Annual report 2022
ABOUT
TIMBERCREEK FINANCIAL
Timbercreek Financial is a leading
non-bank, commercial real estate lender
providing shorter-duration, structured
financing solutions to commercial real
estate professionals. Our sophisticated,
service-oriented approach allows us to
meet the needs of borrowers, including
faster execution and more flexible
terms that are not typically provided by
Canadian financial institutions.
By employing thorough underwriting,
active management and strong
governance, we are able to meet these
needs while generating strong risk-
adjusted yields for investors.
ABOUT
TIMBERCREEK FINANCIAL
15+ year
track record
$1.2B
institutional-quality
portfolio
100%
commercial
real estate
focused
$13.4B
in originations
LETTER TO SHAREHOLDERS
Entering 2022, we anticipated that
interest rate increases would serve as a
significant tailwind for top-line income
given our high exposure to floating rate
loans (94% of the portfolio at year end)
– and that proved correct. The portfolio’s
weighted average interest rate (WAIR)
was 9.7% in the fourth quarter, and
our WAIR exiting this year was 10.0%,
compared with 6.8% at the same time
in 2021. The substantial increase in
the WAIR allowed us to achieve record
annual net investment income of $109.8
million, up 22% from 2021. Distributable
income grew by 8% year over year to
$66.2 million and distributable income
per share rose from $0.75 per share
in 2021 to $0.79 per share in 2022,
for a payout ratio of 87.1%. Especially
given the market conditions, we were
pleased with the company’s financial
performance.
10.0%
weighted average interest rate exiting 2022
(6.8% exiting 2021)
$109.8MM
net investment income
(+22% from 2021)
$66.2MM
distributable income
(+8% from 2021)
BLAIR TAMBLYN
Chief EXECUTIVE Officer
This past year presented one of the
most unique operating environments in
our 15-year history in private lending,
highlighted by inflation rates not seen
since the 1980s, and the resulting
broad-based volatility in equity and
fixed income markets. In response, over
the course of 2022 the Bank of Canada
significantly increased the prime rate by
400 basis points. While the rate increases
were viewed as inevitable by many given
the lengthy ultra-low-rate environment,
the pace and magnitude of the increases
(and short-term interest rates generally)
served as an intentional shock to the
economy. As expected, these conditions
provided some benefits to our business
and they also created some challenges
for our team to navigate.
This period of rapid prime rate increases
caused some challenges as well,
including muted transaction volume
through a decent portion of 2022 as
commercial real estate buyers and sellers
went through a price discovery exercise.
This eased somewhat in the fourth
quarter, which was reflected in higher
transaction levels and turnover in the
portfolio. For the full year, we invested
roughly $637 million in new mortgage
investments and additional advances on
existing mortgages, offset by inflows of
approximately $616 million, resulting in
a $36 million net increase in the portfolio
to $1.20 billion at year end.
During the year we also made good
progress exiting the few remaining non-
core investments in the portfolio and
redirecting this capital into loans that
are accretive to distributable income.
Shareholders’ equity stood at $699
million at year end, up from $685 million
last year. This reflects our intent to focus
on increasing book value after disposing
and restructuring these assets and
investments during the year.
Our conservative investment approach
continues to be underpinned by
our emphasis on income-producing
assets in urban markets. At year end,
87.4% of our investments were in
cash-flowing properties, with multi-
residential real estate assets (apartment
buildings) continuing to comprise
the largest portion of the portfolio
at 52.5%. Including retirement loans,
approximately 60% of the portfolio
was in multi-family residential assets.
Particularly in an uncertain environment,
our risk management strategies remain
front and center. First mortgages
represented 92.4% of the portfolio at
year end and our weighted average loan-
to-value was a conservative 68.3%.
Q&A with Scott Rowland
Chief Investment Officer
Q: How do higher interest rates impact your
borrowers?
2023 is certainly an interesting time both for
borrowers and lenders, as both sides adjust to a
rapid rise in interest rates that we haven’t seen in
15 years. While new investments are being fully
underwritten to account for this environment,
older loans and business plans likely have a higher
expense burden than originally anticipated.
Mitigants for owners include the fact that real estate
values increased significantly during the last several
years and we are now seeing higher property
income across many asset classes and markets tied
to inflationary rent growth. While lenders may have
more issues to deal with in this environment, their
interest income is robust and provides a meaningful
cushion to absorb such events.
Q: What is the current demand outlook for your
financing solutions?
Without question, the rising interest rate
environment in 2022 resulted in muted transaction
volume as many prospective borrowers took a
wait and see approach. Origination activity
improved in the fourth quarter, and our expectation
is commercial real estate transaction activity will
pick up pace in 2023. We expect a healthy volume
of opportunities in our core area: shorter-term
loans that support income-producing assets during
their value-add phase. These conditions may allow
for modest growth in the total mortgage portfolio
in 2023.
While the majority of the mortgage
portfolio was performing well at year
end, we appreciate that rapid rate
increases can place strain on certain
borrowers that are managing higher
floating rate debt carrying costs. We
had three loans move to Stage III at
year end, which led to an increase in
loan loss provisions and affected our
net income and earnings per share.
Active management is required from
time to time in our business, and I’m
confident in our team’s ability to
navigate these unique situations to
preserve capital. Fortunately, we are
managing from a position of financial
strength, with a high cash yield and
a substantial increase in portfolio
income that provides ample cushion
for these provisions.
$0.79
distributable income per share
($0.75 per share in 2021)
87.1%
payout ratio on
distributable income
Looking ahead, the prevailing view is that
interest rates should stabilize in 2023,
creating the conditions for increased
real estate transaction activity. Our
experience suggests these transitional
periods often benefit lenders like
Timbercreek as traditional lenders
retrench, and we are optimistic we
will continue to see healthy borrower
demand in 2023. We have the team to
identify the best of these investments
and the financial capacity to act on
quality opportunities.
“ as we return to a more normalized
rate environment, our business
is well positioned to generate
attractive cash flow and realize
on our primary investment objective
to deliver predictable DIVIDENDS
to our shareholders”
In the face of a potential recession, or
an economic slowdown at minimum, we
will continue to be cautious through our
underwriting and asset management
processes to ensure the ongoing
quality of the portfolio. We believe our
underlying philosophy of short-term
lending against income-producing
properties will serve us well and reduce
the potential for non-performing loans.
With lending rates settling in a longer-
term historical range, we should continue
to see strong interest income from
the portfolio. Borrowers with projects
that are near stabilization will look to
refinance at lower rates, and that should
keep our turnover ratio in line with
historical averages. In short, as we return
to a more normalized rate environment,
our business is well positioned to
generate attractive cash flow and realize
on our primary investment objective to
deliver predictable dividends to
our shareholders.
Thank you to our talented team
for navigating a complex operating
environment in 2022 to generate solid
results for our shareholders. We also
want to thank you, our shareholders, for
your continuing support and confidence
in us.
Sincerely,
Blair Tamblyn
Well-Diversified
Portfolio
By Asset
7.0%
9.2%
4.7%
7.0%
6.6%
12.8%
52.7%
By Region
37.6%
4.3%
24.7%
25.0%
8.4%
MULTI-RESIDENTIAL
RETAIL
RETIREMENT
OFFICE
UNIMPROVED
LAND
INDUSTRIAL
SINGLE-FAMILY
RESIDENTIAL
ONTARIO
BRITISH COLUMBIA
ALBERTA
QUEBEC
OTHER
As at Dec 31, 2022 - net of mortgage syndications
Portfolio breakdown by asset does not include does not include Net
Mortgage Investments measured at FVTPL ($5.5MM at Dec 31, 2022)
2022
Portfolio Highlights
113
~60%
mortgage investments
MUlti-family residential
$10.8MM
average
mortgage size
68.3%
weighted average
loan-to-value
87.4%
income-producing
properties
92.4%
first
mortgages
~60%
MUlti-family residential
68.3%
weighted average
loan-to-value
92.4%
first
mortgages
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Management’s Discussion and Analysis(cid:3)
Timbercreek Financial
(cid:3)(cid:38)(cid:381)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:455)(cid:286)(cid:258)(cid:396)(cid:3)(cid:286)(cid:374)(cid:282)(cid:286)(cid:282)(cid:3)(cid:24)(cid:286)(cid:272)(cid:286)(cid:373)(cid:271)(cid:286)(cid:396)(cid:3)(cid:1007)(cid:1005)(cid:853)(cid:3)(cid:1006)(cid:1004)(cid:1006)(cid:1006)(cid:3)
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7
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
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 Timbercreek Capital Inc. (“Manager”), a subsidiary to Timbercreek
Asset Management Inc.("TAMI"), (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, geopolitical uncertainty, impacts as a result of COVID-19, 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 the Manager do not undertake, and
specifically disclaim any intention or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, unless required by applicable law.
This MD&A is dated February 22, 2023. 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.
8
TIMBERCREEK FINANCIAL 1
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
BUSINESS OVERVIEW
Timbercreek Financial 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 three
months and year ended December 31, 2022. This MD&A should be read in conjunction with the audited
consolidated financial statements for the years ended December 31, 2022 and 2021, 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 International Financial
Reporting Standards ("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.
TIMBERCREEK FINANCIAL 2
9
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
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 is 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 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 are one of the main contributors to net
investment income and distributable income.
10
TIMBERCREEK FINANCIAL 3
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
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.
Non-IFRS financial measures for Company’s assessment of its distribution paying capacity:
It is the Company’s view that IFRS net income and earnings per share ("EPS") measures do not necessarily
provide a complete measure of the Company’s operating performance as IFRS net income and EPS include non-
cash items such as amortization of lender fees, amortization of financing costs, unrealized fair value changes, and
allowance for mortgage investments loss, which are not representative of current year operating performance.
Distributable income is a non-IFRS financial measure of 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 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 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 shares outstanding 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.
v. Adjusted distributable income – represents distributable income adjusted for the impact of a realized gain/
(loss) on an investment measured at FVTPL as well as non-recurring foreign currency gains on other
investment.
vi. Adjusted distributable income per share – represents the total adjusted distributable income divided by the
weighted average common shares outstanding for the stated period.
vii. Payout ratio on adjusted distributable income – represents total common share dividends paid and declared
for payment, divided by adjusted distributable income for the stated period.
