Protecting
investor capital
&
Generating
attractive returns
2019 Annual Report
1
Timbercreek Financial $1.2B
institutional-
quality portfolio
10+ year
track record,
no principal
losses
100%
commercial
real estate
focused
$8.75
Book value
per share
2
Timbercreek Financial
Protecting investor capital & generating
attractive returns. It’s our focus.
Our investment process begins with one overriding objective:
protecting investors’ capital. We think defence first. We underwrote
our first loan 13 years ago, and our approach has served us well through
market cycles, volatility, and other unforeseen events. Our investors
also look to us to provide attractive returns through regular monthly
cash dividends. We achieve this by focusing on high-quality, stable
assets – such as rental apartments and office buildings – that offer
durable and consistent income streams to our borrowers. In periods
of increased risk or volatility, borrower strength and asset quality
(i.e. well located cash-flowing real estate) are paramount, and are at
the core of our underwriting process and focus.
experienced
debt team
25+ team members
customization
service
speed
“ In the transitional lending market,
we compete on speed of execution
and customization – differentiators
that serve us well in periods of
volatility where many other lenders
retreat from the market. We continue
to review a robust pipeline of
new investment opportunities,
and we are applying rigorous risk
management to select the best
investments for our shareholders.”
- Scott Rowland,
Managing Director,
Debt Investments
Timbercreek Financial
11
Timbercreek Financial Diversifi ed by asset class and region.
It’s how we protect capital and manage risk.
Case Study A: The borrower
(a repeat customer) utilized loan
proceeds to refi nance existing debt
and buy out partnership interests.
The loan is secured by a blanket 2nd
mortgage charge on 15 mixed-use
and retail properties located across
Alberta and British Columbia.
Amount: $55,000,000
Position: Second Mortgage
Term: 36 months
Interest Rate: 7.95% Floor;
Prime + 4.00% months 1-35,
Prime + 7.00% thereafter
Case Study B: The borrower
utilized loan proceeds to
facilitate the acquisition of four
multi-residential properties
situated in British Columbia.
Amount: $21,000,000
Position: First Mortgage
Term: 36 months
Interest Rate: 5.75% fi xed
BC:
BC:BC:BC:
23.8%23.8%23.8%
23.8%
AB:AB:AB:
AB:
20.3%20.3%20.3%
20.3%
RETAIL:
15.5%
UNIMPROVED
LAND:
8.6%
INDUSTRIAL:
2.4%
MULTI
RESIDENTIAL:
54.1%
22
Timbercreek Financial
Timbercreek Financial
OFFICE:
8.5%
RETIREMENT:
4.7%
SINGLE-FAMILY
RESIDENTIAL:
0.1%
129
mortgage
investments
$9.5M
average mortgage
investment size
2/3
of business from repeat
borrowers
other:
4%
ON:
43.1%
QC:
8.8%
Case Study C: Loan proceeds,
alongside borrower’s equity,
were utilized to acquire and stabilize
two retirement home facilities
located in Ontario.
Amount: $28,875,000
Position: First Mortgage
Term: 24 months
Interest Rate: 6.50% Floor;
Prime + 2.55% in months 1-23,
Prime + 4.55% thereafter.
Case Study D: Loan proceeds
were used to refi nance an existing
construction loan, allowing the
borrower to complete construction of
the property and provide time for the
stabilization of this multi-residential
property located near Quebec City.
Amount: $22,950,000
Position: First Mortgage
Term: 24 months
Interest Rate: 6.50% Floor;
Prime + 2.55% in months 1-23,
Prime + 4.55% thereafter.
Timbercreek Financial
Timbercreek Financial
3
3
$0.72
distributable
income per share
in 2019
7.0%
dividend yield
in 2019
TF
TSX-listed
$0.69
dividends per
share in 2019
44
Timbercreek Financial
Timbercreek Financial
LETTER TO SHAREHOLDERS
Dear Shareholders:
Fiscal 2019 was an active and generally
successful year for the company, and this
annual report attempts to capture the key
portfolio highlights and go deeper on how
we manage risk and protect capital for
shareholders – strategies that are more
important now than ever.
Of course, a lot has changed in the world
since the end of 2019. While the extent
and duration of the COVID-19 pandemic
– and resulting economic downturn –
are unknown, we want to give you some
perspective on how we are approaching
this market volatility and why we believe
our portfolio is positioned well to navigate
uncertain times.
During 2019, Timbercreek Financial
continued to find attractive investment
opportunities that met its risk and return
objectives. New investments and advances
totalled $833 million – a record year for
capital deployment. Transaction activity
is typically stronger in the second half of
the year, and this was certainly the case in
2019. Our fourth quarter new investments
and advances – at more than $387 million
– also represented a record quarter for the
company. The net value of the mortgage
portfolio, excluding syndications, increased
by $33 million over 2018 and ended the year
at close to $1.24 billion.
The combination of strong transaction
activity, a larger balance sheet, and higher
average interest rate resulted in year-over-
year gains in our investment income and
income from operations, which increased
by 4.7% and 5.0%, respectively, over 2018.
Importantly, we delivered our primary
objective: regular monthly income to
our shareholders.
We achieved these results against a backdrop
of heightened competition, especially for
the high-quality, income-producing assets
we target. Fortunately, our strong presence
and reputation continues to allow us to win
business and find attractive opportunities
that fit our risk-return profile. And we stayed
true to our risk management principles
and core strengths: building a diversified,
conservative portfolio underpinned by
cashflowing properties. At year end, 54%
of the portfolio was secured by rental
apartments, an asset class with highly stable
and predictable cash flow characteristics, up
from 40% at the end of 2018.
New investments
and advances totalled
$833 million
– a record year for
capital deployment.
Like many other companies, our outlook
for 2020 must now consider new risks and
uncertainties related to COVID-19. As to our
positioning and readiness, it is important for
you to know a few points:
• With credit markets gyrating, liquidity
(i.e. capital availability) is at a premium.
Timbercreek Financial is largely
funded with permanent equity capital,
supplemented by three convertible
debentures (none of which mature in
the next 12 months) and a credit facility
syndicated among 10 financial institutions.
From a capital perspective, we are in a
good position.
• From a portfolio perspective, stability
and security remain key themes. We have
discussed the potential for a change in the
economic cycle for some time and have
made efforts to de-risk at the portfolio level
since the merger in 2016.
- The loan book currently has an average
of approximately 70% loan-to-value
(meaning we sit in priority position to
the equity sponsor’s 30%).
Timbercreek Financial
5
5
Timbercreek Financial
- Approximately 90% of the loans are
secured first mortgages on largely
cash-flowing real estate.
- Given our focus on commercial assets
(including multi-family rental assets),
our borrowers benefit from a diversified
pool of rent-paying tenants. Overall, the
portfolio should be better positioned to
protect capital and maintain its income
characteristics than if it had a higher
component of land and construction
(i.e. non-income-producing real estate),
or a lower percentage of
first mortgages.
- We currently have zero exposure to
hotels and limited exposure to tertiary
markets (which would include resort
towns), favouring large urban
markets instead.
We stayed true to
our risk management
principles and core
strengths: building a
diversified, conservative
portfolio underpinned
by cash-flowing
properties.
• 77% of our investments have floating rate
coupons with rate floors, which has
muted the impact of recent interest rate
cuts. The portfolio’s run-rate weighted
average interest rate is down less than
10 basis points (versus what it would have
been), after the 150 basis point cumulative
reductions in the Bank of Canada rate
in March.
66
Timbercreek Financial
Timbercreek Financial
• Historically, times of volatility can create
attractive opportunities in the private
lending space as borrowers seek transaction
certainty in an uncertain market.
Given the stability of our capital base
and our strong market presence, we
are seeing increased deal flow, but will
continue to be highly selective, applying
our rigorous risk management processes
with full consideration of the changing
market dynamics.
We don’t want to suggest there will be
no impact to our business. While it’s still
early, we believe some of the loans we had
expected to be repaid in the near term will
have to be extended. This is okay; loans that
we extend will generate fee income for our
shareholders and capital will continue to be
deployed at attractive rates.
As a lender, we have second derivative
exposure to what is happening at the
property level. Our expectation is that every
part of the chain will have to demonstrate
some flexibility, as we work through this
pandemic together with our clients, who are
established and well capitalized real estate
firms, most of whom have been through
prior downturns.
We are in uncertain times, no doubt. What is
certain is our team will continue to manage
the company with the same investment
discipline that has served us so well in the
past. Protecting capital continues to be our
primary focus. Over a 13-year history in this
market, we are proud of our track record of
no principal losses.
We thank you for your continued support
and look forward to reporting on our
progress throughout 2020.
Cameron Goodnough
Chief Executive Officer
Timbercreek Financial
March 2020
Management’s Discussion and Analysis
For the year ended December 31, 2019
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 and other investments 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 March 5, 2020. 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.
timbercreekfinancial.com. Additional information about the Company, including its AIF, can be
found at www.sedar.com.
7
Timbercreek Financial BUSINESS OVERVIEW
Timbercreek Financial Corp. is a leading non-bank lender providing financing solutions to qualified real
estate investors who are generally in a transitional phase of the investment process.
Timbercreek Financial fulfills a financing requirement that is not well serviced by the commercial banks:
primarily shorter duration, structured financing. Real estate investors typically use short-term mortgages
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” mortgages are typically repaid
with traditional bank mortgages (lower cost and longer-term debt) once the transitional period is over, a
restructuring is complete or from proceeds generated on the sale of assets. Timbercreek Financial focuses
primarily on lending against income-producing real estate such as multi-residential, retail and office
properties. This emphasis on cash-flowing properties is an important risk management strategy.
Timbercreek Financial, through its Manager, has established preferred lender status with many active
real estate investors by providing quick execution on investment opportunities and by providing
flexible terms to borrowers. Timbercreek Financial works with borrowers throughout the terms of their
mortgages to ensure that their capital requirements are met and, if requested, considers modifications of
or extensions to the terms of their mortgages 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, 2019. This MD&A should be read in conjunction with the audited consolidated
financial statements for the years ended December 31, 2019 and 2018, 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”).
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 recurring cash flows and earnings for
dividends and provide a clearer understanding of the Company’s financial performance.
The Company’s financial performance is predominately generated from net investment income from
net mortgage investments. The Company may enter into certain mortgage participation agreements
with other institutional lenders, where such agreements may provide for the Company’s participation
either on a pari passu basis or in a subordinated position with one or more institutional syndication
partners. For IFRS presentation purposes, where the derecognition criteria are not met, mortgage
investments are reported on a gross basis, with the portion related to the syndicated mortgages being
included in the mortgage investments, including mortgage syndications and a corresponding liability
as mortgage syndication liabilities. Mortgage syndication liabilities are non-recourse mortgages
8
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted with period to period variances not impacting the Company’s performance. Refer to note 4 of the
consolidated financial statements. The relevant factors causing period to period variances include net
mortgage principal amounts, portfolio allocation, weighted average interest rate and turnover rate.
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.
Non-IFRS financial measures for net mortgage investments:
i. 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.
ii. Weighted average loan-to-value (“WALTV”) – 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. For unimproved land property, fair value is based on an
“as is” basis. Net mortgage investments measured at fair value through profit or loss (“FVTPL”) are
excluded from weighted average loan-to-value computation. This is a key measure to explain period
to period performance variances of net mortgage investments.
iii. Turnover ratio – represents total net mortgage investments repayments during the stated period,
expressed as a percentage of the average net mortgage investment portfolio for the stated period. The
Company makes mortgages or loans to only commercial borrowers that are short-term (generally
one to five years), as such the portfolio turnover rate is higher than typical mortgage portfolios which
include individual or non-commercial borrower loans. This is a key measure to explain period to
period performance variances of net mortgage investments as turnover from both scheduled and
early repayments impacts revenue.
iv. 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. As a result, the
Company complements IFRS measures (which presents financial positions as a point of time basis)
with weighted daily average data to explain significant variances. This is a key measure to explain
period to period performance variances of net mortgage investments.
v. Weighted average lender fees for the period – 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. As a result, the Company complements IFRS measures (which presents financial
positions as a point of time basis) with weighted average data to explain significant variances. This
is a key measure to explain period to period performance variances of net mortgage investments as
lender fees is one of the main contributors to net investment income and distributable income.
vi. Average net mortgage investment portfolio – represents the daily average of net mortgage
investments for the stated period. As a result, the Company complements IFRS measures (which
presents financial positions as a point of time basis) with weighted daily average data to explain
significant variances. This is a key measure to explain period to period performance variances of net
mortgage investments as average net mortgage investment portfolio is a basis for interest income
earned during the period.
vii. Enhanced return portfolio – represents other investments and net equity in investment properties
not included in net mortgage investments.
9
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted Non-IFRS financial measures for Company’s assessment of its distribution paying capacity:
It is the Company’s view that IFRS net income does not necessarily provide a complete measure of the
Company’s recurring operating performance as IFRS net income includes non-cash items such as
amortization of lender fees, amortization of financing costs, fair value changes, net operating gain/
loss on FPHFS and allowance for mortgage investments loss, which are not representative of recurring
operating performance. Distributable income is a non-IFRS financial measure of recurring cash flows
based on the definition set forth by the Company.
Distributable income is computed as IFRS consolidated net income adjusted for the earlier mentioned
items, calculated on an IFRS basis. The Company uses Distributable Income in assessing its dividend
paying capacity. A reconciliation of the distributable income is provided in “Analysis of Financial
Information for the Period” section of the MD&A.
Payout ratio on distributable income is a non-IFRS financial measure of the Company’s ability to
generate recurring cash flows for dividends. Payout ratio on earnings per share, where earnings
is calculated on an IFRS basis, is a common measure of the sustainability of a company’s dividend
payments and is useful when comparing it to other companies of similar industries.
i. Distributable income – represents the Company’s ability to generate recurring cash flows for
dividends by removing the effect of amortization, accretion, unrealized fair value adjustments,
allowance for mortgage investments loss, and unrealized gain or loss from total net income and
comprehensive income.
ii. Distributable income per share – represents the total distributable income divided by the weighted
average common outstanding shares for the stated period.
iii. Payout ratio on distributable income – represents total common share dividends paid and declared
for payment, divided by distributable income for the stated period.
iv. 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.
RECENT DEVELOPMENTS AND OUTLOOK
During 2019, Timbercreek Financial continued to find attractive investment opportunities that meet its
risk and return objectives despite a competitive environment in the commercial mortgage sector. The
number of new net mortgage investments increased considerably over the prior year, yet the financial
metrics by which the Company measures risk have been maintained or improved, and returns to the
Company remain stable. In particular, the portfolio is diversified across a larger number of investments;
investments secured by multi-unit residential properties have increased; exposure to cash-flowing
properties has increased; and loan-to-value levels are stable and remain below target levels.
Consistent with the seasonal uptick in transaction activity levels experienced in prior years,
management experienced robust transaction activity during the fourth quarter in several areas,
including multi-residential lending. Management anticipates that real estate transaction levels will
remain healthy, as Timbercreek Financial continues to support its clients with flexible customized
financing solutions.
10
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted PORTFOLIO ACTIVITY
Transaction activity was strong in Q4 2019 both in terms of originations and repayments. The Company
funded 25 new net mortgage investments totaling $336.2 million and made additional advances of
$50.7 million. Portfolio turnover increased considerably to 26.0%, compared with 14.2% in Q3 2019. The
net value of the mortgage portfolio, excluding syndications, was approximately $1,244.1 million at the
end of Q4 2019, an increase of $70.0 million from Q3 2019. The amount drawn on the credit facility
funding mortgage investments was $461.0 million at the end of Q4 2019, compared to $418.9 million at
the end of Q3 2019.
At the end of Q4 2019, the enhanced return portfolio was $78.2 million, which included $61.5 million of
other investments, and $16.7 million of net equity in investment properties, representing 5.7% of total
assets, net of syndications.
We believe Timbercreek Financial offers investors an attractive yield with a superior risk profile. Our risk
management strategy includes a focus on lending to income-producing assets, an emphasis on first
mortgages and focus on urban centres. Although higher interest and fees can be earned by investing in
higher risk loans, our focus is primarily on income-producing, lower-risk segments of the market such
as multi-residential apartment buildings.
At the end of Q4 2019, 86.8% of the mortgage investments were secured by income-producing properties,
compared to 87.4% in Q3 2019. The fourth quarter saw an increase in multi-residential real estate assets
in the portfolio. Approximately 54.1% of the portfolio at year end was secured by multi-residential real
estate (apartment buildings), compared to 46.5% in Q3 2019.
Our exposure to first mortgages was 90.5% of the net mortgage portfolio at year end, compared to 92.8%
in Q3 2019. Our current weighted average loan-to-value ratio was 70.5%, consistent with Q3 2019 and
slightly above our internal target of 70%. Our weighted average interest rate for the period was 7.2% in Q4
2019 with an exit rate of 7.1% as at December 31, 2019, compared with 7.3% in Q3 2019 and an exit rate of
7.2% as at September 30, 2019.
The floating rate loans with rate floors represented 77.3% of total loan portfolio compared to 63.7% as at
September 30, 2019.
The net mortgage portfolio remains heavily weighted towards Canada’s largest provinces, with
approximately 96.0% of the mortgage portfolio invested in Ontario, British Columbia, Alberta and
Quebec, the majority of which are in urban markets that generally experience better real estate liquidity
and thus offer a better risk profile.
11
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted FINANCIAL HIGHLIGHTS
Financial Position
As at
KEY FINANCIAL POSITION INFORMATION
Mortgage investments1
Other investments
Investment properties
Total assets
Credit facilities
Convertible debentures
Total liabilities1
CAPITAL STRUCTURE
Shareholders' equity
Convertible debentures, par
Credit facility limit
COMMON SHARE INFORMATION
Number of common shares outstanding
Closing trading price
Market capitalization
December 31,
December 31,
2019
2018
December 31,
2017
$
$
$
$
$
$
$
$
$
$
$
$
1,667,686
61,520
47,349
1,797,506
490,389
133,033
1,069,114
728,392
136,800
530,690
83,254,130
9.93
826,714
$
$
$
$
$
$
$
$
$
$
$
$
1,796,822
90,957
46,494
1,945,031
508,939
131,597
1,229,066
715,965
136,800
533,277
81,632,844
8.75
714,287
$
$
$
$
$
$
$
$
$
$
$
$
1,554,369
57,934
42,748
1,664,759
394,046
163,946
1,011,637
653,122
171,300
433,277
74,277,356
9.62
714,548
1. Includes mortgage syndications (note 4(a)) and mortgage syndication liabilities of $426.9 million (2018 – $575.0 million, 2017 – $440.6 million).
