016,172
(543,505) $ 1,016,172
(2,452)
(2,452)
(544,504)
(544,504)
999
999
–
–
As at December 31, 2015
As at December 31, 2015
Mortgage investments, including mortgage syndications
Mortgage investments, including mortgage syndications
Interest receivable
Interest receivable
Unamortized lender fees
Unamortized lender fees
Allowance for mortgage investments loss
Allowance for mortgage investments loss
$
$
$
$
Gross
mortgage
Gross
mortgage
investments
investments
749,225 $
749,225 $
7,649
7,649
756,874
756,874
(5,020)
(5,020)
(1,150)
(1,150)
750,704 $
750,704 $
Mortgage
syndication
Mortgage
syndication
liabilities
liabilities
(309,751) $
(309,751) $
(1,114)
(1,114)
(310,865)
(310,865)
816
816
–
–
(310,049) $
(310,049) $
Net
Net
439,474
439,474
6,535
6,535
446,009
446,009
(4,204)
(4,204)
(1,150)
(1,150)
440,655
440,655
As at December 31, 2016, unadvanced mortgage commitments under the existing gross mortgage
investments amounted to $164,607 (December 31, 2015 (“2015”)– $119,888) of which $82,325 (2015 – $75,274)
belongs to the Company’s syndicated partners.
(a) Net mortgage investments
(a) Net mortgage investments
(a) Net mortgage investments
Interest in first mortgages
Interest in first mortgages
Interest in non-first mortgages
Interest in non-first mortgages
%
%
83
83
17
17
100
100
December 31, 2016
December 31, 2016
841,097
841,097
168,922
168,922
1,010,019
1,010,019
$
$
$
$
%
%
78
78
22
22
100
100
December 31, 2015
December 31, 2015
342,573
$
342,573
$
96,901
96,901
439,474
439,474
$
$
The mortgage investments are secured by real property and will mature between 2017 and 2022 (2015
– 2016 and 2018). The weighted average interest rate earned on net mortgage investments for the year
ended December 31, 2016 was 7.9% (2015 –9.1%).
A majority of the mortgage investments contain a prepayment option, whereby the borrower may repay
the principal at any time prior to maturity without penalty or yield maintenance.
TIMBERCREEK FINANCIAL 15
TIMBERCREEK FINANCIAL 15
For the year ended December 31, 2016, the Company received total lender fees, net of fees relating to
mortgage syndication liabilities, of $5,905 (2015 – $4,280), which are amortized to interest income over
the term of the related mortgage investments using the effective interest rate method.
Principal repayments, net of mortgage syndications, based on contractual maturity dates are as follows:
2017
2018
2019
2020
2021 and thereafter
Total
$
$
475,496
321,786
152,979
28,958
30,800
1,010,019
Annual Report 2016
41
TIMBERCREEK FINANCIAL 16
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
(b) Mortgage syndication liabilities
The Company has entered into certain mortgage participation agreements with third party lenders, using
senior and subordinated participation, whereby the third party lenders take the senior position and the
Company retains the subordinated position. The Company generally retains an option to repurchase the
senior position, but not the obligation, at a purchase price equal to the outstanding principal amount of
the lenders’ proportionate share together with all accrued interest. Under certain participation agreements,
the Company has retained a residual portion of the credit and/or default risk as it is holding the residual
interest in the mortgage investment. As a result, the lender’s portion of these mortgages is recorded as
a mortgage investment with the transferred position recorded as a non-recourse mortgage syndication
liability. The interest and fees earned on the transferred participation interests and the related interest
expense is recognized in profit and loss and accordingly, only the Company’s portion of the mortgage
is recorded as mortgage investment. The fair value of the transferred assets and mortgage syndication
liabilities approximate their carrying values (see note 18).
(c) Allowance for mortgage investments loss
As at December 31, 2016, the Company has concluded that there is no objective evidence of impairment on
any individual mortgage investment. At a collective level, the Company assesses for impairment to identify
losses that have been incurred, but not yet identified, on an individual basis. As part of the Company’s
analysis, it has grouped mortgage investments with similar risk characteristics, including geographical
exposure, collateral type, loan-to-value, counterparty and other relevant groupings, and assesses them for
impairment using statistical data. Based on the amounts determined by the analysis, the Company uses
judgement to determine whether or not the actual future losses are expected to be greater or less than the
amounts calculated. No additional collective impairment was recognized during 2016 (2015 – nil).
As at December 31, 2016, the Company has a specific impairment allowance of $900 (2015 – $900) and
a collective impairment allowance of $250 (2015 – $250). During the year ended December 31, 2015,
the Company recognized a specific impairment allowance of $900 relating to one impaired mortgage
investment, which represented the outstanding principal and accrued interest as at December 31, 2015.