TIMBERCREEK FINANCIAL 4
11
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
viii. Adjusted net income and comprehensive income – represents adjusted net income and comprehensive
income for the stated period to exclude the impact from unrealized fair value (gain)/loss on financial assets
measured at FVTPL and on derivative contracts (interest rate swap) used for hedging purposes but hedge
accounting was not adopted. The fair value loss on financial assets represents the change in unrealized loss
determined based on the fair value that the Company determined using its valuation policies on the financial
assets. The fair value (gain)/loss on the interest rate swap contract represents the change in unrealized
appreciation or depreciation of fair value of the interest rate swap, determined based on the fair value that the
Company would pay or receive if the interest rate swap had been terminated as at the reporting date.
ix. Adjusted earnings per share – adjusted earnings per share is calculated in the same manner as earnings per
share using adjusted net income and comprehensive income for the stated period.
x. Payout ratio on adjusted earnings per share – represents total common share dividends paid and declared for
payment, divided by adjusted net income and comprehensive income for the stated period.
RECENT DEVELOPMENTS AND OUTLOOK
The Company is pleased to report strong Q4 2022 distributable income of $18.4 million or $0.22 per share,
representing a payout ratio of 78.7%. This attractive payout ratio reflects a higher year-end portfolio balance (net
mortgage investments of $1,195.8 million), and substantially more interest income being generated as a result of
increases in the Bank of Canada prime rate during the year (100 basis points in Q4, 400 basis points total in
2022). It also reflects Management's intent to focus on increasing the Company's book value after disposing and
restructuring some assets measured at FVTPL and enhanced return investments during 2022 which were
deemed non-core and were not accretive to the financial results.
The fourth quarter saw net new mortgage fundings of $138.6 million, and advances on existing mortgages of
$13.1 million, offset by net mortgage repayments of $211.4 million and net syndications of $2.7 million. Mortgage
repayment activity resumed in the fourth quarter as expected after muted activity in Q2 and Q3, and as a result,
portfolio turnover increased to 17.2% compared with 3.3% in Q3 2022.
Overall, the Company’s portfolio continued to perform well in the fourth quarter. In keeping with the rhythm of the
business, two loans moved from Stage I to Stage III and one mortgage investment moved from Stage II to Stage
III, which resulted in a loan loss provision increase of $2.8 million from the prior quarter. The two loans that moved
to Stage III from Stage I, aggregating to $72.4 million are part of a portfolio of assets owned by a sponsor group
that filed for CCAA in Q4 2022. Both assets are attractively located in Montreal – one is an income producing
high-end senior living facility and the other is a conventional multi-family apartment building that is senior under
construction. The Manager’s asset management team is actively pursuing a multi-pronged strategy to preserve
our secured investments and remains optimistic on the outcome. The other mortgage that moved into Stage III is
a suburban medical office building in Ottawa where the Sponsor’s re-leasing and development plans are behind
schedule. Management is pursuing an active asset management strategy in this instance as well.
The Company continues to have ample liquidity, though available capacity on its credit facilities. Additionally, the
Company was active in Q4 on its normal course issuer bid ("NCIB"), repurchasing 107,500 common shares at an
average price of $7.20 per share.
Looking out to 2023 and in consideration of commentary from the Bank of Canada following the latest 25 basis
point increase in January, Management is of the view that the pace of monetary policy tightening will slow or stop
in the remainder of the year. This should result in the Company's interest income continuing to see a net benefit
from the previous interest rate increases in 2022. With the stabilization of rates, we also expect an increase in
underlying real estate transactions, which will result more normal portfolio turnover. The Company remains
focused on its key strengths when originating new loans, concentrating on urban locations, and providing
financing to strong sponsors who are executing on value-add strategies to improve income producing properties.
12
TIMBERCREEK FINANCIAL 5
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
PORTFOLIO ACTIVITY
In Q4 2022 the Company funded 7 new net mortgage investments totaling $138.6 million and made additional
advances of $13.1 million . The portfolio reverted to a more typical scenario, where turnover increased to 17.2%
(with fully discharged and partially discharged net mortgage investments totaling $211.4 million), compared with
3.3% in Q3 2022. The rising interest rate environment in Q2 and Q3 resulted in muted transaction volume as
buyers and sellers went through a price discovery exercise. Including syndications of $2.7 million, total discharges
were $231.2 million. This resulted in the net value of the mortgage portfolio, excluding syndications, to be lower by
$59.6 million (from $1,255.4 million in Q3 2022 to $1,195.8 million at the end of Q4 2022). The Company’s credit
facility had a balance of $451.0 million at the end of Q4 2022, compared to $515.0 million at the end of Q3 2022.
With $103.5 million available on the credit facility, Timbercreek Financial continues to be in a strong liquidity
position entering Q1 2023.
At the end of Q4 2022, 87.4% of the mortgage investments were secured by income-producing properties,
compared to 89.3% in Q3 2022, the decrease resulting from a condo inventory loan which was advanced in the
quarter. The Company expects that this ratio will revert to its longer-term average around 90% as the year
progresses, as a result of normal course syndication activities. Multi-residential real estate assets (apartment
buildings) continue to comprise the largest portion of the portfolio at 52.5% at quarter end, compared to 55.4% in
Q3 2022.
The Company's exposure to first mortgages was 92.4% of the net mortgage portfolio at year end. The weighted
average loan-to-value ("LTV") ratio decreased from the prior quarter to 68.3% compared to 69.4% in the prior
quarter - mainly as a result of newly funded loans being done at a weighted-average LTV of 45.4% during the
quarter. Our weighted average interest rate for the period was 9.7% in Q4 2022 with an exit rate of 10.0% as at
December 31, 2022, higher than the 9.2% exit rate at September 30, 2022. The change is due primarily to
additional rate increases in Q4, partially offset by lower average rates on new originations in Q4 2022 due to lower
LTVs on these loans. The interest rate change reflects the two 50 basis point rate increases that the Bank of
Canada implemented in October and December of this year. These two rate hikes materially increased top line
interest income, which was partially offset by a corresponding increase in cost on the Company’s revolving credit
facility. As noted above, the Company continues to generate a sustained distributable income ratio well within
management's target range which allows for optionality looking forward.
The Company’s mortgage portfolio remains heavily weighted toward Canada’s largest provinces, with
approximately 95.7% of its capital invested in Ontario, British Columbia, Quebec and Alberta, where it is focused
on urban markets that generally experience better real estate liquidity and thus offer a better risk profile.
TIMBERCREEK FINANCIAL 6
13
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
FINANCIAL HIGHLIGHTS
KEY FINANCIAL
POSITION INFORMATION
Net mortgage investments1
Enhanced Return Portfolio1
CAPITAL STRUCTURE
Total assets
Total liabilities
Shareholders' equity
Book value per share
Convertible debentures, par
Credit facility (investment properties)
Credit facility (mortgage investments)
Total debentures and credit facility utilized
Maximum credit limit available
Credit utilization rate
COMMON SHARE INFORMATION
Number of common shares outstanding
Closing trading price
Market capitalization
1.
Refer to non-IFRS measures section.
December 31, 2022
December 31, 2021
December 31, 2020
$
$
$
$
$
$
$
$
$
$
$
1,195,809
$
1,159,634
72,945
1,916,039
1,217,496
698,543
8.33
146,000
—
450,347
596,347
700,528
$
$
$
$
$
$
$
$
$
$
84,603
1,732,064
1,047,481
684,583
8.33
146,000
30,690
419,179
595,869
711,690
$
$
$
$
$
$
$
$
$
$
$
1,143,121
91,640
1,711,462
1,026,412
685,050
8.47
91,000
30,656
458,299
579,955
656,690
85.1 %
83.7 %
88.3 %
83,887,516
7.11
596,440
$
$
82,219,602
9.61
790,130
$
$
80,887,433
8.65
699,676
$
$
14
TIMBERCREEK FINANCIAL 7
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
OPERATING RESULTS1
NET INCOME AND COMPREHENSIVE INCOME
2022
2021
2022
2021
2020
Three months ended
December 31,
Year ended
December 31,
Net Investment Income on financial assets measured at
amortized cost
Total fair value gain (loss) and other income on financial
assets measured at FVTPL
Net rental (loss) income
Total fair value gain (loss) on real estate properties
Expenses
Income from operations
Financing costs:
$ 31,342
$ 22,378
$ 109,803
$ 90,249
$ 95,940
736
(278) $
$
$
$
82
$ 6,671
$ 25,211
$ (7,404)
389
$ (4,374)
$ 3,761
$ 7,228
$ 1,388
$
$
$ 22,592
$ 88,152
(151) $ 1,499
(296) $ (4,374) $
$ (10,291) $ (16,778)
$ 1,453
—
$ 18,024
$ 62,591
$ 16,237
$ 60,846
Financing cost on credit facilities
Financing cost on convertible debentures
Fair value (gain) loss on derivative contract
Net income and comprehensive income
Payout ratio on earnings per share
$ 8,137
$ 2,260
$
—
$ 14,814
$ 4,045
$ 1,767
$
(994)
$ 2,410
$ 23,234
$ 9,022
$
—
$ 55,896
$ 16,734
$ 18,025
$ 8,624
$ 6,745
$ (3,940) $ 3,940
$ 32,002
$ 41,307
97.7 %
587.6 %
103.3 %
135.9 %
176.4 %
ADJUSTED NET INCOME AND COMPREHENSIVE INCOME
Net income and comprehensive income
$ 14,814
$ 2,410
$ 55,896
$ 41,307
$ 32,002
Less: Fair value gain on derivative contract (interest
rate swap)
Add: Net unrealized (gain) loss on financial assets
measured at FVTPL
Add: Net unrealized loss on real estate properties
Adjusted net income and comprehensive income1
Payout ratio on adjusted earnings per share1
PER SHARE INFORMATION
Dividends declared to shareholders
Weighted average common shares (in thousands)
Dividends per share
Earnings per share (basic)
Earnings per share (diluted)
Adjusted earnings per share (basic)1
Adjusted earnings per share (diluted)1
1.