12
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted OPERATING RESULTS1
Net investment income
Net rental income
Income from operations
Other income, net
Total net income and comprehensive income
Earnings per share (basic)2
Earnings per share (diluted)2
Dividends to shareholders
Dividends per common share
Payout ratio on earnings per share2
Distributable income3
Distributable income per share3
Payout ratio on distributable income3
Three months ended
December 31,
Year ended
December 31,
$
$
$
$
$
$
$
$
$
$
$
2019
25,207
414
21,627
$
$
$
— $
$
$
$
$
$
$
$
14,101
0.17
0.17
14,355
0.173
101.8
15,555
0.19
92.3%
2018
25,169
358
21,661
1,217
15,263
0.19
0.18
14,076
0.173
92.2
16,302
0.20
86.3%
$
$
$
$
$
$
$
$
$
$
$
2019
99,437
1,440
85,014
413
54,740
0.66
0.66
57,078
0.690
104.3
59,341
0.72
96.2%
$
$
$
$
$
$
$
$
$
$
$
2018
94,958
821
81,003
1,217
53,068
0.67
0.67
54,890
0.690
103.4
60,105
0.76
91.3%
$
$
$
$
$
$
$
$
$
$
$
2017
88,937
193
75,374
—
52,204
0.70
0.70
50,736
0.685
97.2
55,262
0.75
91.8%
1
2.
3.
Refer to non-IFRS measures section.
Excluding other income of $413 in 2019 (2018 – $1,217) the basic and diluted EPS for the year ended December 31, 2019 would have been
$0.66 (2018 – $0.65) and EPS payout ratio 105.1% (2018 – 105.9%).
Excluding other income of $413 in 2019 (2018 – $1,217) the distributable income per share for the year ended December 31, 2019 would
have been $0.71 (2018 – $0.74) and payout ratio on distributable income would have been 96.9% (2018 – 93.2%).
For the three months ended December 31, 2019 (“Q4 2019”) and December 31, 2018 (“Q4 2018”)
The Company funded 25 new net mortgage investments (Q4 2018 – 17) totaling $336.2 million
(Q4 2018 – $212.2 million), made additional advances on existing mortgage investments totaling
$50.7 million (Q4 2018 – $27.5 million). The weighted average interest rate on new net mortgage
investments was 6.6% and new funding mainly comprised of $199.4 million in multi-residential
investments. The Company fully discharged 24 mortgage investments (Q4 2018 – 14) and
partially discharged mortgage investments totaling $316.9 million (Q4 2018 – $165.5 million).
Weighted average interest rate on fully discharged net mortgage investment was 7.0%. The net
effect of these funding and discharges resulted in a reduction in quarterly weighted average
interest rate from 7.3% in Q3 2019 to 7.2% in Q4 2019 (Q4 2018 – 7.3%).
Other investments within the enhanced return portfolio was $61.5 million (September 30,
2019 – $88.8 million). Net decrease of $27.3 million in the quarter was mainly due to liquidation of
marketable securities.
Net investment income remained consistent quarter over quarter: $25.2 million in Q4 2019
compared to $25.2 million in Q4 2018. Consistent net investment income during Q4 2019
compared to Q4 2018, despite reduction in weighted average interest rate, was primarily due to:
higher average net mortgage investment portfolio; $1,199.8 million during Q4 2019 compared
to $1,169.7 million during Q4 2018, resulted in marginally higher interest income on net
mortgage investments.
Increase in lender fee income, attributable to increase in lender fee received and a higher
turnover rate, which was partly offset by decrease in interest income on collateralized loans,
primarily due to discharges during the quarter.
13
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted The Company generated income from operations of $21.6 million (Q4 2018 – $21.7 million), a
decrease of $34 or 0.2% from Q4 2018. Quarter over quarter decrease in income from operation
is primarily from increase in allowance for credit losses, due to higher net mortgage investment
balance.
General and administrative expense remained consistent at $0.5 million (Q4 2018 – $0.5 million).
The floating rate loans with rate floors represented 77.3% (December 31, 2018 – 57.7%) of total loan
portfolio compared to 63.7% as at September 30, 2019.
Non-refundable cash lender fees recorded were $3.5 million (Q4 2018 – $2.4 million). The quarterly
weighted average lender fees on new and renewed mortgages during the quarter was 1.0% (Q4
2018 – 0.9%), while the quarterly weighted average lender fee on new mortgages only for the quarter
was 1.1% (Q4 2018 – 1.1%)
The Company generated net income and comprehensive income of $14.1 million (Q4
2018 – $15.3 million) or earnings per share of $0.17, basic and diluted (Q4 2018 – $0.19 basic and $0.18
diluted). The Company declared $14.4 million in dividends (Q4 2018 – $14.1 million) to common
shareholders, a payout ratio of 101.8% (Q4 2018 – 92.2%) on an earnings per share basis.
The Company generated distributable income of $15.6 million (Q4 2018 – $16.3 million) or
distributable income per share of $0.19 (Q4 2018 – $0.20), a payout ratio of 92.3% (Q4 2018 – 86.3%)
on a distributable income basis.
For the years ended December 31, 2019 (“2019”) and December 31, 2018 (“2018”)
The Company funded 63 new net mortgage investments (2018 – 56) totaling $733.5 million
(2018 – $673.4 million), made additional advances on existing mortgage investments totaling
$99.7 million (2018 – $124.3 million) and fully discharged 57 mortgage investments (2018 – 46)
and partially discharged mortgage investments totaling $799.6 million (2018 – $691.4 million). As a
result, the net mortgage investment portfolio as at December 31, 2019 has increased by $33.1 million,
net of foreign exchange translation loss of $470, which is hedged through currency contracts, to
$1,244.1 million (December 31, 2018 – $1,211.0 million), or 2.7% from December 31, 2018.
Other investments within the enhanced return portfolio was $61.5 million, including an allowance
for credit loss of $25 (December 31, 2018 – $91.0 million and $215, respectively). Net decrease of
$29.5 million was mainly due to discharging of collateralized loan investments.
2019 began with $1,211.0 million of net mortgage investments with 7.2% weighted average interest
rate. By the end of Q3 2019, net mortgage investments had declined to $1,174.1 million at a relatively
consistent 7.2% weighted average interest rate. The decline in net mortgage investments by Q3
2019 was driven by repayment activity and slower new originations during the summer months
which is typical of the industry. By the end of Q4 2019 , net mortgage investments increased to
$1,244.1 million.
14
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted Net investment income earned was $99.4 million (2018 – $95.0 million), an increase of $4.4 million,
or 4.6% from 2018. Increase in net investment income 2019 compared to 2018 was primarily due to:
Increase in interest income on net mortgage investment attributable to change in average net
mortgage investment portfolio to $1,197.4 million during 2019 compared to $1,131.5 million in
2018 and weighted average interest rate consistent at 7.2% year over year.
Increase in lender fee income, as a result of acceleration of lender fee income recognition due
to increased number of earlier than scheduled repayments of net mortgage investments during
2019, compared to 2018.
The Company generated income from operations of $85.0 million (2018 – $81.0 million), an
increase of $4.0 million or 4.9% from 2018. Increase in net investment income was partially offset
by increase in total expenses. primarily driven by increase in allowance for expected credit loss and
management fees due to higher net mortgage investment balance.
Weighted average loan-to-value at origination increased from 66.6% as at December 31, 2018 to 69.8%
as at December 31, 2019. Primary drivers of this change were repayments from hotel and self-storage
asset classes with lower loan-to-value, and an increase in multi-family residential exposure at a
relatively higher loan-to-value.
General and administrative expense remained consistent at $1.7 million (2018 – $1.7 million).
The floating rate loans with rate floors represents 77.3% compared to 57.7% in December 31, 2018,
consistent with overall asset allocation strategy shift toward floating rate assets.
Non-refundable cash lender fees recorded were $10.0 million (2018 – $11.3 million). The weighted
average lender fees on new and renewed mortgages during the year was 1.0% (2018 – 1.1%), while the
weighted average lender fee on new mortgages only for the quarter was 1.1% (2018 – 1.3%)
The Company generated net income and comprehensive income of $54.7 million
(2018 – $53.1 million) or earnings per share $0.66, basic and diluted (2018 – $0.67, basic and diluted).
The Company declared $57.1 million in dividends (2018 – $54.9 million) to common shareholders
resulting in a payout ratio of 104.3% (2018 – 103.4%) on an earnings per share basis.
The Company generated distributable income of $59.3 million (2018 – $60.1 million) or distributable
income per share of $0.72 (2018 – $0.76) resulting in a payout ratio of 96.2% (2018 – 93.2%) on a
distributable income basis.
The Company issued 1,167,000 of common shares for gross proceeds of $10.9 million at an average
price of $9.35 per common share and paid $218 in commission to the agent, pursuant to the equity
distribution agreement for the Company’s ATM Program.
In Q1 2019, the Company recognized one-time net other income of $413, primarily from the recovery
of HST credits from 2015 and prior.
15
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted ANALYSIS OF FINANCIAL INFORMATION FOR THE PERIOD
Distributable income
Three months ended
December 31,
Year ended
December 31,
Net income and comprehensive income
$
14,101
$
15,263
$
54,740
$
2019
2018
2019
Less: amortization of lender fees
Add: lender fees received and receivable
Add: amortization of financing costs, credit facility
Add: amortization of financing costs, debentures
Add: accretion expense, debentures
Add: unrealized fair value (gain) loss on FPHFS
Add: net operating (gain) loss on FPHFS
Add: unrealized (gain) loss on equity investments
Add: allowance for mortgage investments loss
Distributable income1
Less: dividends on common shares
Under (over) distribution
Weighted average common shares during the period
Distributable income per share2
(2,660)
3,502
407
300
61
—
—
(489)
333
(2,318)
2,359
354
299
62
29
15
112
127
$
$
$
15,555
(14,355)
1,200
83,196,897
0.19
$
$
$
16,302
(14,076)
2,226
81,286,084
0.20
$
$
$
(10,029)
10,039
1,655
1,191
244
—
—
188
1,313
59,341
(57,078)
2,263
82,663,775
0.72
2018
53,068
(8,328)
11,342
1,248
1,767
384
109
39
(74)
550
$
$
$
60,105
(54,890)
5,215
79,344,276
0.76
1
2.
Refer to non-IFRS measures section.
Excluding other income of $413 in 2019(2018 YTD – $1,217) the distributable income per share for the year ended December 31, 2019 would
have been $0.71 (2018 – $0.74) and payout ratio on distributable income would have been 96.9% (2018 – 93.2%).
The distributable income reconciliation above provides a link between the Company’s IFRS reporting
requirements and its ability to generate recurring cash flows for dividends.
16
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted STATEMENT OF NET INCOME AND COMPREHENSIVE INCOME
Net investment income
Net rental income
Expenses
Income from operations
Other income, net
Net operating loss from foreclosed properties held for sale
Fair value loss on foreclosed properties held for sale
Financing costs:
Financing cost on credit facilities
Financing cost on convertible debentures
Net income and comprehensive income
Earnings per share
Basic
Diluted
NET INVESTMENT INCOME
Three months ended
December 31,
Year ended
December 31,
2019
2018
2019
2018
$
25,207
$
25,169
$
99,437
$
94,958
414
(3,994)
21,627
—
—
—
(5,323)
(2,203)
14,101
0.17
0.17
$
$
$
358
(3,866)
21,661
1,217
(15)
(29)
(5,368)
(2,203)
15,263
0.19
0.18
$
$
$
1,440
(15,863)
85,014
413
—
—
(21,886)
(8,801)
54,740
0.66
0.66
$
$
$
821
(14,776)
81,003
1,217
(39)
(109)
(18,376)
(10,628)
53,068
0.67
0.67
$
$
$
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 performance.
For Q4 2019 and 2019, the Company earned net investment income of $25.2 million and $99.4 million
(Q4 2018 – $25.2 million; 2018 – $95.0 million). Net investment income includes the following:
a. Interest income
During Q4 2019 and 2019, the Company earned interest income on net mortgage investments of
$20.9 million and $82.5 million (Q4 2018 – $20.8 million; 2018 – $79.5 million). The weighted average
interest rate on net mortgage investments for the quarter and year ended December 31, 2019 was 7.2%
and 7.2% (Q4 2018 – 7.3%; 2018 – 7.2%).
Overall increase in interest income on net mortgage investment with relatively constant weighted
average interest rates is attributable to higher average net mortgage investment portfolio of
$1,199.8 million and $1,197.4 million during Q4 2019 and 2019, respectively, compared to $1,169.7 million
and $1,131.5 million during Q4 2018 and 2018, respectively.
During Q4 2019 and 2019, the Company earned $1.2 million and $6.3 million (Q4 2018 – $1.9 million;
2018 – $6.5 million) of interest income on collateralized loans in other investments in the enhanced
return portfolio. Decrease in quarter over quarter interest income, is primarily due to discharges during
the Q4 2019. Year over year, interest income is relatively stable, as first three quarters of 2018 was
generating lower interest income in comparison to first three quarters of 2019.
17
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted b. Lender fee income
For Q4 2019 and 2019, the Company recorded non-refundable upfront cash lender fees of $3.5 million
and $10.0 million (Q4 2018 – $2.4 million; 2018 – $11.3 million), or a weighted average lender fee on new
and renewed mortgages of 1.0% and 1.0%, respectively (Q4 2018 – 0.9%; 2018 – 1.1%). Lender fees are
received upfront and are amortized to income over the life of the respective loan, using the effective
interest rate method. For Q4 2019 and 2019, lender fees of $2.7 million and $10.0 million were amortized
to lender fee income (Q4 2018 – $2.3 million; 2018 – $8.3 million).
Higher lender fee received during Q4 2019 resulted into higher lender fee income during the quarter in
comparison to Q4 2018, and acceleration of lender fee income recognition due to increased number of
earlier than scheduled repayments of net mortgage investments resulted in increased lender fee income
during 2019 compared to 2018.
Lender fees continue to be a significant component of income as a result of mortgage investment
origination and turnover..
c. Other income
During Q4 2019 and 2019, the Company earned other income of $395 and $577 (Q4 2018 – $207;
2018 – $605).
NET RENTAL INCOME FROM INVESTMENT PROPERTIES
The net rental income from investment properties for Q4 2019 and 2019 was $414 and $1.4 million,
respectively (Q4 2018 $358; 2018 – $821). The increase in net rental income was due to increase in the
gross rental income upon completion of development activities, as well as overall reduction in the
vacancy rates.
EXPENSES
Management fees
The 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 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.
For Q4 2019 and 2019, the Company incurred management fees of $3.1 million and $12.4 million (Q4
2018 – $3.1 million; 2018 – $11.9 million). The increase is related to the increase in gross assets, net of
syndication liabilities averaging $1,319.5 million in 2019, compared to $1,268.7 million in 2018.
Servicing fees
As part of the 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 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 2019 and 2019, the Company incurred $114 and $497, respectively (Q4 2018 and 2018 – $163 and
$622) in servicing fees. The decrease is related to the decrease in syndications.
18
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted General and administrative
For Q4 2019 and 2019, the Company incurred general and administrative expenses of $487 and
$1.7 million, respectively (Q4 2018 – $478; 2018 – $1.7 million). General and administrative expenses
consist mainly of audit fees, professional fees, director fees, other operating costs and administration
of the mortgage and other investments portfolio. There was no material variance in General and
administrative expenses.
FINANCING COST ON CREDIT FACILITY – MORTGAGE INVESTMENTS
Interest on the credit facility is recorded in financing costs using the effective interest rate method. For Q4
2019 and 2019, included in financing costs is interest on the credit facility of $4.6 million and $18.9 million
(Q4 2018 – $4.8 million; 2018 – $16.0 million) and financing costs amortization of $398 and $1.6 million
(Q4 2018 – $348; 2018 – $1.2 million). The increase over the comparable 2018 periods is related to higher
average credit facility utilization during 2019. The average credit utilization in 2019 was $441.8 million
compared to $384.9 million in 2018.
FINANCING COST ON CREDIT FACILITY – INVESTMENT PROPERTIES
Interest on the credit facility is recorded in financing costs using the effective interest rate method. For
Q4 2019 and 2019, included in financing costs is interest on the credit facility of $270 and $1.4 million (Q4
2018 – $170; 2018 – $1,125) and financing costs amortization of $9 and $48 (Q4 2018 – $6; 2018 – $52).
FINANCING COST ON CONVERTIBLE DEBENTURES
The Company has $45.8 million of 5.40% convertible unsecured subordinated debentures, $46.0 million
of 5.45% convertible unsecured subordinated debentures and $45.0 million of 5.30% convertible
unsecured subordinated debentures outstanding as at December 31, 2019.
Interest costs related to the 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
Amortization of issue costs and accretion of the convertible
debentures
Total financing cost on convertible debentures
$
$
EARNINGS PER SHARE
Three months ended
December 31,
2019
1,842
361
2,203
$
$
2018
1,841
361
$
2,202
$
Year ended
December 31,
2019
7,366
1,435
8,801
$
$
2018
8,477
2,151
10,628
For Q4 2019 and 2019, basic and diluted earnings per share were $0.17 and $0.66 (Q4 2018 – basic $0.19;
diluted $0.18 and 2018 – basic and diluted $0.67).
In accordance with IFRS, convertible debentures are considered for potential dilution in the calculation
of the diluted earnings per share. Each series of convertible debentures is considered individually and
only those with dilutive effect on earnings are included in the diluted earnings per share calculation.
Convertible debentures that are considered dilutive are required by IFRS to be included in the diluted
earnings per share calculation notwithstanding that the conversion price of such convertible
debentures may exceed the market price and book value of the Company’s common shares.
Diluted earnings per share are calculated by adding back the interest expense relating to the dilutive
convertible debentures to total net income and comprehensive income and increasing the weighted
average number of common shares by treating the dilutive convertible debentures as if they had been
converted on the later of the beginning of the reporting period or issuance date.
19
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted STATEMENTS OF FINANCIAL POSITION
Net mortgage investments
The Company’s exposure to the financial returns is related to the net mortgage investments as mortgage
syndication liabilities are non-recourse mortgages with periodic variance having no impact on
Company’s financial performance.
Reconciliation of gross and net mortgage investments balance is as follows:
Net mortgage investments
Mortgage investments, excluding mortgage syndications
Mortgage syndications
Mortgage investments, including mortgage syndications
Mortgage syndication liabilities
Interest receivable
Unamortized lender fees
Allowance for mortgage investments loss
Net mortgage investments
December 31, 2019
December 31, 2018
$
$
$
$
1,240,747
426,939
1,667,686
(426,939)
1,240,747
(8,428)
9,460
2,303
1,221,782
575,040
1,796,822
(575,040
1,221,782
(20,578)
8,372
1,417
$
1,244,082
$
1,210,993
Net mortgage investments statistics and ratios1
Three months ended December 31,
Year ended December 31,
2019
2018
2019
2018
Total number of mortgage
investments
Average net mortgage investment
Average net mortgage investment
portfolio
$
$
Weighted average interest rate for
the period
Weighted average lender fees for
the period
Turnover ratio
Remaining term to maturity (years)
Net mortgage investments secured
by cash-flowing properties
Weighted average loan-to-value
1.