During the year ended December 31, 2016, the borrower of a first mortgage investment of $27,644 (2015
– $47,893) located in Saskatchewan filed for protection under the Companies’ Creditor Arrangement Act
in order to stay all creditors and prepare a plan of arrangement. The Manager has evaluated the current
status of borrower, mortgage and as well as the value of the underlying assets and concluded that there is
no objective evidence of impairment.
Subsequent to December 31, 2016, the Company filed for receivership against a borrower of a first
mortgage investment of $3,363 (2015 - $549) located in Ontario. The Manager has evaluated the current
status of borrower, mortgage and as well as the value of the underlying assets and concluded that there is
no objective evidence of impairment.
6. FORECLOSED PROPERTIES HELD FOR SALE
As at December 31, 2016, there are three foreclosed properties held for sale (“FPHFS”) (2015 – three) which
are recorded at their fair value of $11,041 (2015 – $12,836). The fair value has been categorized as a level 3 fair
value, based on inputs to the valuation techniques used based on internal fair value assessments.
During the year ended December 31, 2016, the Company sold five residential units (2015 – three) in one of the
foreclosed properties for net proceeds of $720 (2015 – $550).
During the year ended December 31, 2016, the Company has recorded a fair market value adjustment of
$1,075 on two (2015 – two) of its FPHFS in Saskatchewan and British Columbia (2015 – $524 in Quebec and
Saskatchewan).
42
Timbercreek Financial
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
The fair value measurements have been categorized as a level 3 fair value based on inputs to the valuation
techniques used. The key valuation techniques used in measuring the fair values of the FPHFS are set out in
the following table:
Valuation
Technique
Significant unobservable
inputs
Direct Capitalization Method.
The valuation method is based
on stabilized net operating
income (‘NOI’) divided by an
overall capitalization rate.
Direct Sales
Comparison
• Stabilized NOI is based on the
location, type and quality of
the property and supported
by current market rents for
similar properties, adjusted
for estimated vacancy rates
and expected operating costs.
• Capitalization rate is based
on location, size and quality
of the property and takes into
account market data at the
valuation date.
The fair value is based on com-
parison to recent sales of prop-
erties of similar types, locations
and quality.
Inter-relationship between
key unobservable inputs and
fair value measurement
The estimated fair value would
increase (decrease) if:
• Stabilized NOI was higher
(lower)
• Overall capitalization rates
were lower (higher)
The significant unobservable
input is adjustments due to
characteristics specific to each
property that could cause the
fair value to differ from the
property to which it is being
compared.
The changes in the FPHFS during the years ended December 31, 2016 and 2015 were as follows:
Balance, beginning of year
Balance, beginning of year
Capital improvements
Capital improvements
Fair market value adjustment
Fair market value adjustment
Disposition of FPHFS
Disposition of FPHFS
Balance, end of year
Balance, end of year
7. CREDIT FACILITY
7. CREDIT FACILITY
7. CREDIT FACILITY
Credit facility balance
Credit facility balance
Unamortized financing costs
Unamortized financing costs
Total credit facility
Total credit facility
$
$
Years ended December 31,
Years ended December 31,
2015
2015
13,850
13,850
60
60
(524)
(524)
(550)
(550)
12,836
12,836
2016
2016
12,836
12,836
–
–
(1,075)
(1,075)
(720)
(720)
11,041
11,041
$
$
$
$
$
$
$
$
December 31, 2016
December 31, 2016
300,580
300,580
(1,580)
(1,580)
299,000
299,000
$
$
$
$
December 31, 2015
December 31, 2015
53,812
53,812
(188)
(188)
53,625
53,625
$
$
Concurrent with the Amalgamation, the Company entered into a new credit facility agreement, effective
June 30, 2016, which will mature in May 2018. The Credit Facility is secured by a general security agreement
over the Company’s assets and its subsidiaries. The new credit facility has an available credit limit of $350,000
(2015 – $60,000) with interest at either the prime rate of interest plus 1.25% per annum (2015– prime rate of
interest plus 1.50% per annum) or bankers’ acceptances with a stamping fee of 2.25% (2015 – 2.50%). The new
credit facility has a standby fee of 0.5625% per annum (2015 – 0.55%) on the unutilized credit facility balance.
Annual Report 2016
43
TIMBERCREEK FINANCIAL 18
TIMBERCREEK FINANCIAL 18
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
The credit facility also includes an accordion feature that allows the available limit to be increased by up
to a further $50,000, subject to certain conditions. As at December 31, 2016, the Company’s qualified credit
facility limit is $321,525 and is subject to a borrowing base as defined in the new amended and restated credit
agreement.
The Company incurred financing costs of $2,137 relating to the new credit facility, which includes upfront
fees, legal costs and other costs. The financing costs are netted against the outstanding balance of the credit
facility and are amortized over the term of the new credit facility agreement. The unamortized financing
costs from the previous credit facility agreement prior to the Amalgamation have been fully amortized at the
time of the Amalgamation.