Refer to non-IFRS measures section.
$
$
$
—
$
(994)
$
—
$ (3,940) $ 3,940
(122) $ 8,237
$ 1,546
$ 13,748
$ 18,949
—
$ 4,374
$
95
$ 4,374
$
—
$ 14,692
$ 14,027
$ 57,537
$ 55,489
$ 54,891
98.6 %
100.9 %
100.3 %
101.2 %
102.8 %
$ 14,480
83,970
$ 14,160
82,011
57,721
83,622
$ 56,142
81,325
$ 56,447
81,870
$
$
$
$
$
0.17
0.18
0.18
0.17
0.17
$
$
$
$
$
0.17
0.03
0.03
0.17
0.17
$
$
$
$
$
0.69
0.67
0.67
0.69
0.69
$
$
$
$
$
0.69
0.51
0.51
0.68
0.68
$
$
$
$
$
0.69
0.39
0.39
0.67
0.67
TIMBERCREEK FINANCIAL 8
15
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
OPERATING RESULTS1
DISTRIBUTABLE INCOME
Three months ended
December 31,
2022
2021
Year ended
December 31,
2022
2021
Adjusted net income and comprehensive income1
$
14,692
$
14,027
$
57,537
$
55,489
Less: Amortization of lender fees
(1,748)
(2,135)
(8,726)
(9,275)
Add: Lender fees received and receivable
Add: Amortization of financing costs, credit
facility
Add: Amortization of financing costs, convertible
debentures
Add: Accretion expense, convertible debentures
Add: Unrealized fair value (gain) loss on DSU
Add: Allowance for expected credit loss
Distributable income1
Payout ratio on distributable income1
ADJUSTED DISTRIBUTABLE INCOME
Distributable income
Less: One-time distribution income
Adjusted Distributable income1
2,056
3,720
7,708
10,746
262
253
114
(33)
2,800
18,396
78.7 %
18,396
—
18,396
$
$
$
$
$
$
189
199
77
(17)
103
16,163
984
1,006
454
(201)
7,482
66,244
87.6 %
87.1 %
16,163
—
16,163
$
$
66,244
—
66,244
1,022
1,060
323
104
1,660
61,129
91.8 %
61,129
(707)
60,422
$
$
$
Payout ratio on adjusted distributable income1
78.7 %
87.6 %
87.1 %
92.9 %
PER SHARE INFORMATION
Dividends declared to shareholders
$
14,480
$
14,160
57,721
$
56,142
Weighted average common shares (in thousands)
Dividends per share
Distributable income per share1
Adjusted distributable income per share1
83,970
0.17
0.22
0.22
$
$
$
$
$
$
82,011
0.17
0.20
0.20
$
$
$
83,622
0.69
0.79
0.79
$
$
$
81,325
0.69
0.75
0.74
1. Refer to non-IFRS measures section.
16
TIMBERCREEK FINANCIAL 9
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
For the three months ended December 31, 2022 (“Q4 2022”) and December 31, 2021 (“Q4 2021”)
•
•
•
•
•
The Company funded 7 new net mortgage investments (Q4 2021 – 17) totaling $138.6 million (Q4 2021 –
$209.8 million), made additional advances on existing net mortgage investments inclusive of net syndications
totaling $13.1 million (Q4 2021 – $125.8 million). New funding was mainly comprised of multi-residential and
single family real estate. The weighted average interest rate on net mortgages funded was 9.0%, which has
decreased from 10.0% in Q3 2022 (Q4 2021 - 6.0%) primarily as a result of new loans funded at lower rates
in exchange for lower advance rates on those loans as evidenced by a corresponding decrease in the LTVs.
In Q4 2022 the Company partially discharged an existing FVTPL mortgage investment which had a carrying
value of $24.5 million for $19.0 million cash plus a $6.5 million vendor-take-back ("VTB") mortgage, the
Company recorded the VTB at its estimated fair value of $5.5 million. The Company funded an interest
reserve of $500 as part of this transaction.
The Company fully discharged 14 net mortgage investments (Q4 2021 – 19) and partially discharged net
mortgage investments totaling $211.4 million (Q4 2021 – $263.8 million). The weighted average interest rate
on fully discharged net mortgage investments was 9.1%.
The quarterly weighted average interest rate on net mortgage investments was 9.7% in Q4 2022, compared
to 8.5% in Q3 2022 (Q4 2021 – 6.9%), reflecting two policy rate increases in Q4 2022 of 100 basis points in
total as well as five rate increases totaling 300 basis points from Q1 2022 to Q3 2022. In Q4 2021, first
mortgage positions represented 93.2% of the net mortgage investments whereas in Q4 2022 first mortgage
positions represented 92.4% of the net mortgage investments. Interest rate exposure in the existing portfolio
was well protected at the end of Q4 2022 with only 6.0% of the loans with fixed rate exposure (Q4 2021 –
9.8%) and floating rate loans with rate floors representing 88.5% (Q4 2021 – 84.6%). The remaining 5.4% of
the portfolio is allocated to floating rate loans without floors.
Funding of new and existing net mortgage investments of $151.7 million, offset by actual repayments and
partial repayments of $211.4 million, net syndications of $2.7 million resulted in a lower net mortgage
investment portfolio of $1,195.8 million, compared to $1,255.4 million at the end of Q3 2022 (Q4 2021 -
$1,159.6 million).
Turnover ratio was 17.2% for Q4 2022 compared to 23.3% in Q4 2021 due to lower funding volumes in the
period.
• Other investments within the enhanced return portfolio were $72.9 million (Q4 2021 – $71.2 million), a net
increase of $1.7 million year-over-year, primarily due to funding of collateralized loan investments.
•
•
Net investment income on financial assets measured at amortized cost increased by $8.9 million from the
previous year ($31.3 million in Q4 2022 compared to $22.4 million in Q4 2021), attributable to interest rate
increases in the period impacting the variable rate loans as well as higher average net mortgage investments
at amortized cost in Q4 2022 ($1,227.4 million in Q4 2022 compared to $1,067.6 million in Q4 2021).
Quarterly amortization of lender fee of $1.7 million in Q4 2022 is lower compared to $2.1 million in Q4 2021,
attributable to lower overall cash lender fee base and lower turnover ratios.
Fair value gain and other income on financial assets measured at FVTPL increased from a loss of $7.4 million
in Q4 2021 to a gain of $736 in Q4 2022, resulting primarily from the decrease in fair value loss on mortgage
investments due to the exchange of two FVTPL loans for equity interest in land inventory. Additionally, in
November 2022, the Company discharged the remaining mortgage investment measured at FVTPL of $24
million in exchange for cash of $19 million and a vendor-take-back mortgage classified at FVTPL, with a
contractual value of $6.5 million and estimated fair value of $5.5 million. The Company funded an interest
reserve of $500 as part of this transaction.The Company continues to measure the retained vendor-take-back
portion using the direct comparison method, comparing the assets to directly comparable lands and has not
recorded any further adjustments as at December 31, 2022.
TIMBERCREEK FINANCIAL 10
17
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
•
Net rental loss from real estate properties was $278 (Q4 2021 – income of $389) for the quarter, a decline
largely explained by the disposition of a portfolio of multi-family residential assets on April 28, 2022.
Additionally, on April 12, 2022, the Company converted its investment in a mortgage at FVTPL to an equity
interest in the underlying real estate properties. The Company intends on selling the land and has accordingly
recorded this as land inventory, with rental income of $88, offset by operating losses of $366. Fair value loss
on investment properties was $296 in Q4 2022 versus $4.4 million in Q4 2021. In the prior year, a fair value
loss was recorded on investment properties in anticipation of a sale which closed in April 2022.
•
Expenses for the period include:
◦ General and administrative expenses of $608 for Q4 2022 (Q4 2021 – $484). Excluding a foreign
exchange loss of $211, general and administrative expenses were $397 for the quarter, representing
a decrease of $106 over the prior year due to lower costs associated with marketing and annual
general meeting costs.
◦
Provisions for mortgage investment losses of $2.8 million for Q4 2022 (Q4 2021 - $103) representing
an increase in loan loss provisions related primarily to three loans which have been moved into Stage
III in the quarter. The loan loss provisions are an approximation of losses on the Stage III loans and
include forward looking interest on the loans until the anticipated exit/resolution date of the loan.
•
•
•
•
•
Income from operations saw a $17.9 million increase over the prior year ($25.1 million in Q4 2022 compared
to $7.2 million in Q4 2021) largely driven by higher net investment income on financial assets measured at
amortized cost of $8.9 million as noted above, higher fair value gain and other income on financial assets
measured at FVTPL of $8.1 million, a gain on fair value of real estate properties of $4.4 million, offset by
higher provisions for mortgage investment losses of $2.7 million over the prior year period, and a decline of
$0.7 million on net rental income from real estate properties due largely to the sale of the investment property
portfolio in Q2 2022.
During Q4 2022, the Company incurred interest on the credit facility – mortgage investments of $7.9 million
(Q4 2021 – $2.7 million). Q4 2021 included an unrealized fair value gain of $1.0 million, after adjusting for this
gain, interest on the credit facility was approximately $3.7 million. The increase over prior year is due to a
higher utilization of the credit facility in the current year as well as rising interest rates period over period.
Financing costs amortization for the quarter was $262 (Q4 2021 – $177), the increase over the prior year is
due to an extension made on the facility in Q1 2022.
During Q4 2022, interest on the credit facility investment properties was nil (Q4 2021 – $183) and financing
costs amortization of nil (Q4 2021 – $12). On April 28, 2022 and prior to maturity, the credit facility investment
properties was assumed by a third party and the Company no longer has any obligations associated with the
facility aside from a guarantee for its former share of $30.7 million.