Refer to non-IFRS measures section.
129
9,524
1,199,831
$
$
124
9,762
1,169,696
$
$
129
9,524
1,197,377
$
$
7.2%
1.0%
26.0%
1.4
86.8%
70.5%
7.3%
0.9%
13.8%
1.2
87.5%
67.4%
7.2%
1.0%
67.0%
1.4
86.8%
70.5%
124
9,762
1,131,531
7.2%
1.1%
60.6%
1.2
87.5%
67.4%
20
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
PORTFOLIO ALLOCATION
The Company’s net mortgage investments were allocated across the following categories:
a. Security Position
Interest in first mortgages
Interest in second and third mortgages1
December 31, 2019
December 31, 2018
Net Mortgage
Number
Investments Number
Net Mortgage
Investments
114
$
1,125,797
15
118,285
129
$
1,244,082
113
11
124
$
$
1,128,366
82,627
1,210,993
1. Included in the Company’s interest in second and third mortgages as at December 31, 2019 was $42.6 million of the net mortgage investments
in which the Company holds subordinated position (December 31, 2018 – $12.9 million). The Company’s syndicated partners who hold senior
position as at December 31, 2019 was $32.7 million (December 31, 2018 – $43.9 million).
b. Region
Ontario
British Columbia
Alberta
Quebec
Other (Saskatchewan, Nova Scotia and Manitoba)
c. Maturity
2019
2020
2021
2022
2023
December 31, 2019
December 31, 2018
Net Mortgage
Number
Investments Number
Net Mortgage
Investments
$
65
29
14
11
10
535,622
297,580
252,437
109,092
49,351
$
59
28
13
14
10
515,124
284,336
253,023
73,886
84,624
129
$
1,244,082
124
$
1,210,993
December 31, 2019
December 31, 2018
Net Mortgage
Number
Investments Number
Net Mortgage
Investments
— $
—
47
59
20
3
416,478
543,274
232,257
52,073
$
51
51
20
2
—
463,777
495,498
235,465
16,253
—
129
$
1,244,082
124
$
1,210,993
21
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted d. Asset Type
Multi-Residential1
Retail
Unimproved Land2
Office
Retirement
Industrial
Single-Residential
Hotels
Self-Storage
December 31, 2019
December 31, 2018
WALTV at
origination3 Number
Net Mortgage
Investments
WALTV at
origination3
Number
79
19
9
10
3
5
1
—
—
Net Mortgage
Investments
$
673,585
192,749
106,874
105,936
58,175
30,187
1,574
—
—
74.0%
69.1%
49.4%
62.6%
75.6%
66.6%
69.5%
—
—
64
19
9
8
5
8
2
4
2
121
3
$
467,635
227,497
105,515
162,922
50,000
58,115
4,631
59,300
20,636
1,156,251
72.4%
68.2%
52.4%
62.8%
66.4%
68.1%
65.5%
52.6%
54.1%
66.6%
54,742
n/a
Net mortgage investments
measured at FVTPL
126
1,169,080
69.8%
3
75,002
n/a
1.
Includes seven construction loans (2018 – 6) totaling $26.7 million (2018 – $12.7 million). Construction loan is provided for the purposes of
building a new asset.
2 Unimproved land loan is provided to a non-income producing property that does not contemplate construction during the loan period.
3 Weighted average loan-to-value measured at time of origination.
129
$
1,244,082
124
$
1,210,993
ENHANCED RETURN PORTFOLIO
As at
December 31, 2019
December 31, 2018
Collateralized loans, net of allowance for credit loss
$
48,326
$
Finance lease receivable, measured at amortized cost
Investment, measured at FVTPL
Indirect real estate development, measured using equity method:
Investment in Joint Venture
Investment in Associate
Total Other Investments
Investment properties
Credit facility (investment properties)
Net equity in investment properties
Total Enhanced Return Portfolio
6,020
4,949
2,225
—
61,520
47,349
(30,622)
16,727
78,247
$
$
72,840
6,020
4,605
2,225
5,267
90,957
46,494
(32,773)
13,721
104,678
22
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
During Q4 2019 and 2019, the Company earned $1.2 million and $6.3 million (Q4 2018 – $1.9 million
and 2018 – $6.5 million) of interest income on collateralized loans in other investments in the enhanced
return portfolio.
During Q4 2019 and 2019, the Company earned lender fee income on other investments, net of
fees relating to mortgage syndication liabilities, of $41 and $386 (Q4 2018 – $154 and 2018 – $488),
respectively. During Q4 2019 and 2019, the Company received nil in lender fees from other investments,
respectively (Q4 2018 – nil and 2018 – $683), which are amortized to interest income over the term of
the related mortgage investments using the effective interest rate method.
During Q4 2017, the Company entered into an 20-year emphyteutic lease on a foreclosed property held
for sale in Quebec, which had a fair value of $5.4 million at the time of the transaction. Refer to note 4(e)
of the Consolidated Financial Statements for the years ended December 31, 2019 and 2018.
On August 16, 2017, the Company acquired a 20.46% undivided beneficial interest in the Saskatchewan
Portfolio which is comprised of 14 investment properties totaling 1,079 units located in Saskatoon and
Regina, Saskatchewan for a total purchase price of $201.7 million (the Company’s share is $41.3 million).
As at December 31, 2019, the Company’s share of the investment properties has an aggregate fair value
of $47.3 million (December 31, 2018 – $46.5 million) and are pledged as security for the credit facility
of the co-ownership. The Company is entitled to receive incremental profits from the excess returns
generated over certain thresholds.
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 $426.9 million (December 31, 2018 – $575.0 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 are not necessarily indicative of a future trend.
23
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted ALLOWANCE FOR CREDIT LOSSES (“ACL”)
The allowance for credit losses is maintained at a level that management considers adequate to absorb
credit-related losses on our mortgage and other investments. The allowance for credit losses amounted
to $2.3 million as at December 31, 2019 (December 31, 2018 – $1.6 million), of which $2.3 million
(December 31, 2018 – $1.4 million) was recorded in mortgage investments and $25 (December 31,
2018 – $215) was recorded in other investments.
Multi-residential
Mortgage Investments
Year Ended December 31, 2019
Year Ended December 31, 2018
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Gross mortgage investments1
$
925,025 $
—$
2,903 $ 927,928 $
851,402 $
—$
2,790 $
854,192
Mortgage syndication liabilities1
240,724
Net mortgage investments
Allowance for credit losses2
684,301
1,003
683,298
—
—
—
—
— 240,724
322,244
2,903
687,204
529,158
253
1,256
627
2,650
685,948
528,531
—
—
—
—
— 322,244
2,790
531,948
3
630
2,787
531,318
Other Mortgage Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Gross mortgage investments1
Mortgage syndication liabilities1
Net mortgage investments
Allowance for credit losses2
674,306
187,274
487,032
334
486,698
—
—
—
—
—
3,102
677,408
853,383
— 187,274
253,694
3,102
490,134
599,689
713
1,047
200
2,389
489,087
599,489
—
—
—
—
—
37,790
891,173
— 253,694
37,790
637,479
587
787
37,203
636,692
Other loan Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Gross mortgage investments1
48,407
Mortgage syndication liabilities1
Net mortgage investments
Allowance for credit losses2
—
48,407
25
—
—
—
—
—
—
—
—
48,407
66,483
—
—
48,407
66,483
25
212
—
—
—
—
Total
73,497
—
7,014
—
7,014
73,497
3
215
$
48,382 $
—$
—$
48,382 $
66,271 $
—$
7,011 $
73,282
1
2
Including interest receivable
Allowance for credit losses in finance lease receivable (note 4(e)) and unadvanced commitments (note 4(a)) are all considered to be in Stage 1
with minimal ACL.
24
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
The changes in the allowance for credit losses year to date are shown in the following tables.
Multi-residential
Mortgage Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Balance at beginning of period $
627 $
— $
3 $
630 $
603 $
26 $
— $
629
Year Ended December 31, 2019
Year Ended December 31, 2018
Allowance for credit losses
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Discharges
(4)
2
—
—
625
863
(485)
2
—
(2)
—
—
—
—
250
248
24
—
(23)
1
—
—
—
253
—
—
2
(2)
—
878
863
(485)
—
—
—
627
340
(340)
—
(26)
—
—
—
—
—
—
26
3
—
—
Balance at end of fiscal period
$
1,003 $
— $
253 $
1,256 $
627 $
— $
3 $
Other Mortgage Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Balance at beginning of period $
200 $
— $
587 $
787 $
1 $
209 $
— $
210
Allowance for credit losses
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Discharges
142
—
—
—
342
134
(142)
—
—
—
—
—
—
—
742
884
252
—
—
—
1,329
—
(616)
—
—
—
1,671
134
(758)
—
—
—
253
88
(141)
—
—
(209)
—
—
—
—
—
—
209
587
—
—
Balance at end of fiscal period
$
334 $
— $
713 $
1,047 $
200 $
— $
587 $
378
630
—
(26)
26
630
340
(340)
630
—
(209)
209
840
88
(141)
787
Other loan Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Balance at beginning of period $
212 $
— $
3 $
215 $
232 $
— $
— $
232
Allowance for credit losses
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Discharges
8
3
—
—
223
3
(201)
—
—
—
—
—
—
—
—
—
—
(3)
—
—
—
8
3
—
(3)
223
3
(201)
(16)
(3)
—
—
213
65
(66)
—
—
—
—
—
—
—
—
—
—
3
3
—
—
Balance at end of fiscal period
$
25 $
— $
— $
25 $
212 $
— $
3 $
(16)
(3)
—
3
216
65
(66)
215
25
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
The following table presents the gross carrying amounts of mortgage and other loan investments, net
of syndication liabilities, subject to IFRS 9 impairment requirements by internal risk ratings used by the
Company for credit risk management purposes.
In assessing credit risk, the Company utilizes a risk rating framework that considers the following
factors: collateral type, property rank that is applicable to the Company’s security and/or priority
positions, loan-to-value and population of location of the collateral.
The internal risk ratings presented in the table below are defined as follows:
Low Risk: Mortgage and loan investments that exceed the credit risk profile standard of the Company
with a below average probability of default. Yields on these investments are expected to trend lower than
the Company’s average portfolio.
Medium-Low: Mortgage and loan investments that are typical for the Company’s risk appetite, credit
standards and retain a below average probability of default. These mortgage and loan investments are
expected to have average yields and would represent a significant percentage of the overall portfolio.
Medium-High: Mortgage and loan investments within the Company’s risk appetite and credit standards
with an average probability of default. These investments typically carry attractive risk-return yield
premiums.
High Risk: Mortgage and loan investments within the Company’s risk appetite and credit standards
that have an additional element of credit risk that could result in an above average probability of default.
These mortgage and loan investments carry a yield premium in return for their incremental credit
risk. These mortgage and loan investments are expected to represent a small percentage of the overall
portfolio.
Default: Mortgage and loan investments that are 90 days past due and when there is objective evidence
that there has been a deterioration of credit quality to the extent the Company no longer has reasonable
assurance as to the timely collection of the full amount of principal and interest and/or when the
Company has commenced enforcement remedies available to it under its contractual agreements.
26
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted Year Ended December 31, 2019
Year Ended December 31, 2018
Multi-residential
Mortgage Investments
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net
Allowance for credit losses
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$ 205,588 $
— $
— $ 205,588 $ 221,309 $
— $
— $ 221,309
444,496
34,217
—
—
684,301
1,003
—
—
—
—
—
—
— 444,496
289,144
—
—
2,903
2,903
253
34,217
18,705
—
2,903
—
—
687,204
529,158
1,256
627
—
—
—
—
—
—
—
—
—
2,790
2,790
3
289,144
18,705
—
2,790
531,948
630
Mortgage investments1
$ 683,298 $
— $
2,650 $ 685,948 $ 528,531 $
— $
2,787 $ 531,318
Other Mortgage Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net
Allowance for credit losses
$ 118,546 $
— $
— $ 118,546 $ 177,567 $
— $
— $ 177,567
275,349
82,054
11,083
—
487,032
334
—
—
—
—
—
—
—
—
—
3,102
3,102
713
275,349
341,418
82,054
11,083
3,102
66,644
14,060
—
490,134
599,689
1,047
200
—
—
—
—
—
—
—
—
37,790
37,790
587
341,418
66,644
14,060
37,790
637,479
787
Mortgage investments1
$ 486,698 $
— $
2,389 $ 489,087 $ 599,489 $
— $
37,203 $ 636,692
Other Loan Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Medium-Low risk
Medium-High risk
High risk
Default
Net
Allowance for credit losses
—
—
48,407
—
48,407
25
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
48,407
66,483
—
—
48,407
66,483
25
212
—
—
—
—
—
—
—
—
7,014
7,014
3
—
—
66,483
7,014
73,497
215
Other loan Investments1
$
48,382
— $
— $
48,382 $
66,271 $
— $
7,011 $
73,282
1.
net of allowance and mortgage syndications
NET WORKING CAPITAL
Net working capital decreased by $8.2 million to $11.1 million at December 31, 2019 from $19.4 million at
December 31, 2018.
CREDIT FACILITY (MORTGAGE INVESTMENTS)
The Company originally had $400 million in credit facility with 10 Canadian banks and by the
exercising accordion feature on February 13, 2018 and November 16, 2018, the Company increased the
credit limit to $500 million. The facility is secured by a general security agreement over the Company’s
assets and its subsidiaries and has a maturity date of December 20, 2021. On December 20, 2019, the
Company amended the credit facility agreement (the “Fourth Amending Credit Agreement”) to amend
certain terms and conditions, including rates of interest.
The rates of interest and fees of the Fourth Amending Credit Agreement are either at the prime rate
of interest plus 1.00% per annum (December 31, 2018 – prime rate of interest plus 1.25% per annum)
or bankers’ acceptances with a stamping fee of 2.00% (December 31, 2018 – 2.25%) and standby fee
of 0.4000% per annum (December 31, 2018 – 0.5625%) on the unutilized credit facility balance. As at
27
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted December 31, 2019, the Company’s qualified credit facility limit, which is subject to a borrowing base as
defined in the Fourth Amending Credit Agreement is $500.0 million.
As at December 31, 2019, the Company entered into a 2-year interest rate swap contract (the “Contract”)
with 2 Canadian banks with notional value of $250 million. Under the terms of the Contract, the
Company is required to pay fixed rate of 2.02% and receive floating rate based on 1-month banker’s
acceptance. Net realized and unrealized gain or loss from the Contract is recorded as financing cost on
the credit facility.
During the year ended December 31, 2019, the Company incurred financing costs of $903. 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.
CREDIT FACILITY (INVESTMENT PROPERTIES)
Concurrently with the Saskatchewan Portfolio acquisition, the Company and the co-owners originally
entered into a credit facility agreement with a Schedule 1 Bank with a maturity date of August 10, 2019.
Under the terms of the agreement, the co-ownership has a maximum available credit of $162.6 million.
The gross initial advance on the credit facility was $144.6 million. The Company’s share of the initial
advance was $29.6 million plus $109 of unamortized financing costs.
On October 9,2019, the credit facility agreement was further amended (the “Amended and Restated
Credit Agreement”) to establish Tranche A, Tranche B and Tranche C credit facilities (the “Credit
Facilities”). Under the amended terms, the maximum available credit is $150 million As at December 31,
2019, the co-owners borrowed $150.0 million from the Credit Facilities. The Company’s share of the
outstanding amount in is $30.7 million.The original credit facility provided the co-owners with the
option to borrow at either the prime rate of interest plus 1.50% or at the bankers’ acceptances with a
stamping fee of 2.50% (“Canadian Dollar Loans”), or at LIBOR plus 2.50%. Under the Amended and
Restated Credit Agreement, the Credit Facilities consist of the following.
1)
2)
3)
Tranche A credit facility provides the co-owners with an option to borrow at either the prime rate
of interest plus 1.00% or at the bankers’ acceptances with a stamping fee of 2.00% (“Canadian Dollar
Loans”), or at LIBOR plus 2.00%, with maturity date of October 9, 2021.The credit facility is secured by
a first charge on specific assets with a gross carrying value of $31.7 million. The Company’s share of
the carrying value is $6.5 million
Tranche B credit facility comprises of a commercial mortgage loan for certain properties defined as
tranche B properties (the “Tranche B Properties”) in the Amended and Restated Credit Agreement,
where terms and conditions are set forth in a rate lock agreement, with maturity date of October 9,
2020 and a locked in rate of 3.305%. The Tranche B credit facility is secured by a first charge on
the Tranche B Properties with a gross carrying value of $39.7 million. The Company’s share of the
carrying value is $8.1 million.
Tranche C credit facility comprises of a commercial mortgage loan for certain properties defined as
tranche C properties (the “Tranche C Properties”) in the Amended and Restated Credit Agreement,
where terms and conditions are set forth in a rate lock agreement, with maturity date of October 9,
2021 and a locked in rate of 3.114%. The Tranche C credit facility is secured by a first charge on the
Tranche C Properties with a gross carrying value of $78.6 million. The Company’s share of the
carrying value is $16.1 million.
The co-owners of the Saskatchewan Portfolio (note 5) are each individually subject to financial
covenants outlined in the investment properties credit facility agreement. Notwithstanding, the lender’s
recourse is limited to each co-owner’s proportionate interest in the investment properties credit facility.
As at December 31, 2019, the co-owners borrowed $150.0 million from the Credit Facilities. The
Company’s share of the outstanding amount in is $30.7 million.
28
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted CONVERTIBLE DEBENTURES
(a) 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 pay
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, on not more than 60 days’ and not less than 30 days’ prior written
notice, provided that the volume weighted average trading price of the common shares on the TSX
during the 20 consecutive trading days ending on the fifth trading day preceding the date on which
the notice of the redemption is given is not less than 125% of the conversion price. On or after July 31,
2020 and prior to the maturity date, the 2016 Debentures will be redeemable, 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, on not more than 60 days’
and not less than 30 days’ prior written notice.
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.