Interest on the credit facility is recorded in financing costs using the effective interest rate method. For the
year ended December 31, 2016, included in financing costs is interest on the credit facility of $5,506 (2015 –
$1,299) and financing costs amortization of $775 (2015 – $221).
8. CONVERTIBLE DEBENTURES
(a) On February 25, 2014, TMIC completed a public offering of $30,000, plus an overallotment of $4,500 on
March 3, 2014, of 6.35% convertible unsecured subordinated debentures for net proceeds of $32,533 (the
“2014 debentures”). The 2014 debentures mature on March 31, 2019 and pays with interest semi-annually
on March 31 and September 30 of each year. The debentures are convertible into common shares at the
option of the holder at any time prior to their maturity at a conversion price of $11.25 per common share,
subject to adjustment in certain events in accordance with the trust indenture governing the terms
of the debentures. The 2014 debentures are redeemable on and after March 31, 2017 and prior to the
maturity date by the Company, subject to certain conditions, in whole or in part, from time to time at the
Company’s sole option, at a price equal to the principal amount thereof plus accrued and unpaid interest
up to but excluding the date of redemption.
In accordance with the Amalgamation, the Company has assumed the obligations of TMIC in respect of
the 2014 debentures in the aggregate principal amount of $34,500.
Upon issuance of the debentures, the liability component of the debentures was recognized initially at
the fair value of a similar liability that does not have an equity conversion option. The difference between
these two amounts, which is $545, has been recorded as equity with the remainder allocated to long-term
debt. The discount on the debentures is being accreted such that the liability at maturity will equal the
face value of $34,500. The issue costs of $1,967 were proportionately allocated to the liability and equity
components. The issue costs allocated to the liability component are amortized over the term of the
debentures using the effective interest rate method.
(b) On July 29, 2016, the Company completed a public offering of $40,000, plus an overallotment option of $5,800
on August 5, 2016, of 5.40%, convertible unsecured subordinated debentures for net proceeds of $43,498 (the
“2016 debentures”). The 2016 debentures mature on July 31, 2021 and pays interest semi-annually on January
31 and July 31 of each year. The debentures are convertible into common shares at the option of the holder at
any time prior to their maturity at a conversion price of $10.05 per common share, subject to adjustment in
certain events in accordance with the trust indenture governing the terms of the debentures.
The 2016 debentures are redeemable on and after July 31, 2019 and prior to July 31, 2020, by the
Company, subject to certain conditions, in whole or in part, from time to time at the Company’s sole
option, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but
excluding the date of redemption.
Upon issuance of the debentures, the liability component of the debentures was recognized initially at
the fair value of a similar liability that does not have an equity conversion option. The difference between
these two amounts, which is $226, has been recorded as equity with the remainder allocated to long-term
debt. The discount on the debentures is being accreted such that the liability at maturity will equal the
face value of $45,800. The issue costs of $2,302 were proportionately allocated to the liability and equity
components. The issue costs allocated to the liability component are amortized over the term of the
debentures using the effective interest rate method.
44
Timbercreek Financial
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
The debentures are comprised of as follows:
Issued
Issued
Issue costs, net of amortization
Issue costs, net of amortization
Equity component
Equity component
Issue costs attributed to equity component
Issue costs attributed to equity component
Cumulative accretion
Cumulative accretion
Debentures, end of year
Debentures, end of year
December 31,
December 31,
2016
2016
80,300
80,300
(3,117)
(3,117)
(814)
(814)
43
43
345
345
76,757
76,757
$
$
$
$
December 31,
December 31,
2015
2015
$ 34,500
$ 34,500
(1,388)
(1,388)
(577)
(577)
33
33
210
210
$ 32,778
$ 32,778
Interest costs related to the convertible debentures are recorded in financing costs using the effective interest
rate method. Interest on the debentures is included in financing costs and is made up of the following:
Interest on the convertible debentures
Interest on the convertible debentures
Amortization of issue costs
Amortization of issue costs
Accretion of the convertible debentures
Accretion of the convertible debentures
Total
Total
9. COMMON SHARES
$
$
$
$
Years ended December 31,
Years ended December 31,
2015
2015
2,181
2,181
277
277
113
113
2,571
2,571
2016
2016
3,257
3,257
566
566
135
135
3,958
3,958
$
$
$
$
The Company is authorized to issue an unlimited number of common shares. Holders of common shares are
entitled to receive notice of and to attend and vote at all shareholder meetings as well as to receive dividends
as declared by the Board of Directors.
The common shares are classified within shareholders’ equity in the statements of financial position. Any
incremental costs directly attributable to the issuance of common shares are recognized as a deduction from
shareholders’ equity.