Interest on the convertible debentures for the quarter was $1.9 million (Q4 2021 - $1.5 million) reflecting three
series of debentures outstanding in the current year versus two in the prior.
The Company generated net income and comprehensive income of $14.8 million (Q4 2021 - $2.4 million) or
basic and diluted earnings per share of $0.18 (Q4 2021 - $0.03), representing a payout ratio on earnings per
share of 97.7% (Q4 2021 - 587.6%) and payout ratio on adjusted earnings per share of 98.6% (Q4 2021 -
100.9%). The results were significantly improved over the prior year period as a result of higher top-line
interest income as well as lower losses on financial assets measured at FVTPL and real estate properties.
18
TIMBERCREEK FINANCIAL 11
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
•
•
•
•
•
After adjusting for the unrealized fair value gain from financial assets measured at FVTPL of $122 (Q4 2021 –
loss of $8.2 million), and unrealized losses on real estate properties of $nil (Q4 2021 - $4.4 million) the
Company generated adjusted net income and comprehensive income of $14.7 million (Q4 2021 – $14.0
million) or basic and diluted adjusted earnings per share of $0.17 (Q4 2021 – basic and diluted of $0.17). The
Company declared $14.5 million in dividends to common shareholders (Q4 2021 – $14.2 million),
representing a payout ratio of 98.6% (Q4 2021 – 100.9%) on an adjusted earnings per share basis.
Non-refundable lender fees recorded were $2.1 million (Q4 2021 – $3.7 million), non-refundable lender fees
are less than prior year due to lower originations in the period, $138.6 million in Q4 2022 versus 209.8 million
in Q4 2021, partially offset by a higher non-refundable lender fee rate this quarter. The quarterly weighted
average lender fees on new and renewed mortgages was 1.2% during the quarter (Q4 2021 – 0.9%), while
the quarterly weighted average lender fee on new mortgages only was 1.4% (Q4 2021 – 1.3%).
The Company generated distributable income and adjusted distributable income of $18.4 million (Q4 2021 - $
$16.2 million) or distributable income and adjusted distributable income per share of $0.22 (Q4 2021 - $0.20)
representing a payout ratio of 78.7% (Q4 2021 - 87.6%) for the quarter.
In September the Company resumed its Normal-Course Issuer Bid program ("NCIB") to repurchase shares.
During Q4 the Company repurchased 107,500 common shares for cancellation at an average price of $7.20
per share.
The Company paused its at-the-market equity program ("ATM") in Q3 2022 due to a depressed stock price as
the broader equity market declined. Under the program the Company is allowed to issue common shares
from treasury of up to $90 million prior to July 11, 2023. The Company may reconsider using its ATM program
during the remaining allotted 24-month period. During 2022 the Company issued a nominal amount of shares
prior to pausing its ATM program.
TIMBERCREEK FINANCIAL 12
19
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
For the years ended December 31, 2022 (“2022”) and December 31, 2021 (“2021”)
•
The Company funded 48 new net mortgage investments (2021 – 49) totaling $559.1 million (2021 – $487.3
million), made additional advances on existing net mortgage investments totaling $77.6 million (2021 – $279.0
million) and fully discharged 44 net mortgage investments (2021 – 56) and partially discharged net mortgage
investments totaling $473.1 million (2021 – $736.2 million). The Company syndicated $93.7 million of its
mortgage investments. In Q2 2022, it exchanged two of its FVTPL mortgage investments of $30.0 million for
an equity interest in the underlying real estate of one of the mortgages and in Q4 2022 it partially discharged
an existing FVTPL mortgage investment which had a carrying value of $24.5 million for $19.0 million cash
plus a $6.5 million vendor-take-back mortgage. The Company funded an interest reserve of $500 as part of
this transaction. As a result, the net mortgage investment portfolio as at December 31, 2022 increased by
$36.0 million, to $1,195.8 million (December 31, 2021 – $1,159.6 million), or a 3.1% increase from December
31, 2021.
• Weighted average loan-to-value decreased from 70.1% as at December 31, 2021 to 68.3% as at December
31, 2022. The decrease is primarily due to new mortgage originations at LTVs below the average.
• Other investments within the enhanced return portfolio were $72.9 million, including an allowance for credit
loss of $0.7 million (December 31, 2021 – $71.2 million and $0.9 million, respectively).
•
•
•
•
Net mortgage investments of $1,195.8 million bore a weighted average interest rate of 10.0% as at December
31, 2022 (December 31, 2021 – $1,159.6 million, 6.8%), an increase year-over-year resulting primarily from
interest rate increases of 400 basis points since March 2022 and substantially all loans coming up through
their interest rate floors. Weighted average interest rate in the existing net mortgage portfolio is well protected
at the end of Q4 2022 with only 6.0% of the portfolio at fixed interest rate (December 31, 2021 – 9.8%) and
floating interest rate loans with rate floors representing 88.5% of the portfolio (December 31, 2021 – 84.6%).
Net investment income on financial assets measured at amortized cost was $109.8 million (2021 – $90.2
million), an increase of $19.6 million, or 21.7% from 2021. The increase in net investment income for 2022, as
compared to 2021 was primarily due to higher average net mortgage investments through the year as well as
the 400 basis point interest rate increase since March 2022. Annual amortization of lender fee of $8.7 million
in 2022 is lower compared to $9.3 million in 2021, primarily attributable to lower turnover.
Fair value gain and other income on financial assets measured at FVTPL was higher in 2022, from a net loss
of $10.3 million in 2021 to a net gain of $1.4 million in 2022 resulting primarily from the disposition of the
FVTPL assets. On April 12, 2022 the Company converted its investment in a mortgage at FVTPL to an equity
interest in real estate properties, as well as a partial disposition of a FVTPL asset in Q4 2022, both of which
are discussed below.
Net rental loss from real estate properties was $151 (2021 – income of $1.5 million), a decline largely
explained by the disposition of a portfolio of multi-family residential assets on April 28, 2022. Additionally, on
April 12, 2022, the Company converted its investment in two mortgages at FVTPL to an equity interest in the
underlying real estate properties of one of the mortgages. The Company intends on selling the land and has
accordingly recorded this as land inventory, with rental income of $88, offset by operating losses of $296. Fair
value loss on real estate properties was $296 in 2022 (2021 – $4.4 million) due to a loss on disposal of the
multi-family investment property portfolio as well as the loss on land inventory which did not exist in the prior
year.
20
TIMBERCREEK FINANCIAL 13
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
•
Expenses for the year include:
◦ General and Administrative expenses of $2.1 million (2021 – $1.8 million), after adjusting for the
impact of DSU mark-to-market gains of $201 and foreign exchange losses of $144, general and
administrative expenses increased by $70 in the year largely due to professional costs associated
with the at-the-market equity issuance program, and inflation impact on professional costs.
◦
Provisions for mortgage investment losses were $7.5 million (2021 - $1.7 million) representing an
increase in loan loss provisions related primarily to three loans which have been moved into Stage III
in the year. The loan loss provisions are recorded on Stage III loans to reduce the carrying value of
those loans to the expected recoverable amount which includes the interest not yet earned and is not
expected to be collected between the reporting date and the anticipated exit/resolution date of the
loan.
•
•
•
•
•
•
•
The Company generated income from operations of $88.4 million (2021 – $60.8 million). This is an increase
of $27.6 million or 45.4% from 2021 driven by the factors noted above.
In 2022 the Company incurred interest on the credit facility - mortgage investments of $22.0 million (2021 –
$11.0 million), prior year included a realized gain on the derivative contract of $3.9 million. After adjusting for
the gain, financing costs on the credit facility in 2021 were $14.9 million, the increase in financing costs year-
over-year is primarily due to the increased interest rates in the period as well as high utilization on the credit
facility. Financing costs amortization for the year was $1.0 million (2021 – $1.0 million).
For the 2022, interest on the credit facility - investment properties was $253 (2021 – $0.8 million) and
financing costs amortization of $17 (2021 – $54). On April 28, 2022 and prior to maturity, credit facility -
investment properties was assumed by a third party and the Company no longer has any obligations
associated with the facility aside from a guarantee for its former share of $30.7 million.
Interest on the convertible debentures for 2022 was $7.6 million (2021 – $5.4 million), reflecting the fact that
there are three series of convertible debentures outstanding in the current year for the full year versus two
outstanding for the full year in the prior year comparative period with third series being issued in December
2021.
The Company generated net income and comprehensive income of $56.3 million (2021 - $41.3 million) or
basic and diluted earnings per share of $0.67 (2021 - $0.51), representing a payout ratio on earnings per
share of 102.5% (2021 - 135.9%) and payout ratio on adjusted earnings per share of 99.1% (2021 - 101.2%).
The results were significantly improved over the prior year period as a result of higher top-line interest income
as well as lower losses on financial assets measured at FVTPL.
Excluding the $1.5 million fair value loss on financial assets carried at FVTPL, unrealized fair value losses on
real estate properties of $95.0, the Company generated adjusted net income and comprehensive income of
$57.5 million (2021 – $55.5 million) or basic and diluted adjusted earnings per share of $0.69 (2021 – basic
and diluted of $0.68). The Company declared $57.7 million in dividends (2021 – $56.1 million) to common
shareholders, representing a payout ratio of 100.3% (2021 – 101.2%) on an adjusted earnings per share
basis.
Non-refundable lender fees recorded were $7.7 million (2021 – $10.7 million). Lower lender fees are
attributable to decreased originations from low turnover, partially offset by higher lender fee rates. The overall
weighted average lender fee on new and renewed mortgages during the year was 1.1% (2021 – 0.8%), while
the weighted average lender fee on only new mortgages 2022 was 1.2% (2021 – 1.1%).
TIMBERCREEK FINANCIAL 14
21
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
•
The Company generated distributable income of $66.2 million (2021 – $61.1 million) or distributable income
per share of $0.79 (2021 – $0.75). Adjusted distributable income was $66.2 million (2021 – $60.4 million) or
adjusted distributable income per share of $0.79 (2021 – $0.74), representing a payout ratio of 87.1% (2021
– 92.9%) on an adjusted distributable income basis.