(b) On February 7, 2017, the Company completed a public offering of $40,000, plus an overallotment
option of $6,000, of 5.45% convertible unsecured subordinated debentures for net proceeds of $43,663
(the “February 2017 debentures”). The February 2017 debentures mature on March 31, 2022 and pay
interest semi-annually on September 30 and March 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 February 2017 debentures are redeemable on and after March 31, 2020, but prior to March 31,
2021, the February 2017 Debentures will be redeemable, 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, on not more than 60 days’ and not less than 30
days’ prior written notice, provided that the volume weighted average trading price of the common
shares on the TSX during the 20 consecutive trading days ending on the fifth trading day preceding
the date on which the notice of the redemption is given is not less than 125% of the conversion
price. On or after March 31, 2021 and prior to the maturity date, the February 2017 Debentures will
be redeemable, 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, on not more than 60 days’ and not less than 30 days’ prior written notice.
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 $607, has been recorded as equity with the remainder
29
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted 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 $46,000. The issue costs of $2,240 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.
(c) On June 13, 2017, the Company completed a public offering of $40,000, plus an overallotment option
of $5,000 on June 27, 2017, of 5.30% convertible unsecured subordinated debentures for net proceeds
of $42,774 (the “June 2017 debentures”). The June 2017 debentures mature on June 30, 2024 and pay
interest semi-annually on June 30 and December 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 $11.10 per common share, subject to adjustment in certain events in accordance with the trust
indenture governing the terms of the debentures.
The June 2017 debentures are redeemable on and after June 30, 2020, but prior to June 30, 2022, the
June 2017 Debentures will be redeemable, 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, on not more than 60 days’ and not less than 30 days’ prior
written notice, provided that the volume weighted average trading price of the common shares on
the TSX during the 20 consecutive trading days ending on the fifth trading day preceding the date
on which the notice of the redemption is given is not less than 125% of the conversion price. On or
after June 30, 2022 and prior to the maturity date, the June 2017 Debentures will be redeemable, 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, on
not more than 60 days’ and not less than 30 days’ prior written notice.
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 $560, 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 $45,000. The issue costs of $2,226 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.
The convertible debentures are comprised of as follows
Issued
Unamortized financing cost and amount classified as equity component
Debentures, end of period
December 31, 2019
December 31, 2018
$
$
136,800
(3,767)
133,033
$
$
136,800
(5,203)
131,597
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
Amortization of issue costs and accretion of the convertible debentures
Total
December 31, 2019
December 31, 2018
$
$
7,366
1,435
8,801
$
$
8,477
2,151
10,628
30
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted SHAREHOLDERS’ EQUITY
a. Common shares
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.
The Company announced on June 21, 2018 that it has established an ATM Program that allows the
Company to issue common shares from treasury having an aggregate gross sales amount of up to
$70 million to the public from time to time, at the Company’s discretion. Sales of the common shares
under the equity distribution agreement were made through “at-the-market distributions” as defined in
National Instrument 44-102 – Shelf Distributions, including sales made directly on the Toronto Stock
Exchange. The common shares distributed under the ATM Program were at the market prices prevailing
at the time of sale, and therefore prices varied between purchasers and over time. The ATM Program
was active between July 2018 to July 2019 and expired on January 11, 2020.
Net proceeds of the ATM Program were used to repay amounts owing under its secured revolving credit
facility, and will subsequently draw on the credit facility for purposes of funding the purchase of new
investments in accordance with the strategies, investment objectives and investment guidelines of the
Company.
During Q4 2019 and 2019, the Company issued nil and 1,167,000 (Q4 2018 – 57,500 and 2018 – 458,100)
of common shares for gross proceeds of nil and $10.9 million (Q4 2018 – $0.5 million and
2018 – $4.3 million) at an average price of $9.35 per common share and paid nil and $218 in commission
to the agent, pursuant to the ATM Program’s equity distribution agreement.
b. Dividends
The Company intends to pay dividends to holders of common shares monthly within 15 days following
the end of each month. During Q4 2019 and 2019, the Company declared dividends of $14.4 million
and $57.1 million, or $0.1725 and $0.6900 per common share (Q4 2018 – $14.1 million, $0.1725 per share;
2018 – $54.9 million, $0.6900 per share).
As at December 31, 2019, $4.8 million in aggregate dividends (December 31, 2018 – $4.7 million) was
payable to the holders of common shares by the Company. Subsequent to December 31, 2019, the
Board of Directors of the Company declared dividends of $0.0575 per common share to be paid on
February 14, 2020 and March 13, 2020 to the common shareholders of record on January 31, 2020 and
February 28, 2020.
c. Dividend reinvestment plan (“DRIP”)
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 can be purchased from the open market based upon the prevailing market
rates or 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 2019 and 2019, nil and 36,866 common shares were purchased on the open market (Q4 2018
and 2018 – nil) and 120,857 and 454,286 common shares were issued from treasury at an average price
of $9.30 per common share (Q4 2018 – 105,175 and 2018 – 483,335).
31
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted d. Non-executive director deferred share unit plan (“DSU”)
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. Until
June 30, 2018, each director was also entitled to an additional 25% of DSUs that are issued in the quarter
up to a maximum value of $5 per annum.
The DSU 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.
During Q4 2019 and 2019, 8,274 and 32,417 units were issued (2018 – 7,751 and 23,848) and as at
December 31, 2019, 84,308 units were outstanding (December 31, 2018 – 51,891). No DSUs were
exercised or canceled, resulting in a DSU expense of $338 (2018 – $240). As at December 31, 2019, $86 in
compensation was granted in DSUs, which will be issued subsequent to December 31, 2019.
STATEMENT OF CASH FLOWS
Cash from operating activities
Cash from operating activities for 2019 was $102.5 million (2018 – $78.0 million).
Cash used in financing activities
Cash used in financing activities for 2019 and cash from financing activities for 2019 consisted of
the Company’s net repayments on the operating credit facility of $17.1 million (2018 – $112.2 million
of net advances) and net repayments on investment properties credit facility of $2.1 million
(2018 – $2.6 million of net advances). The Company received net proceeds of $10.4 million from the
issuance of common shares (2018 – $60.3 million). The Company paid interest on the debentures and
credit facilities of $28.4 million (2018 – $29.8 million), paid common share dividends of $52.4 million
(2018 – $50.1 million) and repurchased common shares under dividend reinvestment plan of $338
(2018 – nil). The net cash used in financing activities for 2019 was $89.9 million (2018 – $60.7 million
from financing activities).
Cash used in investing activities
Net cash used in investing activities in 2019 was $4.3 million (2018 – $138.9 million) and consisted of
the funding of net mortgage investments of $793.0 million (2018 – $792.7 million), offset by repayments
of net mortgage investments of $766.1 million (2018 – $690.3 million), funding of other investments
of $4.7 million (2018 – $51.9 million), offset by repayments of other investments of $27.6 million
(2018 – $19.6 million), net addition to investment properties of $855 (2018 – $3.6 million), purchase of
$36.5 million marketable securities (2018 – nil), offset by proceeds from sale of marketable securities
$36.6 million (2018 – nil), and net proceeds on maturing of forward contracts of $451 (2018 – $845
net payments).
32
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted QUARTERLY FINANCIAL INFORMATION
The following is a quarterly summary of the Company’s results for the eight most recently completed
quarters:
Net investment income
$
25,207 $ 24,742 $ 24,976 $ 24,512 $ 25,169 $ 24,465
$ 23,477
$ 21,847
Q4
2019
Q3
2019
Q2
2019
Q1
2019
Q4
2018
Q3
2018
Q2
2018
Q1
2018
Net rental income
Expenses
Income from operations
Other income, net
Net operating loss from FPHFS
Fair value loss of FPHFS
Financing costs:
Financing cost on credit
facilities
Financing cost on
convertible debentures
Total financing costs
Total net income and
comprehensive income
(basic)
Total net income and
comprehensive income
(diluted)
Earnings per share (basic)
Earnings per share (diluted)
Distributable income1
Distributable income per share1
414
(3,994)
21,627
—
—
—
359
351
316
358
135
179
149
(3,769)
(4,005)
(4,095)
(3,866)
(3,774)
(3,752)
(3,386)
21,332
21,322
20,733
21,661
20,826
19,904
18,610
—
—
—
—
—
—
413
1,217
—
—
(15)
(29)
—
(18)
(40)
—
(5)
(40)
—
(2)
—
(5,323)
(5,216)
(5,531)
(5,816)
(5,368)
(4,836)
(4,111)
(4,061)
(2,203)
(7,526)
(2,203)
(7,419)
(2,199)
(7,730)
(2,196)
(8,012)
(2,203)
(7,571)
(2,224)
(7,060)
(3,321)
(2,880)
(7,432)
(6,941)
$
14,101
$
13,913
$
13,592 $
13,134 $
15,263
$
13,708 $
12,427
$
11,667
$
$
$
$
$
16,304 $
15,422 $
14,335
$
13,134 $
17,466 $
15,911
0.17 $
0.17 $
0.17
0.17
$
$
0.16 $
0.16 $
0.19 $
0.16 $
0.16 $
0.18 $
0.17
0.17
$
$
$
12,427
$ 12,359
0.16 $
0.16 $
0.15
0.15
15,555 $ 15,888 $
13,690 $
14,208 $
16,302 $
14,818 $
15,477
$ 13,508
0.19 $
0.19 $
0.17
$
0.17
$
0.20 $
0.19 $
0.20 $
0.18
1
Refer to non-IFRS measures section.
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;
ii.
In any given quarter, the Company is subject to volatility from fair value adjustments to FPHFS and
allowance for mortgage investments resulting in fluctuations in quarterly total net income and
comprehensive income;
iii. The utilization of the credit facility to fund mortgage investments results in higher net interest
income, which is partially offset by higher financing costs.
33
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
RELATED PARTY TRANSACTIONS
As at December 31, 2019, due to Manager mainly includes management and servicing fees payable of
$1.1 million (December 31, 2018 – $1.5 million).
As at December 31, 2019, included in other assets is $9.0 million (December 31, 2018 – $3.1 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 and other loan funding holdbacks, repayments and prepaid mortgage interest received from
various borrowers.
As at December 31, 2019, the Company had no outstanding mortgage investments which an
independent director of the Company was also an officer and/or part-owner of the borrowers:
A mortgage investment with a total gross commitment of $9.5 million (December 31,
2018 – $9.5 million), which was fully repaid during the year ended December 31, 2019. The
Company’s share of the commitment is $3.6 million (December 31, 2018 – $3.6 million). For the year
ended December 31, 2019, the Company has recognized net interest income of $314 (Q4 2018 – $344)
from this mortgage investment during the year.
A mortgage investment with a total gross commitment of $1.9 million (December 31,
2018 – $1.9 million), which was fully repaid during the year ended December 31, 2019. The
Company’s share of the commitment is $1.9 million (December 31, 2018 – $1.9 million). For the year
ended December 31, 2019, the Company has recognized net interest income of $102 (Q4 2018 – $115)
from this mortgage investment during the year.
A mortgage investment with a total gross commitment of $16.5 million (December 31,
2018 – $16.5 million). The Company’s share of the commitment is $3.0 million (December 31,
2018 – $2.5 million), of which $3.0 million (December 31, 2018 – $2.5 million) has been funded as
at December 31, 2019. During the year ended December 31, 2019, the mortgage investment was
restructured and the independent director is no longer related to the mortgage investment. For the
year ended December 31, 2019, the Company recognized net interest income of $245 (2018 – $238)
from this mortgage investment during the year.
As at December 31, 2019, the Company and Timbercreek Four Quadrant Global Real Estate Partners
(“T4Q”) and Timbercreek Real Estate Financing U.S. Holding LP (“TREF”) are related parties as they are
managed by wholly owned subsidiary of the Manager, and they have co invested in 29 (December 31,
2018 – 18) gross mortgage investments totaling $349.0 million (December 31, 2018 – $258.8 million).
The Company’s share in these gross mortgage investments is $202.9 million (December 31,
2018 – $178.4 million). Included in these amounts is one net mortgage investments (December 31,
2018 – two) totaling $18.4 million (December 31, 2018 – $23.0 million) loaned to limited partnerships in
which T4Q is invested.
As at December 31, 2019, the Company and T4Q invested in one indirect real estate development
through one investee, totaling $2.2 million (December 31, 2018 – two indirect real estate development
through two investees, totaling $7.5 million).
As at December 31, 2019, the Company is invested in junior debentures of Timbercreek Ireland
Private Debt Designated Activity Company totaling $4.9 million or €3.4 million (December 31,
2018 – $4.6 million or €2.9 million), which is included in loan investments within other investments.
Timbercreek Ireland Private Debt Designated Activity Company is managed by a wholly owned
subsidiary of the Manager.
As part of the Saskatchewan Portfolio co-ownership, the Company, T4Q and a third-party co-owner
have entered into property management agreements with the Manager. The Manager provides property
and leasing services to each of the properties and is entitled to receive property management and capital
34
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted improvements service fees (the “Property Management Fees”) at the disclosed rates in the agreements.
For the year ended December 31, 2019, Property Management Fees of $140 was charged by the
Manager to the Company (Q4 2018 – $129.9). As at December 31, 2019, $12 was payable to the Manager
(December 31, 2018 – $18).
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 other investments. 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 Company’s consolidated financial statements, Timbercreek Asset Management
Inc. (the “Manager”) has made judgements, estimates and assumptions that affect the application of the
Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are
recognized prospectively.
In making estimates, the Manager relies on external information and observable conditions where
possible, supplemented by internal analysis as required. Those estimates and judgements 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 judgements in these consolidated financial statements. The
significant estimates and judgements 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.
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 Company reviews significant unobservable inputs and valuation adjustments. If third party
information, such as broker quotes or appraisals are used to measure fair values, the Company 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.
35
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted The information about the assumptions made in measuring fair value is included in the following notes
within the consolidated financial statements:
Note 4 – Mortgage and other investments, including mortgage syndications;
Note 5 – Investment properties; and
Note 19 – Fair value measurements.
Syndication liabilities
The Company applies judgement in assessing the relationship between parties with which it enters
into participation agreements in order to assess the derecognition of transfers relating to mortgage and
other investments.
Classification of mortgage and other investments
Mortgage investments and other loan investments are classified based on the business model for
managing assets and the contractual cash flow characteristics of the asset. The Company exercises
judgment in determining both the business model for managing the assets and whether cash flows of
the financial asset comprise solely payments of principal and interest.
Measurement of expected credit loss
The determination of the allowance for credit losses takes into account different factors and varies
by nature of investment. These judgments include changes in circumstances that may cause future
assessments of credit risk to be materially different from current assessments, which would require an
increase or decrease in the allowance of credit loss. Refer to note 3(b).
Convertible debentures
The Company exercises judgement in determining the allocation of the debt and equity 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 value is allocated to the equity component.
Accounting for acquisitions
The Company exercises judgement in determining whether an acquisition of a property should be
accounted for as an asset purchase or business combination. This assessment impacts the treatment
of transaction costs, allocation of acquisition costs and whether or not goodwill is recognized. The
Manager has determined the acquisitions to date to be asset purchases as the Company did not acquire
an integrated set of processes as part of the transaction that is normally associated with a business
combination.
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting polices are outlined in note 3 to the consolidated financial statements
OUTSTANDING SHARE DATA
As at March 5, 2020, the Company’s authorized capital consists of an unlimited number of common
shares, of which 83,330,663 are issued and outstanding.
36
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted 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 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 credit facilities. The Company has a
borrowing ability of $500.0 million through its credit facility – mortgage investments and $30.7 million
through its credit facility – investment properties and intends to utilize the credit facility to fund
mortgage investments, and other working capital needs. As at December 31, 2019, the Company is in
compliance with its credit facilities 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, excluding mortgage syndication
liabilities as at December 31, 2019, including expected interest payments:
Carrying
value
Contractual
cash flow
Within a
year
Following
year
3–5 years
Accounts payable and accrued expenses
$
3,674
$
3,674
$
3,674
$
— $
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility (mortgage investments)1
Credit facility (investment properties)2
Convertible debentures3
Unadvanced mortgage commitments4
Total contractual liabilities, excluding
mortgage syndication liabilities5
4,787
1,114
3,741
5,437
459,767
30,622
133,033
4,787
1,114
3,741
5,437
498,288
32,247
138,619
4,787
1,114
3,741
5,437
19,587
9,089
138,619
—
—
—
—
478,701
23,158
—
$
$
642,175
$
687,907
$
186,048
$
501,859
$
—
211,753
211,753
—
642,175
$
899,660
$
397,801
$
501,859
$
—
—
—
—
—
—
—
—
—
—
—
1.
2
3
4
5
Credit facility (mortgage investments) includes interest based upon December 2019 weighted average interest rate on the credit facility
assuming the outstanding balance is not repaid until its maturity on December 18, 2021.
Credit facility (investment properties) includes interest based upon December 2019 weighted average interest rate on the credit facility
assuming the outstanding balance is not repaid until its maturity on October 9, 2020.
The 2016 debentures are assumed to be redeemable July 31, 2019, the February 2017 debentures are assumed to be redeemed on March 30,
2020 as they are redeemable on and after March 30, 2020 and the June 2017 debentures are assumed to be redeemed on June 30, 2020 as
they are redeemable on and after June 30, 2020.
Unadvanced mortgage commitments include syndication commitments of which $81.3 million belongs to the Company’s syndicated partners.
The principal repayments of $426.3 million mortgage syndication liabilities by contractual maturity date is shown net with mortgage
investments in note 4(b).
37
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted As at December 31, 2019, the Company had a cash position of $9.0 million (December 31, 2018 – $541),
an unutilized credit facility (mortgage investments) balance of $39.0 million (December 31,
2018 – $21.9 million) and an unutilized credit facility (investment properties) balance of nil (December 31,
2018 – $457). The Management believes it will be able to finance its operations using the cash flow
generated from operations, investing activities and the credit facilities.
As at December 31, 2019, unadvanced mortgage commitments under the existing gross mortgage
investments amounted to $211.8 million (December 31, 2018 – $184.3 million) of which $81.3 million
(December 31, 2018 – $58.0 million) belongs to the Company’s syndicated partners. The Company
expects the syndication partners to fund their respective commitments.
FINANCIAL INSTRUMENTS
Financial assets
The Company’s cash and cash equivalents, other assets, mortgage investments and other 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 and other investments consist of
short-term mortgages that are repayable at the option of the borrower without yield maintenance or
penalties.
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 mortgages 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, change in currency rates 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.
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, 2019, $992.3 million of net
mortgage investments and $6.6 million of other investments bear interest at variable rates (December 31,
2018 – $717.5 million and $21.8 million, respectively). $917.2 million of net mortgage investments have
a “floor rate” (December 31, 2018 – $626.0 million). If there were a decrease or increase of 0.50% in
interest rates, with all other variables constant, the impact from variable rate mortgage investments and
other investments would be a decrease in net income of $1.3 million or an increase in net income of
38
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted $5.0 million, respectively (Q4 2018 – $2.5 million and $3.7 million, respectively). The Company manages
its sensitivity to interest rate fluctuations by managing the fixed/floating ratio in its investment portfolio.