As a result of the Amalgamation, 40,523,728 TF common shares were issued to shareholders of TMIC at a ratio
of one-to-one; whereas 32,551,941 TF common shares were issued to shareholders of TSMIC at an exchange
ratio of 1:1.035. For financial reporting purposes, TMIC is considered to have acquired all of the issued and
outstanding common shares of TSMIC (note 4).
The changes in the number of common shares were as follows:
Balance, beginning of year
Common shares issued as part of acquisition of TSMIC
Common shares issued to the Manager
Repurchased under normal course issuer bid
Repurchased under dividend reinvestment plan
Issued under dividend reinvestment plan
Balance, end of year
Years ended December 31,
Note
2016
2015
40,523,728
40,701,528
4
4 and 11
32,551,941
782,830
–
(382,306)
382,306
–
–
(177,800)
(397,612)
397,612
73,858,499
40,523,728
(a) Dividend reinvestment plan
In connection with the Amalgamation, the DRIP under TMIC was terminated effective June 22, 2016 and
a new DRIP was subsequently adopted by the Company on July 13, 2016.
TIMBERCREEK FINANCIAL 20
TIMBERCREEK FINANCIAL 20
The new DRIP has terms and conditions substantially similar to those of the terminated plan. The
DRIP provided eligible beneficial and registered holders of common shares with a means to reinvest
dividends declared and payable on such common shares into additional common shares. Under the
DRIP, shareholders could enroll to have their cash dividends reinvested to purchase additional common
shares. The common shares are issued from treasury at a price of 98% of the average of the daily volume
weighted average closing price on the TSX for the 5 trading days preceding payment, the price of which
Annual Report 2016
45
TIMBERCREEK FINANCIAL 21
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
will not be less than the book value per common share. For the year ended December 31, 2016, 382,306
common shares were purchased on the open market (2015 – 397,612).
(b) Dividends to holders of common shares
The Company intends to pay dividends on a monthly basis within 15 days following the end of each
month. For the year ended December 31, 2016, TF declared dividends of $39,895, or $0.702 per share, to
the holders of TF common shares (2015 – $29,253, $0.720 per share). As at December 31, 2016, $4,210 in
aggregate dividends (2015 – $2,431) was payable to the holders of common shares of TF by the Company.
Subsequent to December 31, 2016, the Board of Directors of the Company declared dividends of $0.057 per
common share to be paid on February 15, 2017 to the common shareholders of record on January 31, 2017.
(c) Normal course issuer bid
On January 4, 2016, TMIC received TSX approval to commence a normal course issuer bid (the “Bid”) to
purchase for cancellation up to a maximum of 4,105,569 common shares, representing approximately
10% of the public float of common shares as of December 22, 2015. The Bid commenced on January 6,
2016 and provides the Company with the flexibility to repurchase common shares for cancellation until
its expiration on January 5, 2017, or such earlier date as the Bid is complete. During 2016, the Company
did not acquire any common shares for cancellation (2015 – 177,800 common shares at a cost of $1,385).
Pursuant to the Amalgamation, the Bid was terminated on the Effective Date.
10. NON-EXECUTIVE DIRECTOR DEFERRED SHARE UNIT PLAN
Pursuant to the Amalgamation, on the Effective Date, the DSU plan for TMIC was terminated and the outstanding
DSUs were settled by TMIC in accordance with the terms of the respective plans. As a result, TMIC’s outstanding
DSUs of 30,497 were cancelled and $300 was paid to the directors in July 2016.
Commencing June 30, 2016, the Company instituted a non-executive director deferred share unit plan, whereby
a director can elect up to 100% of the compensation be paid in the form of DSUs, credited quarterly in arrears. The
portion of a director’s compensation which is not payable in the form of DSUs shall be paid by the Company in cash,
quarterly in arrears. The fair market value of the DSU is the volume weighted average price of a common share as
reported on the TSX for the 20 trading days immediately preceding that day (the “Fair Market Value”). The directors are
entitled to also accumulate additional DSUs equal to the monthly cash dividends, on the DSUs already held by that
director determined based on the Fair Market Value of the common shares on the dividend payment date.
Following each calendar quarter, the director DSU accounts will be credited with the number of DSUs calculated by
multiplying the total compensation payable in DSUs divided by the Fair Market Value. Each director is also entitled
to an additional 25% of DSUs that are issued in the quarter up to a maximum value of $5,000 per annum.
The Plan will pay a lump sum payment in cash equal to the number of DSUs held by each director multiplied by
the Fair Market Value as of the 24th business day after publication of the Company’s financial statements following
a director’s departure from the Board of Directors.
For the year ended December 31, 2016, 6,114 units were issued and outstanding and no DSUs were exercised
or cancelled resulting in a DSU expense of $54 based on a Fair Market Value of $8.84 per common share. As
at December 31, 2016, $35 quarterly compensation was granted in DSUs, which will be issued subsequent to
December 31, 2016 at the Fair Market Value.