• On May 24, 2022, the Company announced that the TSX approved its Normal Course Issuer's Bid ("NCIB") to
repurchase for cancellation up to 10% of public float over a 12-month period. In 2022 the Company
repurchased 117,500 (2021 - nil) for $846 at an average price of $7.20 per share.
•
The Company has paused its ATM program in Q3 2022 due to depressed stock price. Under the program, the
Company is allowed to issue common shares from treasury for up to $90.0 million prior to July 11, 2023. The
Company may reconsider activating its ATM program during the remainder of the allotted 24-month period.
During 2022 the Company has issued 1,504,300 (2021 - 852,100) common shares for gross proceeds of
$14.3 million ( 2021 - $8.2 million) at an average price of $9.52 ( 2021 – $9.67) per common share.
ANALYSIS OF FINANCIAL INFORMATION FOR THE PERIOD
Net investment income on financial assets measured at amortized cost
For analysis purposes, net investment 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 2022 and 2022, the Company earned net investment income on financial assets measured at amortized
cost of $31.3 million and $109.8 million (Q4 2021 – $22.4 million; 2021 – $90.2 million). Net investment income
includes the following:
a.
Interest income
During Q4 2022 and 2022, the Company earned interest income on mortgages at amortized cost of $28.9 million
and $96.0 million (Q4 2021 – $18.7 million; 2021 – $75.7 million). The weighted average interest rate on net
mortgage investments during Q4 2022 and 2022 was 9.7% and 8.1%, respectively (Q4 2021 – 6.9%; 2021 –
7.1%). The increase in interest income for the quarter and for the year was due to rate increases throughout the
year and as well as higher weighted-average net mortgage investments for over both periods.
During Q4 2022 and 2022, the Company earned $1.1 million and $5.3 million (Q4 2021 – $1.5 million; 2021 –
$5.2 million) of interest income on collateralized loans in other investments in the enhanced return portfolio. The
increased interest income for the quarter is a result of higher weighted average interest rates due to rate
increases in 2022 offset by a lower collateralized loan portfolio.
b. Lender fee income
For Q4 2022 and 2022, the Company recorded non-refundable upfront lender fees of $2.1 million and $7.7 million
(Q4 2021 – $3.7 million; 2021 – $10.7 million), or a weighted average lender fee on new and renewed mortgages
of 1.2% and 1.1%, respectively (Q4 2021 – 0.9%; 2021 – 0.8%). Upfront lender fees for Q4 2022 included the
recognition of a previously deferred lender fee of $0.7 million. Lower lender fees are primarily driven by lower
turnover and origination volume in 2022. 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 2022 and 2022, lender fees of $1.7
million and $8.7 million were amortized to lender fee income (Q4 2021 – $4.8 million; 2021 – $9.3 million).
22
TIMBERCREEK FINANCIAL 15
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
c. Other income/loss
During Q4 2022 and 2022, the Company recognized other income of $177 and $487 (Q4 2021 – $50; 2021 –
$145), attributable to bank interest income, miscellaneous income, and administration fee income.
Fair value gains (losses) and other income on financial assets measured at FVTPL
During Q4 2022 and 2022, the Company recognized a gain on financial assets measured at FVTPL of $736 and
$1,388 (Q4 2021 – loss of $7.4 million; 2021 – loss of $10.3 million). The losses in the prior year were reflective of
revaluation of the assets in the period and change of exit strategy on the assets. In 2022 the Company has
successfully restructured all FVTPL positions at their approximate carrying values. The Company earned interest
income on net mortgage investments measured at FVTPL of $683 and $1.9 million (Q4 2021 – $596; 2021 – $2.4
million), offset by a loss on the fair value of financial assets measured at FVTPL of $122 and $1.7 million (Q4
2021 – $8.2 million; 2021 – $13.7 million), respectively.
During Q4 2022 and 2022, a net unrealized fair value loss on mortgage investments measured at FVTPL of $0.2
million and $1.4 million (Q4 2021 – $8.3 million ; YTD 2021 - $13.6 million) was recorded in the statement of net
income and other comprehensive income.
Net rental income (loss) from real estate properties
During Q4 2022 and 2022, the Company incurred net rental loss from real estate properties of $278 and $151
(Q4 2021 – $389; 2021 – $1.5 million). On April 12, 2022 the Company converted its investment in a mortgage at
FVTPL to an equity interest in real estate properties. The Company intends on selling the lands and has
accordingly recorded them as land inventory. In the interim it will recognize net rental income (losses) on the
portfolio. Separately, on April 28, 2022, the Company disposed of its interest in a portfolio of multi-family
properties.
Fair value loss on real estate properties
For Q4 2022 and 2022, the Company incurred a loss of $201 on real estate properties upon disposition (Q4 2021
– $4.4 million; 2021 – $4.4 million) due to increased time to stabilize assets and slower market conditions.
Additionally, in Q2 2022 the Company, in exchange for the discharge of certain mortgage investments at FVTPL,
obtained title to parcels of land which it intends to sell, on exchange the Company recognized a fair value loss of
$95 (Q4 2021 – nil; 2021 – nil).
Expenses
Management, Servicing and Arrangement 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 equal 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 equal 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.
TIMBERCREEK FINANCIAL 16
23
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
As compensation for the Manager’s work on syndicating any mortgage investments, the Management Agreement
permits the Manager to collect a portion of the lender fee paid by borrowers of mortgage investments. The
Management Agreement provides that, in respect of each mortgage investment made on or after April 1, 2020
involving syndication to another party of a senior tranche with the Company retaining a subordinated component,
the Manager shall be entitled to retain, from any lender fee generated in respect of such loan, an amount equal to
0.20% of the whole loan amount ("Arrangement Fee") if such syndication occurs within 90 days of closing of the
mortgage. The Arrangement Fee will not apply to any renewal of existing mortgage investments which already
include syndicated senior and subordinated components. The Manager may make an annual election, subject to
approval of the independent Directors of the Board, to receive the Arrangement Fee in common shares of the
Company instead of cash.
For Q4 2022 and 2022, the Company incurred management fees of $3.0 million and $12.2 million (Q4 2021 –
$3.0 million; 2021 – $12.0 million). The average gross assets were $1,344.3 million and $1,362.2 million
compared to Q4 2021 $1,275.4 million and 2021 $1,260.6 million. For Q4 2022 and 2022, the Company incurred
$217 and $771, respectively (Q4 2021 – $158 and 2021 – $700) in servicing fees. The increase is related to the
increase in the average syndications balance during the period. For Q4 2022 and 2022, Arrangement Fees of
$202 and $755 paid by borrower were retained by the Manager (Q4 2021 – $125 and 2021 – $1.5 million).
Decrease over prior year is due to decreased loan syndication activity in 2022 relative to 2021.
General and administrative
For Q4 2022 and 2022, the Company incurred general and administrative expenses of $608 and $2.1 million,
respectively (Q4 2021 – $484; 2021 – $1.8 million). General and administrative expenses consist mainly of audit
fees, professional fees, director fees, legal fees, other operating costs, administration of the mortgage and other
investments portfolio, DSU expense including mark-to-market adjustments and foreign exchange net gains. After
adjusting for foreign currency net realized and unrealized losses of $211 and gains of $144 for Q4 2022 and 2022,
and non-cash mark to market gains on DSUs of $33 and $201, for Q4 2022 and 2022 respectively, general and
administrative expenses would have been $430 and $2.5 million for Q4 2022 and 2022 ($520 and $1.9 million for
Q4 2021 and YTD 2021) the decrease from prior quarter was mainly due to lower costs associated with audit,
compliance, marketing and custodian fees. Overall, the increase in the year was primarily due to professional fees
associated with the at-the-market equity issuance program, shareholder reporting, investor relations and general
increases due to the high inflation environment.
Loan loss provisions
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 $11,350 as at December 31, 2022 (December 31, 2021 - $3,868), of which $10,605 (December 31,
2021 – $2,970) was recorded against mortgage investments and $745 (December 31, 2021 – $898) was recorded
against other investments.
Interest on credit facility – mortgage investments
Interest on the credit facility is recorded in financing costs using the effective interest rate method. For Q4 2022
and 2022, included in financing costs is interest on the credit facility of $7.9 million and $22.0 million (Q4 2021–
$2.7 million; 2021 – $11.0 million), the prior year periods included a realized gain on an interest rate swap of Q4
2021 – $1.0 million; 2021 – $3.9 million. Additionally, financing costs amortization of $262 and $984 (Q4 2021 –
$177; 2021 – $968) were included in financing costs. The average credit utilization in 2022 was $510.9 million
compared to $455.5 million for 2021. Interest expense on the credit facility increased over the periods largely due
to higher interest rates as well as higher utilization of the facility.
24
TIMBERCREEK FINANCIAL 17
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
Interest on credit facility – investment properties
Interest on the credit facility is recorded in financing costs using the effective interest rate method. For Q4 2022
and 2022, included in financing costs is interest on the credit facility for investment properties of nil and $253 (Q4
2021 – $183; 2021 – $814) and financing costs amortization of nil and $17 (Q4 2021 – $12; 2021 – $54). In
connection with its disposition of a portfolio of multi-family investment properties on April 28, 2022, the Company
also discharged its obligation on the credit facility - investment properties. It did however retain a guarantee on its
prior pro rata share of the facility.
Financing cost on convertible debentures
The Company has $46.0 million of 5.00% convertible unsecured subordinated debentures, $55.0 million of 5.25%
convertible unsecured subordinated debentures, and $45.0 million of 5.30% convertible unsecured subordinated
debentures outstanding as at December 31, 2022. 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
PER SHARE INFORMATION
Dividends per share
Earnings per share (basic)
Earnings per share (diluted)
Adjusted earnings per share (basic)1
Adjusted earnings per share (diluted)1
Distributable income per share1
Adjusted distributable income per share1
1.
Refer to non-IFRS measures section.