The Company is also exposed to interest rate risk on the credit facilities, which has a balance of
$491.7 million as at December 31, 2019 (December 31, 2018 – $510.9 million). During Q4 2019, the
Company entered into the Contract (refer to note 6(a)) which reduced the exposure in interest rate
risk. As at December 31, 2019, net exposure to interest rate risk was $241.7 million (December 31,
2018 – $510.9 million), and assuming it was outstanding for the entire period, a 0.50% decrease or
increase in interest rates, with all other variables constant, will decrease or increase net income by
$1.2 million (2018 – $2.6 million).
The Company’s other assets, interest receivable, accounts payable and accrued expenses, prepaid
mortgage interest, mortgage funding holdbacks, dividends payable and due to Manager have no
significant 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.
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
due to changes in foreign exchange rates. The Company is exposed to currency risk primarily from
other investments and credit facility investment properties that are denominated in a currency other
than the Canadian dollar. The Company uses foreign currency forwards and swaps to approximately
economically hedge the principal balance of future earnings and cash flows caused by movements
in foreign exchange rates. Under the terms of the foreign currency forward and swap contracts, the
Company buys or sells a currency against another currency at a set price on a future date.
As at December 31, 2019, the Company has US$5.1 million and €3.4 million in other investments
denominated in foreign currencies (December 31, 2018 – US$5.0 million, US$5.1 million and
€2.9 million). The Company has entered into a series of foreign currency contracts to reduce its
exposure to foreign currency risk. As at December 31, 2019, the Company has one U.S. dollars currency
contracts with an aggregate notional value of US$5.1 million, at a weighted average forward contract rate
of 1.3316, maturing in April 2020 and one Euro currency contract with an aggregate notional value of
€3.5 million at a weighted average contract rate of 1.4745, maturing in March 2020.
The fair value of the foreign currency forward contracts as at December 31, 2019 is an asset of $237
which is included in other assets. The valuation of the foreign currency forward contracts was
computed using Level 2 inputs which include spot and forward foreign exchange rates.
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.
ii.
adhering to the investment restrictions and operating policies included in the asset allocation model
(subject to certain duly approved exceptions);
ensuring all new mortgage and other investments are approved by the investment committee before
funding; and
iii. actively monitoring the mortgage and other investments and initiating recovery procedures, in a
timely manner, where required.
The exposure to credit risk at December 31, 2019 relating to net mortgages and other investments
amount to $1,319.6 million (December 31, 2018 – $1,320.0 million).
39
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted The Company has recourse under these mortgages and the majority of other investments in the event
of default by the borrowers; in which case, the Company would have a claim against the underlying
collateral. Management believes that the potential loss from credit risk with respect to cash that is held
in trust at a Schedule I bank by the Company’s transfer agent and operating cash held also at a Schedule
1 bank, to be minimal.
The Company is exposed to credit risk from the collection of accounts receivable from tenants. The
Manager routinely obtains credit history reports on prospective tenants before entering into a tenancy
agreement.
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.
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, 2019 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, 2019 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, 2019 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 judgements 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.
40
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted ADDITIONAL INFORMATION
Dividend Reinvestment Plan
Timbercreek Financial offers a dividend reinvestment plan (DRIP) so that shareholders may
automatically reinvest their dividends in new shares of Timbercreek Financial at a 2% discount from
market price and with no commissions. This provides an easy way to realize the benefits of compound
growth of their investment in Timbercreek Financial. Shareholders can enroll in the DRIP program by
contacting their investment advisor or investment dealer.
Phone
Cameron Goodnough, CEO at 1-844-304-9967
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
41
Timbercreek FinancialManagement’s Discussion and AnalysisFor the year ended December 31, 2019 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Timbercreek Financial Corp.
Opinion
We have audited the consolidated financial statements of Timbercreek Financial Corp. (the Entity),
which comprise:
the consolidated statements of financial position as at December 31, 2019 and 2018;
the consolidated statements of net income and comprehensive income for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
notes to the consolidated financial statements, including a summary of significant
accounting policies;
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at December 31, 2019 and 2018, and its consolidated
financial performance and its consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards (IFRS).
Basis of Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the “Auditors’ Responsibilities for the
Audit of the Financial Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Other Information
Management is responsible for the other information. Other information comprise:
the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions.
Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for
indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have
performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
42
Timbercreek Financial Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Entity or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditors’ Responsibility for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that
includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit 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.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Entity’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’
report to the related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a
going concern.
43
Timbercreek Financial Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
Provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group Entity to express an opinion on the financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Amit Shah.
Toronto, Canada
March 5, 2020
44
Timbercreek Financial CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In thousands of Canadian dollars)
As at
ASSETS
Cash and cash equivalents
Other assets
Mortgage investments, including mortgage syndications
Other investments
Investment properties
Total assets
LIABILITIES AND EQUITY
Accounts payable and accrued expenses
Dividends payable
Due to Manager
Mortgage and other loans funding holdbacks
Prepaid mortgage and other loans interest
Credit facility (mortgage investments)
Credit facility (investment properties)
Convertible debentures
Mortgage syndication liabilities
Total liabilities
Shareholders’ equity
Total liabilities and equity
Note
December 31, 2019
December 31, 2018
$
$
15(b)
4
4(e)
5
9(c)
15(a)
6(a)
6(b)
8
4(a)(c)
$
8,991
11,960
1,667,686
61,520
47,349
1,797,506
3,674
$
4,787
1,114
3,741
5,437
459,767
30,622
133,033
426,939
1,069,114
9
728,392
$
1,797,506
$
541
10,217
1,796,822
90,957
46,494
1,945,031
4,221
4,694
1,493
657
2,425
476,166
32,773
131,597
575,040
1,229,066
715,965
1,945,031
Commitments and contingencies
Subsequent events
4, 6 and 21
9(c)
See accompanying notes to the consolidated financial statements.
45
Timbercreek Financial CONSOLIDATED STATEMENT OF NET INCOME
AND COMPREHENSIVE INCOME
(In thousands of Canadian dollars, except per share amounts)
Year ended December 31,
Note
2019
2018
Investment income
Gross interest and other income, including mortgage syndications
$
124,394
$
(24,957)
99,437
2,831
(1,391)
1,440
12,363
497
1,313
1,690
15,863
85,014
413
—
—
21,886
8,801
30,687
124,801
(29,843)
94,958
1,991
(1,170)
821
11,879
622
550
1,725
14,776
81,003
1,217
(39)
(109)
18,376
10,628
29,004
54,740
$
53,068
0.66
0.66
$
$
0.67
0.67
4(b)(e)
7
11
11
4(d)
6
8
12
12
$
$
$
Interest and other expenses on mortgage syndications
Net investment income
Net rental income
Revenue from investment properties
Property operating costs
Net rental income
Expenses
Management fees
Servicing fees
Allowance for expected credit loss
General and administrative
Total expenses
Income from operations
Other income, net
Net operating loss from foreclosed properties held for sale
Fair value loss on foreclosed properties held for sale
Financing costs
Financing cost on credit facilities
Financing cost on convertible debentures
Total financing costs
Net income and comprehensive income
Earnings per share
Basic
Diluted
See accompanying notes to the consolidated financial statements.
46
Timbercreek Financial CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
(In thousands of Canadian dollars)
Year ended December 31, 2019
Common
shares
Retained
earnings
Equity
component
of convertible
debentures
Total
Balance, December 31, 2018
$
715,653
$
(1,626)
$
1,938
$
715,965
Issuance of common shares, net of issue costs
Dividends
Issuance of common shares under dividend
reinvestment plan
Repurchase of common shares for dividend
reinvestment plan
Total net income and comprehensive income
10,543
—
4,560
(338)
—
—
(57,078)
—
—
54,740
—
—
—
—
—
10,543
(57,078)
4,560
(338)
54,740
Balance, December 31, 2019
$
730,418
$
(3,964)
$
1,938
$
728,392
Year ended December 31, 2018
Common
shares
Retained
earnings
Balance, December 31, 2017
$
650,988
$
Issuance of common shares, net of issue costs
Dividends
Issuance of common shares under dividend
reinvestment plan
60,314
—
4,351
196
$
—
(54,890)
—
Total net income and comprehensive income
—
53,068
Equity
component
of convertible
debentures
1,938
$
—
—
—
—
Balance, December 31, 2018
$
715,653
$
(1,626)
$
1,938
$
See accompanying notes to the consolidated financial statements.
Total
653,122
60,314
(54,890)
4,351
53,068
715,965
47
Timbercreek Financial CONSOLIDATED STATEMENT OF CASH FLOW
(In thousands of Canadian dollars)
Year ended December 31,
Note
2019
2018
OPERATING ACTIVITIES
Net income
Amortization of lender fees
Lender fees received
Interest and income, net of syndications
Interest and other income received, net of syndications
Financing costs
Realized loss on disposal of marketable securities
Net unrealized loss (gain) on investments measured at FVTPL
Net realized and unrealized foreign exchange gain
Fair value loss on foreclosed properties held for sale
Allowance for expected credit loss
Net change in non-cash operating items
FINANCING ACTIVITIES
Net (repayments) advances in credit facility – mortgage investments
Net (repayments) advances in credit facility – investment properties
Redemption of convertible debentures
Issuance of common shares, net of issue costs
Interest paid
Dividends paid to shareholders
Repurchase of common shares for dividend reinvestment plan
INVESTING ACTIVITIES
Proceeds from disposition of foreclosed properties held for sale
Purchases of marketable securities
Proceeds from sale of marketable securities
Additions to investment properties
Net payments on maturity of forward contracts
Funding of other investments
Proceeds from other investments
Funding of mortgage investments, net of mortgage syndications
Discharges of mortgage investments, net of mortgage syndications
Net foreign exchange gain on cash accounts
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
See accompanying notes to the consolidated financial statements.
48
13
$
54,740 $
(10,029)
10,039
(89,739)
100,863
30,687
—
188
(15)
—
1,313
4,468
102,515
(17,104)
(2,130)
—
10,543
(28,401)
(52,425)
(338)
(89,855)
—
(36,533)
36,625
(855)
451
(4,736)
27,606
(792,957)
766,112
(4,287)
77
8,373
541
$
8,991
$
53,068
(8,328)
11,342
(86,613)
78,238
29,004
70
(74)
(9)
109
550
599
77,956
112,190
2,645
(34,500)
60,314
(29,842)
(50,117)
—
60,690
227
—
—
(3,557)
(845)
(51,944)
19,616
(792,705)
690,313
(138,895)
90
(249)
700
541
Timbercreek Financial 1. CORPORATE INFORMATION
Timbercreek Financial Corp. (the “Company”, “TF” or “Timbercreek Financial”) 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 listed on the Toronto Stock Exchange (“TSX”) under the symbol “TF”.
The investment objective of the Company is to secure and grow a diversified portfolio of high quality
mortgage and other investments, generating an attractive risk adjusted return and monthly dividend
payments to shareholders, balanced by a strong focus on capital preservation.
2. BASIS OF PRESENTATION
(a) Statement of compliance
These consolidated financial statements of the Company have been prepared by management in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board.
The consolidated financial statements were approved by the Board of Directors on March 5, 2020
(b) Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, including Timbercreek Mortgage Investment Fund. 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 both a going concern and the
historical cost bases except for certain items which have been measured at fair value through profit
or loss (“FVTPL”) at each reporting date and include: investment properties, foreclosed properties
held for sale, marketable securities, debt investments not meeting the solely payments of principal
and interest criterion, participating debentures, cross-currency swaps, interest rate swaps and
foreign currency forward contracts.
(d) Critical accounting estimates, assumptions and judgements
In the preparation of the Company’s consolidated financial statements, Timbercreek Asset
Management Inc. (the “Manager”) has made judgements, estimates and assumptions that affect the
application of the Company’s accounting policies and the reported amounts of assets, liabilities,
income and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to estimates are recognized prospectively.
In making estimates, the Manager relies on external information and observable conditions where
possible, supplemented by internal analysis as required. Those estimates and judgements 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 judgements in these consolidated financial
statements. The significant estimates and judgements 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.
49
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) 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 Company reviews significant unobservable inputs and valuation adjustments. If third party
information, such as broker quotes or appraisals are used to measure fair values, the Company 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 4 – Mortgage and other investments, including mortgage syndications;
Note 5 – Investment properties; and
Note 19 – Fair value measurements.
Syndication liabilities
The Company applies judgement in assessing the relationship between parties with which it enters
into participation agreements in order to assess the derecognition of transfers relating to mortgage
and other investments.
Classification of mortgage and other investments
Mortgage investments and other loan investments are classified based on the business model for
managing assets and the contractual cash flow characteristics of the asset. The Company exercises
judgment in determining both the business model for managing the assets and whether cash flows
of the financial asset comprise solely payments of principal and interest.
Measurement of expected credit loss
The determination of the allowance for credit losses takes into account different factors and varies
by nature of investment. These judgments include changes in circumstances that may cause future
assessments of credit risk to be materially different from current assessments, which would require
an increase or decrease in the allowance of credit loss. Refer to note 3(b).
Convertible debentures
The Company exercises judgement in determining the allocation of the debt and equity 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 value is allocated to the equity component.
Accounting for acquisitions
The Company exercises judgement in determining whether an acquisition of a property should be
accounted for as an asset purchase or business combination. This assessment impacts the treatment
of transaction costs, allocation of acquisition costs and whether or not goodwill is recognized. The
Manager has determined the acquisitions to date to be asset purchases as the Company did not
50
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars)
acquire an integrated set of processes as part of the transaction that is normally associated with a
business combination.
(e) Functional and Presentation Currency
These consolidated financial statements are presented in Canadian dollar, which is the Company’s
functional currency. All amount have been rounded to the nearest thousand, unless otherwise
indicated.
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.
(b) Financial instruments
Recognition and initial measurement
All financial assets and financial liabilities are initially recognized when the Company becomes a
party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value plus, for an item not at FVTPL,
transaction costs that are directly attributable to its acquisition or issue.
Classification and subsequent measurement – financial assets
On initial recognition, a financial asset is classified as measured at: amortized cost; fair value
through other comprehensive income (“FVOCI”) – debt investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Company
changes its business model for managing financial assets, in which case all affected financial assets
are reclassified on the first day of the first reporting period following the change in the business
model.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not
designated as at FVTPL:
it is held within a business model whose objective is to hold assets to collect contractual cash
flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not
designated as at FVTPL:
it is held within a business model whose objective is achieved by both collecting contractual cash
flows and selling financial assets; and
its contractual terms give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
The Company has no debt investments measured at FVOCI.
All financial assets not classified as measured at amortized cost or FVOCI as described above are
measured at FVTPL. This includes all derivative financial assets.
51
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) Financial assets – Business model assessment
The Company makes an assessment of the objective of the business model in which a financial
asset is held at a portfolio level because this best reflects the way the business is managed and
information is provided to management. The information considered includes:
the objectives for the portfolio and the operation of those policies in practice. These include
whether management’s strategy focuses on earning contractual interest income, maintaining a
particular interest rate profile, matching the duration of the financial assets to the duration of any
related liabilities or expected cash outflows or realizing cash flows through the sale of the assets;
how the performance of the portfolio is evaluated and reported to the Company’s management;
the risks that affect the performance of the business model (and the financial assets held within
that business model) and how those risks are managed;
the frequency, volume and timing of sales of financial assets in prior periods. the reasons for such
sales and expectation about future sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are
not considered sales for this purpose, consistent with the Company’s continuing recognition of the
syndicated assets.
Financial assets that are held for trading or are managed and whose performance is evaluated on a
fair value basis are measured at FVTPL.
Financial assets – assessment whether contractual cash flows are solely payments
of principal and interest
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on
initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit
risk associated with the principal amount outstanding during a particular period of time and for other
basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the
Company considers the contractual terms of the instrument. This includes assessing whether
the financial asset contains a contractual term that could change the timing or amount of
contractual cash flows such that it would not meet this condition. In making this assessment, the
Company considers:
contingent events that would change the amount or timing of cash flows;
terms that may adjust the contractual coupon rate, including variable rate features;
prepayment and extension features; and
terms that limit the Company’s claim to cash flows from specified assets.
A prepayment feature is consistent with the solely payments of principal and interest criterion if
the prepayment amount substantially represents unpaid amounts of principal and interest on the
principal amount outstanding, which may include reasonable additional compensation for early
termination of the contract.
52
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) Subsequent measurement and gains and losses – financial assets
Financial assets
at FVTPL
Measured at fair value. Net gains and losses, including any interest or dividend income, are
recognized in profit or loss.
Financial assets
at amortized cost
Measured at amortized cost using the effective interest method. The amortized cost is reduced
by impairment losses. Interest income, foreign exchange gains and losses and impairment are
recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Debt investments
at FVOCI
Measured at fair value. Interest income calculated using the effective interest method, foreign
exchange gains and losses and impairment are recognized in profit or loss. Other net gains and
losses are recognized in Other Comprehensive Income ("OCI"). On derecognition, gains and losses
accumulated in OCI are reclassified to profit or loss.
Classification, subsequent measurement and gains and losses – financial liabilities
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability
is classified as measured at FVTPL if it is classified as held for trading, it is a derivative or it is
designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value
and net gains and losses, including any interest expense, are recognized in profit or loss. Other
financial liabilities are subsequently measured at amortized cost using the effective interest method.
Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or
loss on derecognition is also recognized in profit or loss.
Impairment of financial assets
The Company recognizes loss allowances for expected credit loss (“ECL”) on financial assets
measured at amortized cost, unfunded loan commitments and financial guarantee contracts. The
Company applies a three-stage approach to measure allowance for credit losses. The Company
measures loss allowance at an amount equal to 12 months of expected losses for performing loans if
the credit risk at the reporting date has not increased significantly since initial recognition (Stage 1)
and at an amount equal to lifetime expected losses on performing loans that have experienced
a significant increase in credit risk since origination (Stage 2) and at an amount equal to lifetime
expected losses which are credit impaired (Stage 3).
The determination of a significant increase in credit risk takes into account different factors and
varies by nature of investment. The Company uses property specific factors in assessing significant
change in credit risk, which includes:
Income producing properties – borrower or guarantor’s financial position, change in market
conditions, deterioration in cash flows due to vacancy, property conditions, loss of major tenants,
change in execution of business plan.
Construction loans – borrower or guarantor’s financial position, change in market conditions,
property conditions, material cost-to-complete concerns, change in execution of business plan.
Unimproved land – borrower or guarantor’s financial position, change in market conditions,
business plan, adverse zoning change.