11. MANAGEMENT AND PERFORMANCE FEES
Concurrently with the Amalgamation, TMIC’s management agreement with the Manager was terminated and a
new management agreement was entered on the Effective Date. TMIC agreed to pay the Manager a termination
fee of $7,438 as compensation for the removal of the performance fees previously incurred by TMIC annually and
the reduced management fee under the new agreement. The termination fee was settled in cash of $910 for HST
payable and the balance payable to the Manager in 782,830 TMIC shares valued at $8.34 per share, representing
TMIC’s closing share price as of June 29, 2016. Under IFRS 2 – Share-based Payment, the share consideration is
required to be measured based on the trading price of TMIC common shares on the settlement date, whereas, the
actual consideration was based on the book value of TMIC at March 31, 2016.
46
Timbercreek Financial
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
The new management agreement has a term of 10 years and is automatically renewed for successive five
year terms at the expiration of the initial term and pays (i) management fee equals to 0.85% per annum of the
gross assets of the Company, calculated and paid monthly in arrears, plus applicable taxes, and (ii) servicing
fee equals to 0.10% of the amount of any senior tranche of a mortgage that is syndicated by the Manager to a
third party investor on behalf of the Company, where the Company retains the corresponding subordinated
portion. Gross assets are defined as the total assets of the Company less unearned revenue before deducting
any liabilities, less any amounts that are reflected as mortgage syndication liabilities.
Upon the termination of the management agreement, $1,207 of performance fees accrued up to June 29,
2016 prior to the Amalgamation were paid to the Manager in August 2016.
For the year ended December 31, 2016, the Company incurred management fees of $7,926 (2015 – $5,956)
and servicing fees of $300 (2015 – nil).
12. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing total net income and comprehensive income by the weighted
average number of common shares during the year. Diluted earnings per share are calculated by adding back
the interest expense relating to the convertible debentures to total net income and comprehensive income and
increasing the weighted average number of common shares by treating the debentures as if they had been
converted on the later of the beginning of the reporting period or issuance date.
The following table shows the computation of per share amounts:
Adjustment for dilutive effect of convertible debentures
Total net income and comprehensive income
Total net income and comprehensive income
Total net income and comprehensive income
Adjustment for dilutive effect of convertible debentures
Adjustment for dilutive effect of convertible debentures
Total net income and comprehensive income (diluted)
Total net income and comprehensive income (diluted)
Total net income and comprehensive income (diluted)
Convertible debentures
Weighted average number of common shares (basic)
Weighted average number of common shares (basic)
Weighted average number of common shares (basic)
Convertible debentures
Convertible debentures
Weighted average number of common shares (diluted)
Weighted average number of common shares (diluted)
Weighted average number of common shares (diluted)
Year ended
December 31,
Year ended
Year ended
December 31,
December 31,
2015
2015
28,021
28,021
2,571
2,571
30,592
30,592
$
2015
28,021
2,571
30,592
2016
2016
2016
45,999
45,999
1,284
1,284
47,283
47,283
45,999
$
$
1,284
47,283
$
$
$
57,373,271
40,631,219
57,373,271
57,373,271
1,942,419
1,942,419
59,315,690
59,315,690
1,942,419
3,066,667
59,315,690
43,697,886
40,631,219
40,631,219
3,066,667
3,066,667
43,697,886
43,697,886
Earnings per share – basic and diluted
Earnings per share – basic and diluted
Earnings per share – basic and diluted
$
$
$
0.80
0.80
0.80
$
$
$
0.69
0.69
0.69
13. CHANGE IN NON-CASH OPERATING ITEMS
13. CHANGE IN NON-CASH OPERATING ITEMS
13. CHANGE IN NON-CASH OPERATING ITEMS
13. CHANGE IN NON-CASH OPERATING ITEMS
Change in non-cash operating items:
Change in non-cash operating items:
Change in non-cash operating items:
Accounts payable and accrued expenses
Other assets
Due to Manager
Other assets
Other assets
Accounts payable and accrued expenses
Accounts payable and accrued expenses
Due to Manager
Due to Manager
Prepaid mortgage interest
Prepaid mortgage interest
Mortgage funding holdbacks
Mortgage funding holdbacks
Mortgage funding holdbacks
Prepaid mortgage interest
14. RELATED PARTY TRANSACTIONS
(a) As at December 31, 2016, Due to Manager includes mainly management and servicing fees payable of $819.
As at December 31, 2015, Due to Manager included $2,426 management and performance fees payable.