Three months ended
December 31,
2021
1,491 $
2022
1,893 $
Year ended
December 31,
2021
5,362
2022
7,562 $
367
2,260 $
276
1,767 $
1,460
9,022 $
1,383
6,745
Three months ended
December 31,
Year ended
December 31,
2022
0.17 $
0.18 $
0.18 $
0.17 $
0.17 $
0.22 $
0.22 $
2021
0.17 $
0.03 $
0.03 $
0.17 $
0.17 $
0.20 $
0.20 $
2022
0.69 $
0.67 $
0.67 $
0.69 $
0.69 $
0.79 $
0.79 $
2021
0.69
0.51
0.51
0.68
0.68
0.75
0.74
$
$
$
$
$
$
$
$
$
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.
TIMBERCREEK FINANCIAL 18
25
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
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
Net mortgage investments
statistics and ratios1
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
Average 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.
December 31, 2022 December 31, 2021
1,159,210
444,429
1,603,639
(444,429)
1,159,210
(10,824)
8,278
2,970
1,159,634
1,189,215 $
611,291
1,800,506
(611,291)
1,189,215
(10,812)
6,801
10,605
1,195,809 $
$
$
Three months ended
December 31,
2021
109
10,942
1,077,147
$
$
2022
113
10,862
1,227,371
9.7 %
1.2 %
17.2 %
0.9
87.4 %
68.3 %
6.9 %
0.9 %
23.3 %
1.0
88.3 %
70.1 %
Year ended
December 31,
2021
109
$
10,942
$ 1,067,598
2022
113
$
10,862
$ 1,187,365
8.1 %
1.1 %
39.8 %
0.9
87.4 %
68.3 %
7.1 %
0.8 %
65.4 %
1.0
88.3 %
70.1 %
26
TIMBERCREEK FINANCIAL 19
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
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
December 31, 2022
December 31, 2021
Interest in first mortgages
Interest in second and third mortgages1
Net Mortgage
Number
Investments
102
1,080,376
11
79,258
113
1,159,634
1Included in the Company's interest in second and third mortgages as at December 31, 2022 was $12.5 million of the net mortgage
investments in which the Company holds a subordinated position (December 31, 2021 - $41.8 million). The Company's syndicated partners
who hold a senior position as at December 31, 2022 was $14.2 million (December 31, 2021 - $69.3 million).
Net Mortgage
Investments
1,105,431
90,378
1,195,809
Number
98
11
109
$
$
$
$
b. Region
Quebec
Ontario
British Columbia
Alberta
Other (Saskatchewan, Nova Scotia, Manitoba and
New Brunswick)
c. Maturity
2023
2024
2025
2026
December 31, 2022
December 31, 2021
Number
36
33
25
9
10
$
Net Mortgage
Investments
449,571
295,664
298,778
99,936
Number
24
41
25
10
$
Net Mortgage
Investments
360,143
340,195
307,401
122,707
51,860
9
29,188
113
$
1,195,809
109
$
1,159,634
December 31, 2022
December 31, 2021
Number
65
41
5
2
113
Net Mortgage
Investments
676,561
398,124
45,284
75,840
1,195,809
$
$
Number
48
53
7
1
109
Net Mortgage
Investments
595,530
489,299
70,305
4,500
1,159,634
$
$
d. Asset Type / WALTV at origination3
Multi-Residential1
Retail
Unimproved Land2
Office
Retirement
Industrial
Single-Residential
Self-Storage
Number
68 $
12
5
6
2
16
3
—
December 31, 2022
Net Mortgage
Investments
627,892
151,806
56,097
83,556
78,649
109,424
82,885
—
WALTV at
origination3
70.4 %
70.4 %
58.7 %
62.5 %
80.8 %
60.1 %
54.0 %
— %
December 31, 2021
Net Mortgage
Investments
533,844
215,977
72,350
76,994
132,834
51,402
23,929
830
WALTV at
origination3
72.3 %
72.1 %
52.3 %
62.5 %
75.2 %
67.6 %
69.4 %
80.9 %
Number
64 $
14
6
6
4
9
2
1
Net mortgage investments
measured at FVTPL
112
1,190,309
67.9 %
106
1,108,160
70.3 %
1
5,500
113 $
1,195,809
n/a
3
51,474
n/a
109 $
1,159,634
1 Includes 6 construction loans (December 31, 2021 - 10) totaling $27.2 million (December 31, 2021 - $56.6 million). Construction loans are
provided for the purposes of building a new asset.
2 Unimproved land loans are provided to non-income producing properties that does not contemplate construction during the loan period.
3 Weighted average loan-to-value measured at time of origination.
TIMBERCREEK FINANCIAL 20
27
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
Enhanced return portfolio
As at
December 31, 2022
December 31, 2021
Collateralized loans, net of allowance for credit loss
$
59,956
$
Finance lease receivable, measured at amortized cost
Investment, measured at FVTPL
Investment in indirect real estate development
Total Other Investments
Investment properties
Credit facility (investment properties)
Net equity in investment properties
6,020
4,744
2,225
72,945
—
—
—
58,000
6,020
4,985
2,225
71,230
44,063
(30,690)
13,373
Total Enhanced Return Portfolio
$
72,945
$
84,603
During Q4 2022 and 2022, the Company earned $1.1 million and $5.3 million (Q4 2021 – $1.5 million and 2021 –
$5.2 million) of interest income on collateralized loans in other investments in the enhanced return portfolio.
During Q4 2022 and 2022, the Company recognized lender fee income of $78 and $267 on collateralized loans in
other investments, net of fees relating to mortgage syndication liabilities (Q4 2021 – $120 and 2021 – $455).
During Q4 2022 and 2022, the Company recorded non-refundable upfront lender fees of one hundred three and
$296 (Q4 2021 – $0; 2021 – $455), which are amortized over the term of the collateralized loans in other
investments using the effective interest rate method.
In 2017, the Company entered into a 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, 2022 and 2021.
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). On April 28,
2022 the Company disposed of its interest in the Saskatchewan Portfolio, recognizing a loss on sale of $201.
Land Inventory
On April 12, 2022 the Company obtained title to parcels of land, which it intends to sell, in exchange for the
discharge of certain mortgage investments at FVTPL. On exchange the Company recognized a fair value loss of
$95 recorded in fair value loss on real estate properties.
As at December 31, 2022, the Company has land inventory of $30.2 million (December 31, 2021 – nil), which is
recorded at the lower of cost and net realizable value.
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.
28
TIMBERCREEK FINANCIAL 21
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
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 $611.3 million (December
31, 2021 – $444.4 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.
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 $11.4 million
as at December 31, 2022 (December 31, 2021 – $3.9 million), of which $10.6 million (December 31, 2021 – $3.0
million) was recorded against mortgage investments and $0.7 million (December 31, 2021 – $0.9 million) was
recorded against other investments.
Multi-residential
Mortgage Investments
Mortgages, including mortgage
syndications1
Mortgage syndication liabilities1
Net mortgage investments
Allowance for credit losses2
Other Mortgage Investments
Mortgages, including mortgage
syndications1
Mortgage syndication liabilities1
Net mortgage investments
Allowance for credit losses2
Other loan Investments
Mortgages, including mortgage
syndications1
Mortgage syndication liabilities1
Net mortgage investments
Allowance for credit losses2
As at December 31, 2022
As at December 31, 2021
Stage 1 Stage 2 Stage 3
Total
Stage 1 Stage 2 Stage 3
Total
$ 1,020,893 $ — $ 132,767 $ 1,153,660 $ 980,245 $ — $ — $ 980,245
— 283,528
— 696,717
—
882
— 695,835
— 60,361 442,438 283,528
— 72,406 711,222 696,717
882
— 1,409
— 70,997 708,389 695,835
382,077
638,816
1,424
637,392
—
—
—
—
2,833
Stage 1 Stage 2 Stage 3
Total
Stage 1 Stage 2 Stage 3
Total
628,128
170,508
457,620
414
457,206
— 170,508 163,133
— 32,227 660,355 549,078 8,404 25,418 582,900
— 163,133
—
— 32,227 489,847 385,945 8,404 25,418 419,767
2,088
— 7,358
— 24,869 482,075 385,662 8,352 23,665 417,679
52 1,753
7,772
283
—
Stage 1 Stage 2 Stage 3
Total
Stage 1 Stage 2 Stage 3
Total
60,742
—
60,742
745
— 58,999
—
—
— 58,999
898
—
59,997 $ — $ — $ 59,997 $ 58,101 $ — $ — $ 58,101
60,742 58,999
—
60,742 58,999
898
—
—
—
—
—
—
—
—
—
—
—
—
745
—
$
1Including interest receivable
2Allowance for credit losses in finance lease receivable (note 4(e)) and unadvanced commitments (note 4) are all considered to be in Stage1
with minimal ACL.In stage 3, unadvanced commitments amounts to $57.0 million, the Company's share is 5.1 million.