The Company assumes that the credit risk on a financial asset has increased significantly if interest
payment or maturity date is more than 30 days past due, and borrower specific criteria as identified
by the Manager. As is typical in shorter duration structured financing, the Manager does not solely
believe there has been a significant deterioration in credit risk or an asset to be credit impaired if
mortgage and other investments go into overhold position past the maturity date for a period greater
than 30 days or 90 days, respectively. The Manager actively monitors these mortgage and other
investments and applies judgement in determining whether there has been significant increase
in credit risk. The Company considers a financial asset to be credit impaired when the borrower is
more than 90 days past due and when there is objective evidence that there has been a deterioration
of credit quality to the extent the Company no longer has reasonable assurance as to the timely
53
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) collection of the full amount of principal and interest or/and when the Company has commenced
enforcement remedies available to it under its contractual agreements.
The assessment of significant increase in credit risk requires experienced credit judgment. In
determining whether there has been a significant increase in credit risk and in calculating the
amount of expected credit losses, we rely on estimates and exercise judgment regarding matters
for which the ultimate outcome is unknown. These judgments include changes in circumstances
that may cause future assessments of credit risk to be materially different from current assessments,
which could require an increase or decrease in the allowance for credit losses.
In cases where a borrower experiences financial difficulties, the Company may grant certain
concessionary modifications to the terms and conditions of a loan. Modifications may include
payment deferrals, extension of amortization periods, debt consolidation, forbearance and other
modifications intended to minimize the economic loss and to avoid foreclosure or repossession of
collateral. The Company determines the appropriate remediation strategy based on the individual
borrower. If the Company determines that a modification results in derecognition, the original asset
is derecognized while a new asset is recognized based on the new contractual terms. Significant
increase in credit risk is assessed relative to the risk of default on the date of modification. If the
Company determines that a modification does not result in derecognition, significant increase in
credit risk is assessed based on the risk of default at initial recognition of the original asset. Expected
cash flows arising from the modified contractual terms are considered when calculating the ECL
for the modified asset. For loans that were modified while having a lifetime ECL, the loans can
revert to having 12-month ECL after a period of performance and improvement in the borrower’s
financial condition.
Measurement of ECLs
ECLs are probability-weighted estimate of credit losses. Credit losses are measured as the present
value of all cash shortfalls (i.e. the difference between the cash flows due to the Company in
accordance with the contract and the cash flows that the Company expects to receive). ECLs are
discounted at the effective interest rate of the financial asset.
Lifetime ECLs are the ECLs that result from all possible default event over the expected life of a
financial instrument. 12-months ECLs are the portion of ECLs that result from default events that are
possible within the 12 months after the reporting date (or a shorter period if the expected life of the
instrument is less than 12 months). The maximum period considered when estimating ECLs is the
maximum contractual period over which the Company is exposed to credit risk.
When determining the expected credit loss provision, the Company considers reasonable and
supportable information that is relevant and available without undue cost or effort. We consider past
events, current market conditions and reasonable forward-looking supportable information about
future economic conditions. In assessing information about possible future economic conditions,
we utilized multiple economic scenarios including our base case, which represents the most probable
outcome and is consistent with our view of the portfolio. In considering the lifetime of a loan, the
contractual period of the loan, including prepayment, extension and other options is generally used.
The calculation of expected credit losses includes the explicit incorporation of forecasts of
future economic conditions. In determining expected credit losses, we have considered key
macroeconomic variables that are relevant to each investment type. Key economic variables include
unemployment rate, housing price index and interest rates. The estimation of future cash flows also
includes assumptions about local real estate market conditions, 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 forecast is developed internally by the Manager. We exercise
54
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) experienced credit judgment to incorporate multiple economic forecasts which are probability-
weighted in the determination of the final expected credit loss. The allowance is sensitive to changes
in both economic forecast and the probability-weight assigned to each forecast scenario.
Credit-impaired financial assets
Allowances for Stage 3 are recorded for individually identified impaired loans to reduce their
carrying value to the expected recoverable amount. We review our loans on an ongoing basis to
assess whether any loans carried at amortized cost should be classified as credit impaired and
whether an allowance or write-off should be recorded.
The review of individually significant default loans is conducted at least quarterly by the Manager,
who assesses the ultimate collectability and estimated recoveries for a specific loan based on all
events and conditions that are relevant to the loan. To determine the amount we expect to recover
from an individually significant impaired loan, we use the value of the estimated future cash flows
discounted at the loan’s original effective interest rate. The determination of estimated future cash
flows of a collateralized impaired loan reflects the expected realization of the underlying security, net
of expected costs and any amounts legally required to be paid to the borrower.
Presentation of allowance for ECL in the statement of financial position
Loss allowances for financial asset measured at amortized cost are deducted from the gross carrying
amount of the asset.
Write-offs
The gross carrying amount of a financial asset is written off when the Company has no reasonable
expectation of recovering a financial asset in its entirety or a portion thereof. However, financial
assets that are written off could still be subject to enforcement activities in order to comply with the
Company’s procedures for recovery of amounts due.
(c) Investment properties
Income properties
The Company has elected to account for its investment properties using the fair value method.
A property is determined to be an investment property when it is principally held to earn rental
income and/or capital appreciation. Investment properties are initially measured at cost including
transaction costs associated with acquiring the properties. Subsequent to initial recognition, the
investment properties are carried at fair value. Gains or losses arising from changes in fair value are
recognized in profit or loss during the period in which they arise. The investment properties are
measured at fair value based on available market evidence, which may be obtained from external
appraisals. The Company may also use alternative valuation methods such as discounted cash flow
projections or income capitalization methods where appropriate.
The fair value of the investment properties reflects, among other things, rental income from current
leases and assumptions about rental income from future leases in light of current market conditions.
It also reflects any cash outflows (excluding those relating to future capital expenditures) that could
be expected in respect of the investment properties. Subsequent capital expenditures are charged to
the investment property only when it is probable that future economic benefits of the expenditure
will flow to the Company and the cost can be measured reliably.
Gains or losses from the disposal of investment properties are determined as the difference
between the net disposal proceeds and the carrying amount and are recognized in the consolidated
statement of net income and comprehensive income at the end of each reporting period of disposal.
55
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) Property under development
Property under development for future use as investment property are accounted for as investment
property under International Accounting Standard 40, Investment Property. Costs eligible for
capitalization to property under development are initially recorded at cost, and subsequent to initial
recognition are accounted for using the fair value method. At each reporting date, the property
under development is recorded at fair value based on available market evidence. The related gain or
loss in fair value is recognized in net income in the year which it arises.
The cost of property under development includes direct development costs, realty taxes and
borrowing costs that are directly attributable to the development. Borrowing costs associated with
direct expenditures on property under development are capitalized. The amount of borrowing costs
capitalized is determined by reference to specific to the project. Borrowing costs are capitalized from
the commencement of the development until the date of practical completion.
Upon practical completion of a development, the development property is transferred to investment
properties at the fair value on the date of practical completion. The Company considers practical
completion to have occurred when the property is capable of operating in the manner intended by
management. Generally, this occurs when completion of construction and receipt of all necessary
occupancy and other material permits.
(d) Joint arrangements
The Company is a co-owner of a portfolio of investment properties that are subject to joint control
and has determined that all current joint arrangements are joint operations as the Company,
through its subsidiaries, is the direct beneficial owner of the Company’s interest in the investment
properties. A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to assets and obligations for the liabilities, relating to the arrangement. The
Company recognizes its share of the assets, liabilities, revenue and expenses generated from the
assets in proportion to its rights (note 5).
(e) 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 allowance 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.
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 income/(loss) from FPHFS, while fair value adjustments on FPHFS are recorded separately.
(f) 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,
56
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) if unexercised at maturity. Interest, losses and gains relating to the financial liability are recognized
in profit or loss.
(g) Gross interest and other income
Gross interest and other income includes interest earned on the Company’s mortgage and other
investments, lender fees and interest earned on cash and cash equivalents. Interest income earned
on mortgage and other investments is accounted for using the effective interest rate method. Lender
fees, an integral part of the yield on mortgage and other investments, are amortized to profit and loss
over the expected life of the specific mortgage and other 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.
(h) Leases
When the Company acts as a lessor, it determines at lease inception whether each lease is a finance
lease or an operating lease. Leases are classified as finance leases if all the risks and rewards
incidental to ownership of the leased asset are substantially transferred to the lessee. Otherwise they
are classified as operating leases.
As lessor in a financing lease, a receivable is recognized equal to the investment in the lease, which is
calculated as the present value of the minimum payments to be received from the lessee, discounted
at the interest rate implicit in the lease, plus any unguaranteed residual value the Company expects to
recover at the end of the lease. Finance lease income is recognized in gross interest and other income,
including mortgage syndications in the consolidated statement of net income and comprehensive
Income.
As a lessor in an operating lease, payments received are recognized in profit or loss on a straight-
line basis over the lease term. Revenue from operating leases include rent, parking and other sundry
revenue from investment properties.
(i) Derecognition of financial assets and liabilities
Financial assets – syndications
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 does not 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.
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.
57
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) Financial assets – modifications
The Company defines loan modification as changes to the original contractual terms of the financial
asset that represents a fundamental change to the contract, or changes that may have a significant
impact on the contractual cash flow of the asset, including solely for payments of principal and
interest criterion. The Company derecognizes the original asset when the modification results in
substantial change or expiry in the original cash flows; a new asset is recognized based on the new
contractual terms. The new asset is initially recognized in Stage 1, and then assessed for significant
increase in credit risk on an ongoing basis. If the Company determines the modifications do not
result in derecognition, then the asset will retain its original staging and significant increase in
credit risk assessment
Financial liabilities
The Company derecognizes a financial liability when the obligation under the liability is discharged,
cancelled or expires..
(j) Foreign currency forward contract
The Company may enter into foreign currency forward contracts to economically hedge its foreign
currency risk exposure of its mortgage and other investments that are denominated in foreign
currencies. The value of forward currency contracts entered into by the Company is recorded as
the difference between the value of the contract on the reporting period and the value on the date
the contract originated. Any resulting gain or loss is recognized in the statement of net income
and comprehensive income unless the foreign currency contract is designated and effective as a
hedging instrument under IFRS. The Company has elected to not account for the foreign currency
contracts as an accounting hedge.
(k) 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.
(l) Changes in accounting policies
IFRS 16, Leases (“IFRS 16”)
The Company has adopted IFRS 16 Leases (“IFRS 16”) effective January 1, 2019 and applied the
requirements of the standard retrospectively without restatement of comparative periods. IFRS 16
replaced IAS 17 Leases. This standard introduces a single lessee accounting model and requires a
lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the
underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing
its right to use the underlying asset and a lease liability representing its obligation to make lease
payments. This standard substantially carries forward the lessor accounting requirements of IAS 17,
while requiring enhanced disclosures to be provided by lessors. The implementation of IFRS 16 did
not have a significant impact on the Company’s leases of its investment properties
58
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars)
(m) New IFRS pronouncement not yet effective
Amendments to References to the Conceptual Framework in IFRS Standards
On March 29, 2018 the IASB issued a revised version of its Conceptual Framework for Financial
Reporting (the Framework), that underpins IFRS Standards. The IASB also issued Amendments to
References to the Conceptual Framework in IFRS Standards to update references in IFRS Standards
to previous versions of the Conceptual Framework. Both documents are effective from January 1,
2020 with earlier application permitted.
The Company will adopt the amendments in its financial statements for the annual period
beginning on January 1, 2020. The Company does not expect the amendments to have a material
impact on the financial statements.
Definition of Material (Amendments to IAS 1 and IAS 8)
On October 31, 2018, the IASB refined its definition of material and removed the definition of
material omissions or misstatements from IAS 8. The amendments are effective for annual periods
beginning on or after January 1, 2020. Early adoption is permitted.
The definition of material has been aligned across IFRS Standards and the Framework. The
amendments provide a definition and explanatory paragraphs in one place.
Pursuant to the amendments, information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial information
about a specific reporting entity.
The Company will adopt the amendments to IAS 1 and IAS 8 in its financial statements for the
annual period beginning on January 1, 2020. The Company does not expect the amendments to
have a material impact on the financial statements.
59
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars)
4. MORTGAGE AND OTHER INVESTMENTS, INCLUDING MORTGAGE SYNDICATIONS
(a) Mortgage investments
As at December 31, 2019
Mortgage investments, including mortgage
syndications – at amortized cost
Interest receivable
Gross
mortgage
investments
Mortgage
syndication
liabilities
Note
Net
4(b)(c)
$
1,595,332
$
(426,252)
$
1,169,080
10,004
(1,746)
8,258
1,605,336
(427,998)
1,177,338
(10,519)
(2,303)
1,059
—
(9,460)
(2,303)
Unamortized lender fees
Allowance for expected credit loss
4(d)
Mortgage investments at amortized cost
1,592,514
(426,939)
1,165,575
Mortgage investments, including mortgage
syndications – at FVTPL
Interest receivable
Mortgage investments at FVTPL
Mortgage investments, including mortgage
syndications
As at December 31, 2018
Mortgage investments, including mortgage
syndications – at amortized cost
Interest receivable
Unamortized lender fees
Allowance for expected credit loss
75,002
170
75,172
—
—
—
75,002
170
75,172
$
1,667,686
$
(426,939)
$
1,240,747
Gross
mortgage
investments
Mortgage
syndication
liabilities
Note
Net
$
1,674,812
$
(518,560)
$
1,156,252
15,355
1,690,167
(9,270)
(1,417)
(2,180)
(520,740)
898
—
13,175
1,169,427
(8,372)
(1,417)
Mortgage investments at amortized cost
1,679,480
(519,842)
1,159,638
Mortgage investments, including mortgage
syndications – at FVTPL1
Interest receivable
Mortgage investments at FVTPL
Mortgage investments, including mortgage
syndications
1.
Syndication balance is measured at amortized cost
109,741
7,601
117,342
(55,000)
(198)
(55,198)
54,741
7,403
62,144
$
1,796,822
$
(575,040)
$
1,221,782
As at December 31, 2019, unadvanced mortgage commitments under the existing gross mortgage
investments amounted to $211,753 (December 31, 2018 – $184,265) of which $81,295 (December 31,
2018 – $57,951) belongs to the Company’s syndicated partners.
60
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) Mortgages classified at FVTPL
The Company establishes fair value for investments that are classified at fair value using an
appropriate valuation technique. These valuation techniques include internal valuation models
and/or independent appraisals that employ significant inputs such as direct comparison, cash flow
projection, stabilized net operating income generated from the property to estimate fair value, and
capitalization rate that reflects the investment characteristics of the asset.
As at December 31, 2019, mortgage investments including mortgage syndications of $75,002
(December 31, 2018 – $109,741) are classified as measured at FVTPL. Total change in balance for the
years ended was $34,739, of which $38,692, $73,431, and nil were attributable to addition, discharge,
and fair value adjustment, respectively.
(b) Net mortgage investments
As at
December 31, 2019
December 31, 2018
Interest in first mortgages
Interest in second and third mortgages
90.5%
9.5%
100.0%
$
$
1,125,797
93.2% $
118,285
6.8%
1,244,082
100.0% $
1,128,366
82,627
1,210,993
The mortgage investments are secured by real property and will mature between 2020 and 2023
(December 31, 2018 – 2019 and 2022). During the year ended December 31, 2019, the Company
generated net interest income and other income on net mortgage investments classified at
amortized cost, excluding lender fee income of $82,704 (2018 – $79,899).
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. The
unamortized lender fees are recognized over the term of the mortgage investment.
For the year ended December 31, 2019, the Company earned lender fee income on net mortgage
investments classified at amortized cost, net of fees relating to mortgage syndication liabilities of
$9,643 (2018 – $7,840). For the year ended December 31, 2019, the Company received lender fees
on net mortgage investments, net of fees relating to mortgage syndication liabilities, of $10,039
(2018 – $10,659), 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, by contractual maturity dates are as follows:
As at
2020
2021
2022
2023
Total
December 31, 2019
$
$
416,478
543,274
232,257
52,073
1,244,082
(c) 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
61
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) 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 19).
(d) Allowance for Credit Losses (“ACL”)
The allowance for credit losses is maintained at a level that management considers adequate to
absorb credit-related losses on mortgage and other investments classified at amortized cost. The
allowance for credit losses amounted to $2,328 as at December 31, 2019 (December 31, 2018 – $1,632),
of which $2,303 (December 31, 2018 – $1,417) was recorded in mortgage investments and $25
(December 31, 2018 – $215) was recorded in other investments.
Multi-residential Mortgage
Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Gross mortgage investments1 $ 925,025
— $
2,903 $ 927,928 $ 851,402 $
— $
2,790 $ 854,192
Year Ended December 31, 2019
Year Ended December 31, 2018
Mortgage syndication
liabilities1
Net mortgage investments
Allowance for credit losses2
240,724
684,301
1,003
683,298
—
—
—
—
— 240,724
322,244
2,903
687,204
529,158
253
1,256
627
2,650
685,948
528,531
—
—
—
—
— 322,244
2,790
531,948
3
630
2,787
531,318
Other Mortgage Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Gross mortgage investments1
674,306
Mortgage syndication
liabilities1
Net mortgage investments
Allowance for credit losses2
187,274
487,032
334
486,698
—
—
—
—
—
3,102
677,408
853,383
—
187,274
253,694
3,102
490,134
599,689
713
1,047
200
—
—
—
37,790
891,173
— 253,694
37,790
637,479
587
787
2,389
489,087
599,489
—
37,203
636,692
Other loan Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Gross mortgage investments1
48,407
Mortgage syndication
liabilities1
—
Net mortgage investments
48,407
Allowance for credit losses2
25
—
—
—
—
—
—
—
—
48,407
66,483
—
—
48,407
66,483
25
212
$ 48,382 $
— $
— $
48,382 $
66,271 $
—
—
—
— $
Total
73,497
7,014
—
—
7,014
73,497
3
215
7,011 $
73,282
1
2
Including interest receivable
Allowance for credit losses in finance lease receivable (note 4(e)) and unadvanced commitments (note 4(a)) are all considered to be in
Stage 1 with minimal ACL.