TIMBERCREEK FINANCIAL 23
TIMBERCREEK FINANCIAL 23
TIMBERCREEK FINANCIAL 23
Year ended
December 31,
Year ended
Year ended
December 31,
December 31,
2015
2015
2015
2016
2016
2016
$
$
$
$
$
$
473 $
473 $
473 $
(1,329)
(2,047)
(992)
(701)
(1,329)
(1,329)
(2,047)
(2,047)
(992)
(992)
(701)
(701)
(4,596)
(4,596)
(4,596)
$
$
$
573
573
234
234
450
450
(1,391)
(1,391)
338
338
204
204
573
234
450
338
204
(1,391)
Annual Report 2016
47
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
(b) As at December 31, 2016, included in other assets is $819 (2015 – $2,189) of cash held in trust by
Timbercreek Mortgage Servicing Inc. (“TMSI”), the Company’s mortgage servicing and administration
provider, a company controlled by the Manager. The balance relates to mortgage funding holdbacks and
prepaid mortgage interest received from various borrowers.
(c) As at December 31, 2016, the Company has four mortgage investments which an independent director of
the Company is also an officer and/or part-owner of the borrowers of these mortgages:
• A mortgage investment with a total gross commitment of $84,108 (2015 – nil). The Company’s
share of the commitment is $29,108 (2015 – nil), of which $7,270 (2015 – nil) has been funded as at
December 31, 2016.
• A mortgage investment with a total gross commitment of $15,600 (2015 – nil). The Company’s
share of the commitment is $5,970 (2015 – nil), of which $3,634 (2015 – nil) has been funded as at
December 31, 2016.
• A mortgage investment with a total gross commitment of $6,000 (2015 – nil). The Company’s
share of the commitment is $5,100 (2015 – nil), of which $2,029 (2015 – nil) has been funded as at
December 31, 2016.
• A mortgage investment with a total gross commitment of $1,920 (2015 – nil). The Company’s
share of the commitment is $1,920 (2015 – nil), of which $1,920 (2015 – nil) has been funded as at
December 31, 2016.
(d) As at December 31, 2016, the Company, Timbercreek Four Quadrant Global Real Estate Partners (“T4Q”),
Timbercreek Global Real Estate Fund and Timbercreek Canadian Direct LP, related parties as all are
managed by the Manager, co invested in ten gross mortgage investments totaling $254,935 (2015 –
$702,624). The Company’s share in these gross mortgage investments is $109,493 (2015 – $286,311).
Included in these amounts are two net mortgage investments (2015 – one) of $17,681 (2015 – $1,266)
loaned to a limited partnership in which T4Q is invested.
The above related party transactions are in the normal course of business and are recorded at the
exchange amount, which is the amount of consideration established and agreed to by the related parties.
15. INCOME TAXES
As of December 31, 2016, the Company has non-capital losses carried forward for income tax purposes of $29,750
(2015 – $24,511), which will expire between 2027 and 2036 if not used. The Company also has future deductible
temporary differences resulting from share issuances, provision for impairment, prepaid mortgage interest and
unearned income tax purposes of $10,639 (2015 – $4,001).
16. CAPITAL RISK MANAGEMENT
The Company manages its capital structure in order to support ongoing operations while focusing on its primary
objectives of preserving shareholder capital and generating a stable monthly cash dividend to shareholders. The
Company defines its capital structure to include common shares, debentures and the credit facility.
The Company reviews its capital structure on an ongoing basis and adjusts its capital structure in response
to mortgage investment opportunities, the availability of capital and anticipated changes in general
economic conditions.
The Company’s investment restrictions and asset allocation model incorporate various restrictions and
investment parameters to manage the risk profile of the mortgage investments. There have been no changes in
the process over the previous year.
At December 31, 2016, the Company was in compliance with its investment restrictions.
48
Timbercreek Financial
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
Pursuant to the terms of the credit facility, the Company is required to meet certain financial covenants, including
a minimum interest coverage ratio, minimum adjusted shareholders’ equity and maximum non-debenture
indebtedness to adjusted shareholders’ equity. As at December 31, 2016, the Company was in compliance with all
financial covenants.
17. RISK MANAGEMENT
The Company is exposed to the symptoms and effects of global economic conditions and other factors that could
adversely affect its business, financial condition and operating results. Many of these risk factors are beyond the
Company’s direct control. The Manager and Board of Directors play an active role in monitoring the Company’s
key risks and in determining the policies that are best suited to manage these risks. There has been no change in
the process since the previous year.
The Company’s business activities, including its use of financial instruments, exposes the Company to various
risks, the most significant of which are interest-rate risk, credit risk, and liquidity risk.
(a) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of financial assets or financial liabilities
will fluctuate because of changes in market interest rates. As of December 31, 2016, $132,735 of net
mortgage investments bear interest at variable rates. Of these, $122,172 of net mortgage investments
include a “floor rate” to protect their negative exposure or a “ceiling rate”, while two mortgage investments
totalling $10,563 bear interest at a variable rate without a “floor rate”. If there were a decrease of 0.50%
in interest rates, with all other variables constant, the impact from variable rate mortgage investments
would be a decrease in net income of $53. However, if there were a 0.50% increase in interest rates, with
all other variables constant, it would result in an increase in net income of $664. The Company manages
its sensitivity to interest rate fluctuations by generally entering into fixed rate mortgage investments or
adding a “floor-rate” to protect its negative exposure.