TIMBERCREEK FINANCIAL 22
29
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
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:
Year Ended December 31, 2022
Year Ended December 31, 2021
Multi-residential Mortgage
Investments
Balance at beginning of period
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Gross Write-Offs
Recoveries
Discharges
Balance at end of period
Other Mortgage Investments
Balance at beginning of period
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Gross Write-Offs
Recoveries
Discharges
Balance at end of period
Other loan Investments
Balance at beginning of period
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Gross Write-Offs
Recoveries
Discharges
Stage 1
Stage 2
Stage 3
$
882 $
— $
— $
Total
882 $
Stage 1
967 $
Stage 2
Stage 3
Total
91 $ 1,405 $ 2,463
352
—
1,277
1,629
17
(5)
76
88
(132)
—
—
1,102
698
—
—
(376)
$ 1,424 $
—
—
132
1,409
—
—
—
—
—
—
—
—
—
—
—
—
— $ 1,409 $
Stage 1
Stage 2
Stage 3
$
283 $
52 $ 1,753 $
(132)
—
132
2,511
698
—
—
(376)
2,833
Total
2,088
—
—
—
984
447
—
—
(549)
882
—
—
—
86
—
—
—
(86)
—
—
—
—
1,481
—
(1,202)
(279)
—
—
Stage 1
Stage 2
Stage 3
293
—
954
—
—
—
2,551
447
(1,202)
(279)
(635)
882
Total
1,247
119
—
5,553
5,672
22
47
794
863
—
—
—
402
58
—
—
(46)
414 $
—
—
52
7,358
—
—
—
—
—
(52)
—
—
—
—
—
—
— $ 7,358 $
$
Stage 1
Stage 2
Stage 3
$
898 $
— $
— $
—
(52)
52
7,760
58
—
—
(46)
7,772
Total
898
(10)
—
—
305
107
—
—
(129)
283
—
5
—
52
—
—
—
—
52
—
—
5
1,753
—
—
—
—
1,753
Stage 1
Stage 2
Stage 3
97
—
1,516
(10)
5
5
2,110
107
—
—
(129)
2,088
Total
1,613
(111)
—
—
(111)
(191)
—
1,373
1,182
—
—
—
787
22
—
—
(64)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
787
22
—
—
(64)
975
—
—
881
27
—
—
(10)
—
—
—
—
—
—
—
—
—
(975)
1,914
—
(1,914)
—
—
975
—
(975)
2,795
27
(1,914)
—
(10)
Balance at end of period
$
745 $
— $
— $
745 $
898 $
— $
— $
898
30
TIMBERCREEK FINANCIAL 23
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
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,
population of location of the collateral and an assessment of possible loan deterioration factors. These factors
include consideration of the sponsor's ability to make interest payments, the condition of the asset and cash flows,
economic and market factors as well as any changes to business strategy that could affect the execution risk of
the loan.
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 on interest payment or maturity date and/or the
Company assesses 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.
TIMBERCREEK FINANCIAL 24
31
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
As at December 31, 2022
As at December 31, 2021
Multi-residential Mortgage
Investments
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net
Allowance for credit losses
Mortgage investments1
Stage 1
$ 117,051 $
324,592
194,748
2,425
—
638,816
1,424
637,392
Stage 2
Stage 3
Total
Stage 1
Stage 2
— $
— $
—
—
—
—
—
—
— 72,406
— 72,406
—
1,409
— 70,997
117,051 $ 140,125 $
324,592 474,200
194,748 76,608
5,784
—
711,222 696,717
882
708,389 695,835
2,425
72,406
2,833
— $
—
—
—
—
—
—
—
Stage 3
Total
— $ 140,125
— 474,200
— 76,608
5,784
—
—
—
— 696,717
—
882
— 695,835
Other Mortgage Investments
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net
Allowance for credit losses
Mortgage investments1
Stage 1
107,417
233,874
116,329
—
—
457,620
414
457,206
Stage 2
Stage 3
—
—
—
—
—
—
—
—
— 32,227
— 32,227
—
7,358
— 24,869
Stage 1
Total
107,417
9,120
233,874 321,997
116,329 54,828
—
—
489,847 385,945
283
482,075 385,662
—
32,227
7,772
Stage 2
Stage 3
Total
—
9,120
—
— 321,997
—
— 63,232
8,404
—
—
—
— 25,418 25,418
8,404 25,418 419,767
2,088
1,753
8,352 23,665 417,679
52
Stage 1
Other loan Investments
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net
Allowance for credit losses
Other loan Investments1
1
Net of allowance and mortgage syndications
—
—
—
60,742
—
60,742
745
$ 59,997 $
Stage 2
Stage 3
Total
Stage 1
Stage 2
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
60,742 58,999
—
60,742 58,999
898
745
—
59,997 $ 58,101 $
—
—
—
—
—
—
—
— $
Stage 3
Total
—
—
—
—
—
—
— 58,999
—
—
— 58,999
—
898
— $ 58,101
Net working capital
Net working capital decreased by $0.6 million to $8.9 million at December 31, 2022 from $9.5 million at December
31, 2021.
Credit facility (mortgage investments)
As of December 31, 2022, the Company had an aggregate credit limit of $600 million and an accordion option of
$35 million on its credit facility - mortgage investments. The Company started the year with an aggregate credit
limit of $535 million and an accordion option of $100 million on its credit facility. On February 10, 2022, the
Company entered into an amendment to its existing revolving credit facility ("Eighth Amending Credit Agreement")
in order to, among other things, extend the maturity date to February 10, 2024 and increase the aggregate credit
limit to $575 million, with an accordion option of $60 million. In July 2022, the Company exercised its accordion
option by drawing an additional $25 million off the accordion and increasing the overall limit on the facility to $600
million. General terms of the credit facility remain unchanged. The facility is secured by a general security
agreement over the Company’s assets and its subsidiaries.
32
TIMBERCREEK FINANCIAL 25
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
The rates of interest and fees of the Eighth Amending Credit Agreement are either at the prime rate of interest
plus 1.00% per annum (December 31, 2021 – prime rate of interest plus 1.00% per annum) or bankers’
acceptances with a stamping fee of 2.00% (December 31, 2021 – 2.00%) and standby fee of 0.40% per annum
(December 31, 2021 – 0.40%) on the unutilized credit facility balance. As at December 31, 2022, the Company’s
qualified credit facility limit, which is subject to a borrowing base as defined in the Eighth Amending Credit
Agreement is $554.5 million.
During 2022, the Company incurred financing costs of $801 (2021 – $1.3 million). The financing costs are netted
against the outstanding balance of the credit facility and are amortized over the term of the credit facility
agreement.
Credit facility (investment properties)
Concurrently with the acquisition of the Saskatchewan Portfolio, 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 $162.6 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 $150.0 million. In January 2023, the facility was paid down by
the co-owners by $15.0 million to $135.0 million.
On April 28, 2022 the credit facility was amended to the Second Restated Credit Agreement to, among other
things, extend the maturity date to October 28, 2022. On June 30, 2022 it was amended again to the First
Amendment to the Second Amended and Restated Credit Agreement, which among other things provides for two
three-month extension options on the facility. On October 28, 2022 the two extension options were exercised by
way of the Second and Third Amendments to the Second Amended and Restated Credit Agreement, extending
the maturity date to March 3, 2023. As of April 28, 2022, the co-owners had borrowed $150.0 million from the
Credit Facilities. The Company's share of the outstanding principal amount was $30.7 million. On April 28, 2022,
in connection to the disposition of the Saskatchewan Portfolio (FS Note 5), the Company's share of the
outstanding principal was assumed by the purchaser, however the Company still remains a borrower and a
guarantor on the facility up to its share of the outstanding principal as of the date of disposal. Notwithstanding, the
lender's recourse is limited to each co-borrower's proportionate interest in the investment properties' credit facility.
TIMBERCREEK FINANCIAL 26
33
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
Convertible debentures
As at December 31, 2022, and December 31, 2021, the Company's obligations under the convertible unsecured
debentures are as follows:
Series
June 2017
Debentures
July 2021
Debentures
December 2021
Debentures
Interest
Rate
Date of
Maturity
Interest
Payment Date
Conversion
Price per
share
Equity
Component
December
31, 2022
December 31,
2021
5.30 %
June 30,
2024
June 30 and
December 31
11.10
560
45,000
45,000
January 31 and
July 31
11.40
1,107
55,000
55,000
5.25 %
July 31,
2028
5.00 % December
31, 2028
June 30 and
December 31
11.40
1,405
Unsecured Debentures, principal
Unamortized financing cost and amount allocated to equity component
Debentures, end of period
46,000
146,000
(6,580)
46,000
146,000
(8,264)
139,420
137,736
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
June 2017 Debentures
Year ended December 31,
2022
7,562 $
1,460
9,022 $
2021
5,362
1,383
6,745
$
$
On June 13, 2017, the Company completed a public offering of $40.0 million, plus an over-allotment option of $5.0
million on June 27, 2017, of 5.30% convertible unsecured subordinated debentures for net proceeds of $42.8
million (the “June 2017 Debentures”). The June 2017 Debentures were 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.
The issue costs of $2.2 million were proportionately allocated to the liability and equity components. The issue
costs allocated to the liability component are amortized over the term of the debentures using the effective interest
rate method.
34
TIMBERCREEK FINANCIAL 27
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
July 2021 Debentures
On July 8, 2021 the Company completed a public offering of $50.0 million, plus an over-allotment option of $5.0
million on July 15, 2021, of 5.25% convertible unsecured subordinated debentures for net proceeds of $52.1
million (the “July 2021 Debentures”). The July 2021 Debentures are redeemable on or after July 31, 2024 and
prior to July 31, 2026. The July 2021 Debentures may be redeemed, 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 and after July 31, 2026 and prior to the maturity date,
the July 2021 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.
The issue costs of $2.9 million were proportionately allocated to the liability and equity components. The issue
costs allocated to the liability component are amortized over the term of the debentures using the effective interest
rate method.
December 2021 Debentures
On December 3, 2021 the Company completed a public offering of $40.0 million plus an over-allotment option of
$6.0 million on December 10, 2021, of 5.00% convertible unsecured subordinated debentures for net proceeds of
$43.8 million (the “December 2021 Debentures”). The December 2021 Debentures are redeemable on or after
December 31, 2024 and prior to December 31, 2026. The December 2021 Debentures may be redeemed, 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 and after December 31, 2026 and prior to the maturity date, the December 2021 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.
The issue costs of $2.2 million were proportionately allocated to the liability and equity components. The issue
costs allocated to the liability component are amortized over the term of the debentures using the effective interest
rate method.
SHAREHOLDERS' EQUITY
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.
TIMBERCREEK FINANCIAL 28
35
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
On June 10, 2021, the Company filed a 25-month period base shelf prospectus in all provinces and territories of
Canada which allows the Company to offer and issue common shares, debt securities, subscription receipts,
warrants, and units (collectively, the “Securities”) from time to time up to an aggregate offering price of $500.0
million.
(a) At-the-market equity program (the "ATM Program")
The Company announced on June 18, 2021 that it has established an ATM Program which allows the Company
to issue common shares from treasury having an aggregate gross sales amount of up to $90 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 "TSX"). 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 Company currently intends to use the net proceeds of the ATM Program for general investment and working
capital purposes, including, if and as required, repaying amounts owing under its secured revolving credit facility.