62
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars)
The changes in the allowance for credit losses year to date are shown in the following tables:
Multi-residential Mortgage
Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Balance at beginning of period $
627
— $
3 $
630 $
603 $
26 $
— $
Total
629
Year Ended December 31, 2019
Year Ended December 31, 2018
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit
losses
Fundings
Discharges
Balance at end of period
(4)
2
250
248
24
—
(23)
1
2
—
—
625
863
(485)
1,003
—
(2)
—
—
—
—
—
—
—
—
253
—
—
253
587
2
(2)
—
878
863
(485)
1,256
Total
787
—
—
—
627
340
(340)
627
—
(26)
—
—
—
—
—
—
—
26
3
—
—
3
—
(26)
26
630
340
(340)
630
Stage 1
Stage 2
Stage 3
Total
1
209
—
210
Other Mortgage Investments
Stage 1
Stage 2
Stage 3
Balance at beginning of period
200
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit
losses
Fundings
Discharges
Balance at end of period
142
—
—
—
342
134
(142)
334
—
—
—
—
—
—
—
—
—
378
630
742
884
252
—
—
—
—
—
—
1,329
1,671
—
(616)
713
134
(758)
1,047
—
—
—
253
88
(141)
200
—
—
(209)
—
—
—
—
—
—
—
209
587
—
—
587
Other loan Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Balance at beginning of period
212
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit
losses
Fundings
Discharges
8
3
—
—
223
3
(201)
—
—
—
—
—
—
—
—
3
—
—
—
(3)
—
—
—
215
232
8
3
—
(3)
223
3
(201)
(16)
(3)
—
—
213
65
(66)
—
—
—
—
—
—
—
—
—
—
—
—
3
3
—
—
Balance at end of period
$
25 $
— $
— $
25 $
212 $
—$
3 $
—
(209)
209
840
88
(141)
787
Total
232
(16)
(3)
—
3
216
65
(66)
215
63
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) The following table presents the gross carrying amounts of mortgage and other loan investments,
net of syndication liabilities, subject to IFRS 9 impairment requirements by internal risk ratings used
by the Company for credit risk management purposes.
In assessing credit risk, the Company utilizes a risk rating framework that considers the following
factors: collateral type, property rank that is applicable to the Company’s security and/or priority
positions, loan-to-value and population of location of the collateral.
The internal risk ratings presented in the table below are defined as follows:
Low Risk: Mortgage and loan investments that exceed the credit risk profile standard of the
Company with a below average probability of default. Yields on these investments are expected to
trend lower than the Company’s average portfolio.
Medium-Low: Mortgage and loan investments that are typical for the Company’s risk appetite,
credit standards and retain a below average probability of default. These mortgage and loan
investments are expected to have average yields and would represent a significant percentage of
the overall portfolio.
Medium-High: Mortgage and loan investments within the Company’s risk appetite and credit
standards with an average probability of default. These investments typically carry attractive risk-
return yield premiums.
High Risk: Mortgage and loan investments within the Company’s risk appetite and credit standards
that have an additional element of credit risk that could result in an above average probability of
default. These mortgage and loan investments carry a yield premium in return for their incremental
credit risk. These mortgage and loan investments are expected to represent a small percentage of the
overall portfolio.
Default: Mortgage and loan investments that are 90 days past due and when there is objective
evidence that there has been a deterioration of credit quality to the extent the Company no longer
has reasonable assurance as to the timely collection of the full amount of principal and interest
and/or when the Company has commenced enforcement remedies available to it under its
contractual agreements.
64
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) Multi-residential Mortgage
Investments
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net Mortgage Investments1
Allowance for credit losses
Year Ended December 31, 2019
Year Ended December 31, 2018
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$ 205,588
— $
— $ 205,588 $ 221,309 $
—$
— $ 221,309
444,496
34,217
—
—
684,301
1,003
683,298
—
—
—
—
—
—
—
—
—
— 444,496
289,144
34,217
18,705
2,903
2,903
—
—
—
2,903
687,204
529,158
253
1,256
627
2,650
685,948
528,531
—
—
—
—
—
—
—
— 289,144
—
—
2,790
2,790
18,705
—
2,790
531,948
3
630
2,787
531,318
Other Mortgage Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
118,546
275,349
82,054
11,083
—
Net Mortgage Investments1
487,032
Allowance for credit losses
334
486,698
—
—
—
—
—
—
—
—
— 118,546
177,567
— 275,349
341,418
—
—
82,054
66,644
11,083
14,060
3,102
3,102
—
3,102
490,134
599,689
713
1,047
200
2,389
489,087
599,489
—
—
—
—
—
—
—
—
—
177,567
— 341,418
—
—
37,790
66,644
14,060
37,790
37,790
637,479
587
787
37,203
636,692
Other loan Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net Mortgage Investments1
Allowance for credit losses
1.
net of mortgage syndications
—
—
—
48,407
—
48,407
25
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
48,407
66,483
—
—
48,407
66,483
25
212
—
—
—
—
—
—
—
—
—
—
—
7,014
7,014
3
—
—
—
66,483
7,014
73,497
215
$
48,382 $
— $
— $
48,382 $
66,271 $
—$
7,011 $
73,282
65
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars)
(e) Other investments
As at
Collateralized loans, net of allowance for credit loss
Finance lease receivable, measured at amortized cost
Investment, measured at FVTPL
Indirect real estate development, measured using equity method:
Investment in Joint Venture
Investment in Associate
Total Other Investments
December 31, 2019
December 31, 2018
$
$
48,326
$
6,020
4,949
2,225
—
61,520
$
72,840
6,020
4,605
2,225
5,267
90,957
During the year ended December 31, 2019, the Company acquired $36,533 and subsequently fully
disposed of marketable securities generating $497 in net investment income (2018 – $46 net
investment loss).
For the year ended December 31, 2019, collateralized loans generated interest income of $6,310
(2018 – $6,502), lender fee income of $386 (2018 – $488). For the year ended December 31, 2019, the
Company received lender fees from other loan investments of nil (2018 – $683), which are amortized
over the term of the related other loan investments using the effective interest rate method.
In October, 2017, the Company entered into an 20-year emphyteutic lease on a foreclosed property
held for sale in Quebec, which had a fair value of $5,400 at the time of the transaction. According to
the terms of the lease, the lessee has the obligation to purchase the property at $9,934 at the end of the
lease term on September 2038 and the option to purchase the property earlier at a prescribed purchase
price schedule. The Company has classified the lease as a finance lease and the lease receivable
balance of $6,020 (December 31, 2018 – $6,020) is included in other investments. Concurrently, the
Company entered into a $3,300 construction loan on the leased property with the lessee which is
included in other loan investments. The lease payment began in the third quarter of 2018.
The lease receivable payments are due as follows:
Future minimum
lease payments
Present value of minimum
lease payments
Less than one year
Between one and five years
More than five years
$
$
12
$
267
13,299
13,578
$
11
221
5,788
6,020
66
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars)
5. INVESTMENT PROPERTIES
The Saskatchewan Portfolio, which comprises 14 investment properties totaling 1,079 units that are
located in Saskatoon and Regina, Saskatchewan, is subject to joint control based on the Company’s
decision-making authority with regards to the operating, financing and investing activities of the
investment properties. This co-ownership has been classified as a joint operation and, accordingly, the
Company recognizes its share of the assets, liabilities, revenue and expenses generated from the assets
in proportion to its rights (see note 15(g)).
Jointly Controlled Assets
Location
Property Type
December 31, 2019 December 31, 2018
Ownership Interest
Saskatchewan Portfolio
Balance, beginning of year
Additions
Dispositions
Balance, end of year
Saskatoon &
Regina, SK
Income Properties &
Development Property
20.46%
46,494
$
855
—
47,349
$
$
$
20.46%
42,748
3,746
—
46,494
As at December 31, 2019, the investment properties are pledged as security for the credit facility
(note 6(b)).
Investment property has been categorized as a Level 3 fair value based on the inputs to the valuation
technique used. Subsequent to initial recognition, the investment properties are measured at fair value
based on available market evidence.
The fair values of the Company’s investment properties are sensitive to changes in the key valuation
assumptions. As at December 31, 2019, the weighted average capitalization rate for the Company’s
investment properties is 5.30% (December 31, 2018 – 5.30%). The estimated fair value would decrease
by $2,122 (December 31, 2018 – $2,161) if overall capitalization rates were higher by 25 bps; whereas
estimated fair value would increase by $2,332 (December 31, 2018 – $2,202) if overall capitalization
rates were lower by 25 bps. In addition, the estimated fair value would increase by $471 (December 31,
2018 – $379) if stabilized net operating income were higher by 1%; whereas estimated fair value would
decrease by $471 (December 31, 2018 – $544) if stabilized net operating income were lower by 1%.
6. CREDIT FACILITIES
As at
December 31, 2019
December 31, 2018
Credit facility (mortgage investments)
Unamortized financing costs (mortgage investments)
Credit facility (investment properties)
Unamortized financing costs (investment properties)
Total credit facilities
$
$
461,000
$
(1,233)
459,767
30,690
(68)
30,622
490,389
$
478,104
(1,938)
476,166
32,820
(47)
32,773
508,939
67
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) (a) Credit facility (mortgage investments)
The Company originally had $400,000 in credit facility with 10 Canadian banks and by exercising
the accordion feature on February 13, 2018 and November 16, 2018, the Company increased the
credit limit to $500,000. The facility is secured by a general security agreement over the Company’s
assets and its subsidiaries and has a maturity date of December 18, 2021. On December 20, 2019,
the Company amended the credit facility agreement (the “Fourth Amending Credit Agreement”) to
amend certain terms and conditions, including interest rates.
The interest rates and fees of the Fourth Amending Credit Agreement are either at the prime rate of
interest plus 1.00% per annum (December 31, 2018 – prime rate of interest plus 1.25% per annum) or
bankers’ acceptances with a stamping fee of 2.00% (December 31, 2018 – 2.25%) and standby fee of
0.4000% per annum (December 31, 2018 – 0.5625%) on the unutilized credit facility balance. As at
December 31, 2019, the Company’s qualified credit facility limit, which is subject to a borrowing base
as defined in the Fourth Amending Credit Agreement is $500,000.
In December 2019, the Company entered into a 2-year interest rate swap contract (the “Contract”)
with 2 Canadian banks with notional value of $250,000. Under the terms of the Contract, the
Company is required to pay fixed rate of 2.02% and receive floating rate based on 1-month banker’s
acceptance. Net realized and unrealized gain or loss from the Contract is recorded as financing cost
on the credit facility.
During the year ended December 31, 2019, the Company incurred financing costs of $903. 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.
Interest on the credit facility is recorded in financing costs and calculated using the effective interest
rate method. For the year ended December 31, 2019, included in financing costs is interest on the
credit facility of $18,882 (2018 – $16,003) and financing costs amortization of $1,607 (2018 – $1,196).
(b) Credit facility (investment properties)
Concurrently with the Saskatchewan Portfolio acquisition, the Company and the co-owners
originally entered into a credit facility agreement with a Schedule 1 Bank. Under the terms of the
agreement, the co-ownership had a maximum available credit of $162,644. The gross initial advance
on the credit facility was $144,644. The Company’s share of the initial advance was $29,594 plus $109
of unamortized financing costs.
On October 9,2019, the credit facility agreement was further amended (the “Amended and Restated
Credit Agreement”) to establish Tranche A, Tranche B and Tranche C credit facilities (the “Credit
Facilities”). Under the amended terms, the maximum available credit is $150,000. As at December 31,
2019, the co-owners borrowed $150,000 from the Credit Facilities. The Company’s share of the
outstanding amount in is $30,690. The original credit facility provided the co-owners with the
option to borrow at either the prime rate of interest plus 1.50% or at the bankers’ acceptances with a
stamping fee of 2.50% (“Canadian Dollar Loans”), or at LIBOR plus 2.50%. Under the Amended and
Restated Credit Agreement, the Credit Facilities consist of following.
1)
Tranche A credit facility provides the co-owners an option to borrow at either the prime rate
of interest plus 1.00% or at the bankers’ acceptances with a stamping fee of 2.00% (“Canadian
Dollar Loans”), or at LIBOR plus 2.00%, with maturity date of October 9, 2021.The credit facility
is secured by a first charge on specific assets with a gross carrying value of $31,662. The
Company’s share of Tranche A is $6,478.
68
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) 2)
3)
Tranche B credit facility comprises of a commercial mortgage loan for certain properties
defined as tranche B properties (the “Tranche B Properties”) in the Amended and Restated Credit
Agreement, where terms and conditions are set forth in a rate lock agreement, with maturity date
of October 9, 2020 and a locked in rate of 3.305%. The Tranche B credit facility is secured by a
first charge on the Tranche B Properties with a gross carrying value of $39,690. The Company’s
share of Tranche B is $8,121.
Tranche C credit facility comprises of a commercial mortgage loan for certain properties
defined as tranche C properties (the “Tranche C Properties”) in the Amended and Restated Credit
Agreement, where terms and conditions are set forth in a rate lock agreement, with maturity date
of October 9, 2021 and a locked in rate of 3.114%. The Tranche C credit facility is secured by a first
charge on the Tranche C Properties with a gross carrying value of $78,648. The Company’s share
of Tranche C is $16,091.
The co-owners of the Saskatchewan Portfolio (note 5) are each individually subject to financial
covenants outlined in the investment properties credit facility agreement. Notwithstanding, the
lender’s recourse is limited to each co-owner’s proportionate interest in the investment properties
credit facility.
Interest on the credit facility is recorded in financing costs using the effective interest rate method.
For the year ended December 31, 2019, included in financing costs is interest on the credit facility of
$1,350 (2018 – $1,125) and financing costs amortization of $48 (2018 – $52).
7. REVENUE FROM PROPERTY OPERATIONS
As part of the joint arrangement of the Saskatchewan Portfolio, the Company leases residential
properties under operating leases generally with a term of not more than one year and, in many cases,
tenants lease rental space on a month-to-month basis. The operating leases mature between the year
2020 and 2022. Rental revenue from operating leases for the years ended was $2,831 (2018 – $1,991)
Aggregate minimum lease payments under its non-cancellable operating leases by each of the following
periods are as follows:
Within 1 year
2 to 5 years
Over 5 years
December 31, 2019
December 31, 2018
$
1,950
$
163
—
1,789
64
93
69
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) 8. CONVERTIBLE DEBENTURES
(a) 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 pay
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, on not more than 60 days’ and not less than 30 days’ prior written
notice, provided that the volume weighted average trading price of the common shares on the TSX
during the 20 consecutive trading days ending on the fifth trading day preceding the date on which
the notice of the redemption is given is not less than 125% of the conversion price. On or after July 31,
2020 and prior to the maturity date, the 2016 Debentures will be redeemable, 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, on not more than 60 days’
and not less than 30 days’ prior written notice.
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.
(b) On February 7, 2017, the Company completed a public offering of $40,000, plus an overallotment
option of $6,000, of 5.45% convertible unsecured subordinated debentures for net proceeds of
$43,663 (the “February 2017 debentures”). The February 2017 debentures mature on March 31, 2022
and pay interest semi-annually on September 30 and March 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 February 2017 debentures are redeemable on and after March 31, 2020, but prior to March 31,
2021, the February 2017 Debentures will be redeemable, 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, on not more than 60 days’ and not less than 30
days’ prior written notice, provided that the volume weighted average trading price of the common
shares on the TSX during the 20 consecutive trading days ending on the fifth trading day preceding
the date on which the notice of the redemption is given is not less than 125% of the conversion
price. On or after March 31, 2021 and prior to the maturity date, the February 2017 Debentures will
be redeemable, 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, on not more than 60 days’ and not less than 30 days’ prior written notice.
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 $607, 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
70
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) at maturity will equal the face value of $46,000. The issue costs of $2,240 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.
(c) On June 13, 2017, the Company completed a public offering of $40,000, plus an overallotment option
of $5,000 on June 27, 2017, of 5.30% convertible unsecured subordinated debentures for net proceeds
of $42,774 (the “June 2017 debentures”). The June 2017 debentures mature on June 30, 2024 and pay
interest semi-annually on June 30 and December 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 $11.10 per common share, subject to adjustment in certain events in accordance with the
trust indenture governing the terms of the debentures.
The June 2017 debentures are redeemable on and after June 30, 2020, but prior to June 30, 2022, the
June 2017 Debentures will be redeemable, 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, on not more than 60 days’ and not less than 30 days’ prior
written notice, provided that the volume weighted average trading price of the common shares on
the TSX during the 20 consecutive trading days ending on the fifth trading day preceding the date
on which the notice of the redemption is given is not less than 125% of the conversion price. On or
after June 30, 2022 and prior to the maturity date, the June 2017 Debentures will be redeemable, 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, on
not more than 60 days’ and not less than 30 days’ prior written notice.
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 $560, 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 $45,000. The issue costs of $2,226 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.
The debentures are comprised of as follows:
Issued
Unamortized financing cost and amount classified as equity component
Debentures, end of period
December 31, 2019
December 31, 2018
$
$
136,800
(3,767)
133,033
$
$
136,800
(5,203)
131,597
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
Amortization of issue costs and accretion of the convertible debentures
Total
December 31, 2019
December 31, 2018
$
$
7,366
1,435
8,801
$
$
8,477
2,151
10,628
71
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars)
9. COMMON SHARES
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.
The changes in the number of common shares were as follows:
Balance, beginning of period
Issuance of common shares
Converted under Convertible Debentures
Common shares issued under dividend reinvestment plan
Common shares repurchased for dividend reinvestment plan
Year ended December 31,
2019
2018
$
81,632,844
$
74,277,356
1,167,000
—
491,152
(36,866)
6,866,731
5,422
483,335
—
Balance, end of period
$
83,254,130
$
81,632,844
(a) At-the-market equity program (the”ATM Program”)
The Company announced on June 21, 2018 that it has established an ATM Program that allows the
Company to issue common shares from treasury having an aggregate gross sales amount of up to
$70 million to the public from time to time, at the Company’s discretion. Sales of the common shares
under the equity distribution agreement were made through “at-the-market distributions” as defined
in National Instrument 44-102 – Shelf Distributions, including sales made directly on the Toronto
Stock Exchange. The common shares distributed under the ATM Program were at the market prices
prevailing at the time of sale, and therefore prices varied between purchasers and over time. The
ATM Program was active between July 2018 to July 2019 and expired on January 11, 2020.
Net proceeds of the ATM Program were used to repay amounts owing under its secured revolving
credit facility, and will subsequently draw on the credit facility for purposes of funding the purchase
of new investments in accordance with the strategies, investment objectives and investment
guidelines of the Company.
During the year ended December 31, 2019, the Company issued 1,167,000 of common shares
(2018 – 458,100) for gross proceeds of $10,911 (2018 – $4,275) at an average price of $9.35 per
common share and paid $218 in commission (2018 – $87) to the agent, pursuant to the ATM
Program’s equity distribution agreement.
(b) Dividend reinvestment plan (“DRIP”)
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 can be purchased from the open market based
upon the prevailing market rates or 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.
For the year ended December 31, 2019, 36,866 common shares were purchased on the open market
(2018 – nil) and 454,286 (2018 – 483,335) common shares were issued from treasury at an average
price of $9.30 per common share).
72
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) (c) Dividends to holders of common shares
The Company intends to pay dividends to holders of common shares monthly within 15 days
following the end of each month. For the year ended December 31, 2019, the Company declared
dividends of $57,078, or $0.69 per common share (2018 – $54,890, $0.69 per share).