In addition, the Company is exposed to interest rate risk on the credit facility, which has a balance of
$300,580 as at December 31, 2016. Based on the outstanding credit facility balance as at December 31,
2016, a 0.50% decrease or increase in interest rates, with all other variables constant, will increase or
decrease net income by $1,503 annually.
The Company’s other assets, interest receivable, accounts receivable other, accounts payable and accrued
expenses, prepaid mortgage interest, mortgage funding holdbacks, dividends payable and due to Manager
have no exposure to interest rate risk due to their short-term nature. Cash and cash equivalents carry a
variable rate of interest and are subject to minimal interest rate risk and the debentures have no exposure
to interest rate risk due to their fixed interest rate.
(b) Credit risk
Credit risk is the risk that a borrower may be unable to honour its debt commitments as a result of a
negative change in market conditions that could result in a loss to the Company. The Company mitigates
this risk by the following:
(i) adhering to the investment restrictions and operating policies included in the asset allocation
model (subject to certain duly approved exceptions);
(ii) ensuring all new mortgage investments are approved by the investment committee before
funding; and
(iii) actively monitoring the mortgage investments and initiating recovery procedures, in a timely
manner, where required.
The maximum exposure to credit risk at December 31, 2016 is the carrying values of its net mortgage
investments, in addition to interest receivable recorded within other assets of $951 (2015 – $343), amounting
to $1,025,129 (2015 – $446,008). The Company has recourse under these mortgage investments in the event of
default by the borrower; in which case, the Company would have a claim against the underlying collateral.
Annual Report 2016
49
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
(c) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as
they become due. This risk arises in the normal operations from fluctuations in cash flow as a result of the
timing of mortgage investment advances and repayments and the need for working capital. Management
routinely forecasts future cash flow sources and requirements to ensure cash is efficiently utilized.
The following are the contractual maturities of financial liabilities as at December 31, 2016, including expected
interest payments:
December 31, 2016
Carrying
value
Contractual
cash flow
Within
a year
Following
year
3–5 years
Accounts payable and accrued expenses
$
2,188
$
2,188
$
2,188
$
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility1
Convertible debentures2
4,210
4,210
4,210
819
137
682
819
137
682
819
137
682
$
–
–
–
–
–
–
–
–
–
–
–
299,000
317,365
11,873
305,492
76,757
87,237
37,521
2,473
47,243
Total liabilities
$
383,793
$
412,638
$
57,430
$
307,965
$
47,243
Unadvanced mortgage commitments3
–
164,607
164,607
–
–
Total contractual liabilities
$
383,793
$
577,245
$
222,037
$
307,965
$
47,243
1
Includes interest based upon the current prime rate of interest plus 1.25% on the credit facility assuming the outstanding balance is not
repaid until its maturity on May 6, 2018.
2 The 2014 debentures are assumed to be redeemed on March 31, 2017 as they are redeemable on and after March 31, 2017 and the 2016
debentures are assumed to be redeemed on July 31, 2019 as they are redeemable on and after July 31, 2019
3 Unadvanced mortgage commitments include syndication commitments of which $82,325 belongs to the Company’s syndicated
partners.
As at December 31, 2016, the Company had a cash position of $61 (2015 – $140) and an unutilized credit facility
balance of $49,420 (2015 – $6,188). The Company is confident that it will be able to finance its operations
using the cash flow generated from operations and the credit facility. Included within the unadvanced
mortgage commitments is $82,325 relating to the Company’s syndication partners. The Company expects the
syndication partners to fund this amount.