As at December 31, 2019, $4,787 in aggregate dividends (December 31, 2018 – $4,694) was payable
to the holders of common shares by the Company. Subsequent to December 31, 2019, the Board
of Directors of the Company declared dividends of $0.0575 per common share to be paid on
February 14, 2020 to the common shareholders of record on January 31, 2020.
10. NON-EXECUTIVE DIRECTOR DEFERRED SHARE UNIT PLAN (“DSU”)
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. Until
June 30, 2018, each director was also entitled to an additional 25% of DSUs that are issued in the quarter
up to a maximum value of $5 per annum.
The DSU 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, 2019, 32,417 units were issued (2018 – 23,848) and as at December 31,
2019, 84,308 units were outstanding (December 31, 2018 – 51,891). No DSUs were exercised or canceled,
resulting in a DSU expense of $338 (2018 – $240). As at December 31, 2019, $86 (December 31, 2018 – $71)
in compensation was granted in DSUs, which will be issued subsequent to December 31, 2019.
11. MANAGEMENT AND SERVICING FEES
The 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.
For the year ended December 31, 2019, the Company incurred management fees plus applicable taxes of
$12,363 (2018 – $11,879) and servicing fees including applicable taxes of $497 (2018 – $622).
73
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) 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.
In accordance with IFRS, convertible debentures are considered for potential dilution in the calculation
of the diluted earnings per share. Each series of convertible debentures is considered individually and
only those with dilutive effect on earnings are included in the diluted earnings per share calculation.
Convertible debentures that are considered dilutive are required by IFRS to be included in the diluted
earnings per share calculation notwithstanding that the conversion price of such convertible
debentures may exceed the market price and book value of the Company’s common shares.
Diluted earnings per share are calculated by adding back the interest expense relating to the dilutive
convertible debentures to total net income and comprehensive income and increasing the weighted
average number of common shares by treating the dilutive convertible 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:
Total net income and comprehensive income
Interest expense on convertible debentures
Total net income and comprehensive income (diluted)
Weighted average number of common shares (basic)
Effect of conversion of convertible debentures
Weighted average number of common shares (diluted)
Earnings per share – basic
Earnings per share – diluted
Year ended December 31,
2019
54,740
2,975
57,715
82,663,775
4,557,214
87,220,989
0.66
0.66
$
$
$
$
$
$
$
$
2018
53,068
6,026
59,094
79,344,276
9,134,328
88,478,604
0.67
0.67
For the year ended December 31, 2019, 91,000 debentures (December 31, 2018: 79,500) were excluded from
the diluted figures because their effect would have been anti-dilutive.
13. CHANGE IN NON-CASH OPERATING ITEMS
Change in non-cash operating items:
Other assets
Accounts payable and accrued expenses
Due to Manager
Prepaid mortgage and other loans interest
Mortgage and other loans funding holdbacks
Year ended December 31,
2019
2018
(935)
$
(315)
(379)
3,012
3,085
4,468
$
(1,699)
1,004
372
465
457
599
$
$
74
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) 14. CASH FLOWS ARISING FROM FINANCING ACTIVITIES
Debentures
Balance, beginning of period
Debenture repayments
Total financing cash flow activities
Capitalized financing cost, net of amortization
Accretion expense
Amortization of issue costs and accretion expense
Balance, end of period
Credit Facilities
Balance, beginning of period
Capitalized financing cost1
Net credit facility (repayments) advances – mortgage investments
Net credit facility (repayments) advances – investment properties
Total financing cash flow activities
Amortization of financing costs
Balance, end of period
Year ended December 31,
2019
$
131,597
$
—
—
1,191
245
1,436
133,033
2018
163,946
(34,500)
(34,500)
1,767
384
2,151
131,597
Year ended December 31,
2019
$
508,939
$
(978)
(17,104)
(2,130)
(20,212)
1,662
$
490,389
$
2018
394,046
(1,189)
112,190
2,645
113,646
1,247
508,939
1. Capitalized financing cost is included in interest paid section in the annual statement of cash flow.
15. RELATED PARTY TRANSACTIONS
(a) As at December 31, 2019, due to Manager mainly includes management and servicing fees payable of
$1,114 (December 31, 2018 – $1,493).
(b) As at December 31, 2019, included in other assets is $8,959 (December 31, 2018 – $3,083) 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 and
other loan funding holdbacks, repayments and prepaid mortgage interest received from various
borrowers.
(c) As at December 31, 2019, the Company had no outstanding mortgage investments which an
independent director of the Company was also an officer and/or part-owner of the borrowers:
A mortgage investment with a total gross commitment of $9,500 (December 31, 2018 – $9,500),
which was fully repaid during the year ended December 31, 2019. The Company’s share of the
commitment is $3,636 (December 31, 2018 – $3,636). For the year ended December 31, 2019, the
Company has recognized net interest income of $314 (2018 – $344) from this mortgage investment
during the year.
A mortgage investment with a total gross commitment of $1,920 (December 31, 2018 – $1,920), which
was fully repaid during the year ended December 31, 2019. The Company’s share of the commitment
is $1,920 (December 31, 2018 – $1,920). For the year ended December 31, 2019, the Company has
recognized net interest income of $102 (2018 – $115) from this mortgage investment during the year.
A mortgage investment with a total gross commitment of $16,500 (December 31, 2018 – $16,500).
The Company’s share of the commitment is $3,036 (December 31, 2018 – $2,500), of which $3,036
(December 31, 2018 – $2,481) has been funded as at December 31, 2019. During the year ended
75
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) December 31, 2019, the mortgage investment was restructured and the independent director is no
longer related to the mortgage investment. For the year ended December 31, 2019, the Company
recognized net interest income of $245 (2018 – $238) from this mortgage investment during the year.
(d) As at December 31, 2019, the Company and Timbercreek Four Quadrant Global Real Estate
Partners (“T4Q”) and Timbercreek Real Estate Financing U.S. Holding LP (“TREF”) are related
parties as they are managed by wholly owned subsidiary of the Manager, and they have co-
invested in 29 (December 31, 2018 – 18) gross mortgage and other investments totaling $349,050
(December 31, 2018 – $258,818). The Company’s share in these gross mortgage investments is
$202,932 (December 31, 2018 – $178,412). Additionally, one net mortgage investments (December 31,
2018 – two) totaling $18,402 (December 31, 2018 – $22,972) are loaned to limited partnerships in
which T4Q is invested.
(e) As at December 31, 2019, the Company and T4Q invested in one indirect real estate development
through one investee, totaling $2,225 (December 31, 2018 – two indirect real estate development
through two investees, totaling $7,492).
(f)
As at December 31, 2019, the Company is invested in junior debentures of Timbercreek Ireland
Private Debt Designated Activity Company totaling $4,948 or €3,398 (December 31, 2018 – $4,605
or €2,923), which is included in loan investments within other investments. Timbercreek Ireland
Private Debt Designated Activity Company is managed by a wholly owned subsidiary of the
Manager.
(g) As part of the Saskatchewan Portfolio co-ownership, the Company, T4Q and a third-party co-
owner have entered into property management agreements with the Manager. The Manager
provides property and leasing services to each of the properties and is entitled to receive property
management and capital improvements service fees (the “Property Management Fees”) at the
disclosed rates in the agreements. For the year ended December 31, 2019, Property Management
Fees of $140 was charged by the Manager to the Company (2018 – $130). As at December 31, 2019,
$12 was payable to the Manager (December 31, 2018 – $18).
16. INCOME TAXES
As of December 31, 2019, the Company has non-capital losses carried forward for income tax purposes
of $26,320 (December 31, 2018 – $30,060), which will expire between 2028 and 2037 if not used. The
Company also has future deductible temporary differences resulting from allowance for impairment,
prepaid mortgage interest, and unearned income for income tax purposes of $20,214 (December 31,
2018 – $13,729). These temporary differences vary from year to year depending on the current year
business activity and lender fee income amounts.
17. 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, 2019, the Company was in compliance with its investment restrictions.
76
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) Pursuant to the terms of the credit facilities, the Company is required to meet certain financial
covenants, including a minimum interest coverage ratio, minimum adjusted shareholders’ equity,
maximum non-debenture indebtedness to adjusted shareholders’ equity and maximum consolidated
debt to total assets.
18 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 market rate risk (interest rate risk and currency 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, 2019,
$992,301 of net mortgage investments and $6,560 of other investments bear interest at variable rates
(December 31, 2018 – $717,509 and $21,806, respectively). $917,172 of net mortgage investments
have a “floor rate” (December 31, 2018 – $626,021). If there were a decrease or increase of 0.50% in
interest rates, with all other variables constant, the impact from variable rate mortgage investments
and other investments would be a decrease in net income of $1,283 or an increase in net income of
$4,994, respectively (2018 – $2,457 and $3,731, respectively). The Company manages its sensitivity to
interest rate fluctuations by managing the fixed/floating ratio in its investment portfolio.
The Company is also exposed to interest rate risk on the credit facilities, which has a balance
of $491,690 as at December 31, 2019 (December 31, 2018 – $510,924). During the year ended
December 31, 2019, the Company entered into the Contract (refer to note 6(a)) which reduced
the exposure in interest rate risk. As at December 31, 2019, net exposure to interest rate risk was
$241,690 (December 31, 2018 – no contract outstanding, net exposure of $510,924), and assuming
it was outstanding for the entire period, a 0.50% decrease or increase in interest rates, with all other
variables constant, will decrease or increase net income by $1,208 (2018 – $2,555).
The Company’s other assets, interest receivable, accounts payable and accrued expenses, prepaid
mortgage interest, mortgage funding holdbacks, dividends payable and due to Manager have no
significant 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) Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate due to changes in foreign exchange rates. The Company is exposed to currency risk
primarily from other investments and credit facility investment properties that are denominated in
a currency other than the Canadian dollar. The Company uses foreign currency forwards and swaps
to approximately economically hedge the principal balance of future earnings and cash flows caused
by movements in foreign exchange rates. Under the terms of the foreign currency forward and
swap contracts, the Company buys or sells a currency against another currency at a set price on a
future date.
77
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) As at December 31, 2019, the Company has US$5,050 and €3,398 in other investments denominated
in foreign currencies (December 31, 2018 – US$5,000 in net mortgages, US$5,050 and €2,945 in
other investments). The Company has entered into a series of foreign currency contracts to reduce
its exposure to foreign currency risk. As at December 31, 2019, the Company has one U.S. dollar
currency forward contracts with an aggregate notional value of US$5,050, at a weighted average
forward contract rate of 1.3316, maturing in April 2020 and one Euro currency contract with an
aggregate notional value of €3,500 at contract rate of 1.4745, maturing in March 2020.
The fair value of the foreign currency forward contracts as at December 31, 2019 is an asset of $237
which is included in other assets. The valuation of the foreign currency forward and swap contracts
was computed using Level 2 inputs which include spot and forward foreign exchange rates.
(c) 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 and other investments are approved by the investment committee
before funding; and
iii. actively monitoring the mortgage and other investments and initiating recovery procedures, in a
timely manner, where required.
The exposure to credit risk at December 31, 2019 relating to net mortgages and other investments
amount to $1,319,631 (December 31, 2018 – $1,320,011).
The Company has recourse under these mortgages and the majority of other investments in the
event of default by the borrowers; in which case, the Company would have a claim against the
underlying collateral. Management believes that the potential loss from credit risk with respect to
cash that is held in trust at a Schedule I bank by the Company’s transfer agent and operating cash
held also at a Schedule 1 bank, to be minimal.
The Company is exposed to credit risk from the collection of accounts receivable from tenants.
The Manager routinely obtains credit history reports on prospective tenants before entering into a
tenancy agreement.
(d) 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.
78
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) The following are the contractual maturities of financial liabilities, excluding mortgage syndication
liabilities as at December 31, 2019, including expected interest payments:
Carrying
value
Contractual
cash flow
Within
a year
Following
year
3–5 years
December 31, 2019
Accounts payable and accrued
expenses
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility (mortgage investments)1
Credit facility (investment properties)2
Convertible debentures3
Unadvanced mortgage commitments4
Total contractual liabilities, excluding
mortgage syndication liabilities5
$
$
$
3,674
$
3,674
$
3,674
$
— $
4,787
1,114
3,741
5,437
459,767
30,622
133,033
4,787
1,114
3,741
5,437
498,288
32,247
138,619
4,787
1,114
3,741
5,437
19,587
9,089
138,619
—
—
—
—
478,701
23,158
—
642,175
$
687,907
$
186,048
$
501,859
$
—
211,753
211,753
—
642,175
$
899,660
$
397,801
$
501,859
$
—
—
—
—
—
—
—
—
—
—
—
1.
2
3
4
5
Credit facility (mortgage investments) includes interest based upon December 2019 weighted average interest rate on the credit facility
assuming the outstanding balance is not repaid until its maturity on December 18, 2021.
Credit facility (investment properties) includes interest based upon December 2019 weighted average interest rate on the credit facility
assuming the outstanding balance is not repaid until its maturity on October 9, 2020.
The 2016 debentures are assumed to be redeemable July 31, 2019, the February 2017 debentures are assumed to be redeemed on
March 30, 2020 as they are redeemable on and after March 30, 2020 and the June 2017 debentures are assumed to be redeemed on
June 30, 2020 as they are redeemable on and after June 30, 2020.
Unadvanced mortgage commitments include syndication commitments of which $81,295 belongs to the Company’s syndicated
partners.
The principal repayments of $426,252 mortgage syndication liabilities by contractual maturity date is shown net with mortgage
investments in note 4(b).
As at December 31, 2019, the Company had a cash position of $8,991 (December 31, 2018 – $541), an
unutilized credit facility (mortgage investments) balance of $39,000 (December 31, 2018 – $21,896)
and an unutilized credit facility (investment properties) balance of nil (December 31, 2018 – $457).
The Management believes it will be able to finance its operations using the cash flow generated from
operations, investing activities and the credit facilities.
As at December 31, 2019, unadvanced mortgage commitments under the existing gross mortgage
investments amounted to $211,753 (December 31, 2018 – $184,265) of which $81,295 (December 31,
2018 – $57,951) belongs to the Company’s syndicated partners. The Company expects the syndication
partners to fund their respective commitments.
79
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) 19. FAIR VALUE MEASUREMENTS
The following table shows the classification carrying amounts and fair values of assets and liabilities:
Carrying value
Note
Amortized
cost
Fair value
through profit
or loss
Fair value
5
$
— $
47,349
$
47,349
4(e)
8,991
10,521
1,592,514
54,346
2,827
4,787
1,114
3,741
5,437
459,767
30,622
133,033
426,939
—
237
75,172
4,949
847
—
—
—
—
—
—
—
—
8,991
10,758
1,667,686
59,295
3,674
4,787
1,114
3,741
5,437
461,000
30,690
139,478
426,939
Carrying value
Note
Amortized
cost
Fair value
through profit
or loss
Fair value
5
$
— $
46,494
$
46,494
541
10,217
1,679,480
78,860
3,893
4,694
1,493
657
2,425
508,939
131,597
—
—
117,342
4,605
328
—
—
—
—
—
—
541
10,217
1,796,822
83,465
4,221
4,694
1,493
657
2,425
510,924
131,554
$
575,040
$
— $
575,040
As at December 31, 2019
Assets measured at fair value
Investment properties
Financial assets
Cash and cash equivalents
Other assets
Mortgage investments, including mortgage syndications
Other investments
Financial liabilities
Accounts payable and accrued expenses
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility (mortgage investments)
Credit facility (investment properties)
Convertible debentures
Mortgage syndication liabilities
As at December 31, 2018
Assets measured at fair value
Investment properties
Financial assets
Cash and cash equivalents
Other assets
Mortgage investments, including mortgage syndications
Other investments
Financial liabilities
Accounts payable and accrued expenses
4(e)
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility
Convertible debentures
Mortgage syndication liabilities
80
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) The valuation techniques and the inputs used for the Company’s financial instruments are as follows:
(a) Mortgage investments, other investments, and mortgage syndication liabilities
There is no quoted price in an active market for the mortgage investments, other investments,
excluding marketable securities or mortgage syndication liabilities. The Manager makes its
determination of fair value based on its assessment of the current lending market for mortgage and
other investments excluding marketable securities of same or similar terms. Typically, the fair value
of these mortgage investments, other investments, debentures excluding marketable securities
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 and other investments excluding
marketable securities is based on level 3 inputs.
The fair value of the marketable securities is based on a level 1 input, which is the market closing
price of the marketable securities at the reporting date.
(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 facilities approximate their carrying amounts due to their short-term maturities or bear
interest at variable rates.
(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 the
three months ended December 31, 2019.
20. COMPENSATION OF KEY MANAGEMENT PERSONNEL
During 2019, the compensation expense of the members of the Board of Directors amounts to $338
(2018 – $240), 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).
21. 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 other investments. 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.
81
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars) 82
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
Executive Chairman,
LaSalle Investment
Management (Canada)
Ugo Bizzarri
Director,
Timbercreek Financial
CEO, Timbercreek Equities
CIO & Global Head of
Real Estate Investment
Management, Timbercreek
Asset Management
Cameron Goodnough
Director,
Chief Executive Offi cer,
Timbercreek Financial
Steven R. Scott
Independent Director and Audit
Committee Chair,
Timbercreek Financial
Chairman & CEO, StorageVault
Canada Inc. and The Access Group
of Companies
W. Glenn Shyba
Lead Independent Director
Timbercreek Financial
Founder & Principal,
Origin Merchant Partners
Pamela Spackman
Independent Director,
Timbercreek Financial
Board member of
WPT Industrial REIT
Blair Tamblyn
Chairman,
Timbercreek Financial
CEO, Timbercreek Asset
Management
Derek J. Watchorn, LL.B.
Independent Director,
Timbercreek Financial
Consultant
Leadership
Cameron Goodnough
Chief Executive Offi cer
Gigi Wong, CPA, CA, CFA
Chief Financial Offi cer
Head Offi ce
25 Price Street
Toronto, ON M4W 1Z1
T 844.304.9967
E info@timbercreek.com
timbercreekfi nancial.com
Blair Tamblyn
Chief Executive Offi cer,
Timbercreek Asset Management
Julie Neault
Managing Director,
Global Credit
Scott Rowland
Managing Director,
Global Debt Investments
Patrick Smith
Executive Director,
Global Credit, Canada
Geoff McTait
Executive Director,
Head of Origination – Canada
Stock Exchange Listing
TSX: TF, TF.DB.A, TF.DB.B,
T.F.DB.C
Auditors
KPMG LLP
Legal Counsel
McCarthy Tétrault LLP
Transfer Agent &
Registrar
CST Trust Company
320 Bay Street
Toronto, ON M5H 4A6
timbercreekfinancial.com