50
Timbercreek Financial
TIMBERCREEK FINANCIAL 27
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
18. FAIR VALUE MEASUREMENTS
The following table shows the carrying amounts and fair values of assets and liabilities:
As at December 31, 2016
Assets measured at fair value
Carrying Value
Loans and
receivable
Fair value
through profit
and loss
Other
financial
liabilities
Fair
value
Foreclosed properties held for sale
$
– $
11,041 $
– $
11,041
Assets not measured at fair value
Cash and cash equivalents
Other assets
Mortgage investments, including mortgage
syndications
Financial liabilities not measured at fair value
Accounts payable and accrued expenses
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility
Convertible debentures
Mortgage syndication liabilities
61
3,191
1,559,677
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
61
3,191
–
1,559,677
2,188
4,210
819
137
682
2,188
4,210
819
137
682
299,000
300,581
76,757
80,416
543,505
543,505
As at December 31, 2015
Assets measured at fair value
Carrying Value
Loans and
receivable
Fair value
through profit
and loss
Other
financial
liabilities
Fair
value
Foreclosed properties held for sale
$
– $
12,836 $
– $
12,836
Assets not measured at fair value
Cash and cash equivalents
Other assets
Mortgage investments, including mortgage
syndications
Financial liabilities not measured at fair value
Accounts payable and accrued expenses
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility
Convertible debentures
Mortgage syndication liabilities
140
3,054
750,704
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,104
2,431
2,426
822
1,170
140
3,054
750,704
1,104
2,431
2,426
822
1,170
53,625
53,812
TIMBERCREEK FINANCIAL 28
32,778
34,759
310,049
310,049
Annual Report 2016
51
TIMBERCREEK FINANCIAL 29
Notes to the Consolidated Financial Statements Years ended December 31, 2016 and 2015
In thousands of Canadian dollars, except share, per share amounts and where otherwise noted
The valuation techniques and the inputs used for the Company’s financial instruments are as follows:
(a) Mortgage investments and mortgage syndication liabilities
There is no quoted price in an active market for the mortgage investments or mortgage syndication
liabilities. The Manager makes its determination of fair value based on its assessment of the current
lending market for mortgage investments of same or similar terms. Typically, the fair value of these
mortgage investments and mortgage syndication liabilities approximate their carrying values given
the amounts consist of short-term loans that are repayable at the option of the borrower without yield
maintenance or penalties. As a result, the fair value of mortgage investments is based on level 3 inputs.
(b) Other financial assets and liabilities
The fair values of cash and cash equivalents, other assets, accounts payable and accrued expenses,
dividends payable, due to Manager, mortgage funding holdbacks, prepaid mortgage interest and credit
facility approximate their carrying amounts due to their short-term maturities.
(c) Convertible debentures
The fair value of the convertible debentures is based on a level 1 input, which is the market closing price of
convertible debentures at the reporting date.
There were no transfers between level 1, level 2 and level 3 of the fair value hierarchy during December 31,
2016 and 2015.
19. COMPENSATION OF KEY MANAGEMENT PERSONNEL
The compensation expense of the members of the Board of Directors amounts to $223 (2015 - $183), which is paid
in a combination of DSUs and cash. The compensation to the senior management of the Manager is paid through
the management fees paid to the Manager (note 11).
20. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business activities, the Company may be contingently liable for litigation and claims
arising from investing in mortgages. Where required, management records adequate provisions in the accounts.
Although it is not possible to accurately estimate the extent of potential costs and losses, if any, management
believes that the ultimate resolution of such contingencies would not have a materially adverse effect on the
Company’s financial position.
21. SUBSEQUENT EVENTS
On February 7, 2017, the Company closed on an unsecured convertible debenture offering for gross proceeds of
$40,000 as well as the over-allotment option for additional gross proceeds of $6,000. The unsecured convertible
debentures mature on March 31, 2022 and pay interest semi-annually on March 31 and September 30 of each year
at rate of 5.45%.
52
Timbercreek Financial
Board of Directors
The directors of Timbercreek Financial have deep experience, established reputations and extensive
contacts in the commercial real estate mortgage lending community, as well as in the capital
markets and asset management sectors in Canada.
Zelick L. Altman
Independent Director,
Timbercreek Financial
Managing Director,
LaSalle Investment
Management (Canada)
Ugo Bizzarri
Director,
Timbercreek Financial
Senior Managing Director, CIO,
Global Head of Direct & Debt
Investments, Timbercreek
Asset Management
Andrew Jones
Director and CEO,
Timbercreek Financial
Steven R. Scott
Independent Director,
Timbercreek Financial
Senior Managing Director,
Debt Investments,
Timbercreek Asset Management
President and CEO,
The Access Group of Companies
W. Glenn Shyba
Lead Independent Director
Timbercreek Financial
Principal,
Origin Merchant Partners
Blair Tamblyn
Chairman,
Timbercreek Financial
Derek J. Watchorn, LL.B.
Independent Director,
Timbercreek Financial
Senior Managing Director and CEO,
Timbercreek Asset Management
Consultant
Officers
Blair Tamblyn
Chairman of the Board
Andrew Jones
Chief Executive Officer
Cameron Goodnough
President*
Craig Geier
Chief Financial Officer
Ugo Bizzarri
Vice President, Investments
Gigi Wong
Treasurer
Carrie Morris
Vice President
Peter Hawkings
Vice President & Corporate Secretary
Head Office
25 Price Street
Toronto, ON M4W 1Z1
T 844.304.9967
E info@timbercreek.com
timbercreekfinancial.com
Stock Exchange Listing
TSX: TF, TF.DB, TF.DB.A, TF.DB.B
Auditors
KPMG LLP
Transfer Agent & Registrar
CST Trust Company
320 Bay Street
Toronto, ON M5H 4A6
Legal Counsel
McCarthy Tétrault LLP
*Mr. Goodnough was appointed President effective March 15, 2017
timbercreekfinancial.com