The credit facility is used for day to day working capital requirements of the Company and for other general
corporate purposes, particularly the funding of mortgage loans.
During Q4 2022 and 2022 , the Company issued nil and 1,504,300 (Q4 2021 - 537,100 and 2021 - 852,100 ) of
common shares for gross proceeds of nil and $14.3 million (Q4 2021 - $5.2 million and 2021 - $8.2 million) at an
average price of $9.52 per common share (Q4 2021 - $9.69 and 2021 - $9.67)and paid $246 in commissions to
the agent (Q4 2021 - $104 and 2021 - $165), pursuant to the 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.
During Q4 2022 and 2022, the Company purchased from open market and issued under DRIP 192,271 and
360,830 common shares (Q4 2021 - nil; and 2021 - 47,808) for total amount of $1.4 million and $2.8 million (Q4
2021 – nil; 2021 – $416). During 2022, common shares were purchased from open market at an average price of
$7.89 per common share.
During Q4 2022 and 2022, the Company issued nil and 281,114 common shares from treasury under DRIP, no
shares were issued from treasury under DRIP in the quarter (Q4 2021 – 134,683 and 2021 – 480,069) and
retained nil and $2.6 million in dividends (Q4 2021 – $1.3 million; 2021 – $4.4 million), common shares were
issued from treasury at an average price of $9.08 per common share.
(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. During Q4 2022 and 2022, the Company declared dividends of $14.5 million or $0.1725 per share
and $57.7 million or $0.6900 per share (Q4 2021 – $14.2 million, $0.1725 per share and 2021 – $56.1 million,
$0.6900 per share).
36
TIMBERCREEK FINANCIAL 29
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
As at December 31, 2022, $4.8 million in aggregate dividends (December 31, 2021 – $4.7 million) were payable
to the holders of common shares by the Company. Subsequent to December 31, 2022, the Board of Directors of
the Company declared dividends of $0.0575 per share to be paid on January 15, 2023 to the common
shareholders of record on December 31, 2022.
(d) Normal course offering bid ("NCIB")
On May 24, 2022, the Company announced that the TSX approved the Company's normal course issuer bid (the
"NCIB") to repurchase for cancellation up to 8,330,591 common shares over a 12-month period. Repurchases
under the NCIB were permitted to commence on May 26, 2022 and continue until May 25, 2023, when the bid will
expire.
The Company may repurchase under the NCIB by means of open market transactions or otherwise as permitted
by the TSX. All repurchases under the NCIB will be repurchased on the open market through the facilities of the
TSX and alternative Canadian trading platforms at the prevailing market price at the time of such transaction.
During Q4 2022 and 2022, the Company repurchased 107,500 and 117,500 common shares (Q4 2021 – nil; 2021
– nil) for a total amount of $846 (Q4 2021 – nil; 2021 – nil). The average price per common share repurchased
was $7.20 for 2022. 25,000 common shares for a total amount of $177 were settled and cancelled subsequent to
December 31, 2022.
Non-executive director deferred share unit plan ("DSU Plan")
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.
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 2022 and 2022, 8,452 and 36,704 units were issued (2021 – 9,126 and 36,953 units) and as at
December 31, 2022, 99,037 units were outstanding (December 31, 2021 – 145,140 units).
During Q4 2022 and 2022, nil and 82,807 DSUs were exercised (2021 – nil and nil). DSU expense for Q4 2022
and 2022 was $102 and $377 (2021 – $101 and – $355). As at December 31, 2022, $102 (December 31, 2021 –
$101) in compensation was granted in DSUs, which will be issued subsequent to December 31, 2022.
TIMBERCREEK FINANCIAL 30
37
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
STATEMENT OF CASH FLOWS
Cash from operating activities
Cash from operating activities for 2022 was $83.2 million (2021 – $81.6 million).
Cash used in financing activities
Cash used in financing activities for 2022 consisted of the Company’s net draws on the operating credit facility of
$31.0 million (2021 – $38.8 million net repayments). The Company paid interest on the debentures and credit
facilities of $31.6 million (2021 – $21.5 million), and paid common share dividends of $52.2 million (2021 – $51.3
million). During 2022, the Company received net proceeds from issuance of common shares under the ATM
program of $14.1 million (2021 - $7.3 million) and repurchased shares on the open market under the NCIB and
DRIP programs of $3.7 million (2021 – $416).
The net cash used in financing activities for 2022 was $42.5 million (net cash used 2021 – $54.2 million).
Cash used in investing activities
Cash used in investing activities for 2022 consisted of the Company's funding of net mortgage investments
$746.6 million (2021 – $700.8 million). The Company received cash from discharge of net mortgage investments
$693.5 million (2021 – $677.6 million). The Company used cash in funding of other investments of $9.5 million
(2021 – $55.5 million). The Company received cash from repayments of other investments $10.8 million (2021 –
$57.1 million). For 2022, the Company received cash of $7.5 million relating to the disposition of investment
properties (2021 – $575 used in funding additions). The company paid cash on maturity of currency forward
hedging contracts of $94 (2021 - $876). The net cash used in investing activities for 2022 was $44.2 million (2021
– $21.4 million).
38
TIMBERCREEK FINANCIAL 31
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
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 INCOME AND COMPREHENSIVE INCOME
Net Investment Income on financial assets
measured at amortized cost
Fair value gain (loss) and other income on
financial assets measured at FVTPL
Fair value gain / (loss) on real estate properties
Net rental (loss) income
Expenses
Income from operations
Financing costs:
Financing cost on credit facilities
Financing cost on debentures
Fair value gain on derivative contract
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
$ 31,342 $ 29,982 $ 25,802 $ 22,677 $ 22,378 $ 22,042 $ 23,390 $ 22,439
736
403
82 —
(291)
479
—
348
(6,671) (7,530) (4,150) (4,241) (3,761) (3,404) (5,177) (3,895)
25,211 22,564 21,662 18,715 7,228 15,447 18,800 19,371
(103) (7,404) (3,577)
—
386
352
(378) — (4,374)
389
382
211
—
376
(278)
36
(8,137) (6,788) (4,749) (3,560) (4,045) (4,040) (4,746) (3,903)
(2,260) (2,256) (2,233) (2,273) (1,767) (1,981) (1,543) (1,454)
(977)
— — — —
(995)
(994)
(974)
Net income and comprehensive income
14,814 $ 13,520 $ 14,680 $ 12,882 $ 2,410 $ 10,421 $ 13,485 $ 14,991
ADJUSTED NET INCOME AND COMPREHENSIVE INCOME
Net income and comprehensive income
Add: fair value gain on derivative contract (interest
rate swap)
Add: net unrealized (gain) loss on financial assets
measured at FVTPL
$ 14,814 $ 13,520 $ 14,680 $ 12,882 $ 2,410 $ 10,421 $ 13,485 $ 14,991
— — —
—
(994)
(995)
(974)
(977)
$ (122) $ 369 $ 377 $ 946 $ 8,237 $ 4,295 $ 1,100 $ 116
Add: net unrealized loss on investment properties
— —
95 — 4,374
—
—
—
Adjusted net income and
comprehensive income1
PER SHARE INFORMATION
Dividends per share
Earnings per share (basic)
Earnings per share (diluted)
Adjusted earnings per share (basic)1
Adjusted earnings per share (diluted)1
Distributable income per share1
Adjusted distributable income per share1
1
Refer to non-IFRS measures section.
$ 14,692 $ 13,889,000 $ 15,152,000 $ 13,828 $ 14,027 $ 13,721.126 $ 13,611 $ 14,130
$ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17
$ 0.18 $ 0.16 $ 0.17 $ 0.16 $ 0.03 $ 0.13 $ 0.17 $ 0.19
$ 0.18 $ 0.16 $ 0.17 $ 0.16 $ 0.03 $ 0.13 $ 0.17 $ 0.18
$ 0.17 $ 0.17 $ 0.18 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17
$ 0.17 $ 0.17 $ 0.18 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17
$ 0.22 $ 0.20 $ 0.19 $ 0.18 $ 0.20 $ 0.17 $ 0.20 $ 0.19
$ 0.22 $ 0.20 $ 0.19 $ 0.18 $ 0.20 $ 0.17 $ 0.19 $ 0.19
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 financial assets
measured at FVTPL 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.
TIMBERCREEK FINANCIAL 32
39
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
RELATED PARTY TRANSACTIONS
As at December 31, 2022, due to Manager mainly includes management and servicing fees payable of $1.1
million (December 31, 2021 – $1.4 million). During 2022, Arrangement Fees of $0.8 million paid by borrower were
retained by the Manager (2021 – $1.5 million).
As at December 31, 2022, included in other assets is $6.1 million (December 31, 2021 – $4.2 million) of cash held
in trust by Timbercreek Mortgage Servicing Inc. (“TMSI”), the Company’s mortgage servicing and administration
provider, a company controlled by the Manager. The balance relates to mortgage and other loan funding
holdbacks, repayments and prepaid mortgage interest received from various borrowers.
As at December 31, 2022, the Company has the following mortgage investments which a director or directors of
the Company are also officers and part-owners of a syndication partner of these mortgages.
•
•
In Q3 2022, a mortgage investment with a total gross commitment of $11.6 million (December 31, 2021 –
$11.6 million) was repaid. The Company’s former share of the commitment was $0.9 million (December
31, 2021 – $0.9 million). For the year ended December 31, 2022, the Company has recognized net
interest income of $71 (2021 – $104) from this mortgage investment during the year.
A mortgage investment with a total gross commitment of $48.8 million (December 31, 2021 – $45.7
million). The Company’s share of the commitment is $4.4 million (December 31, 2021 – $4.2 million). For
the year ended December 31, 2022, the Company has recognized net interest income of $501 (2021 –
$263) from this mortgage investment during the year.
As at December 31, 2022, the Company and Timbercreek Real Estate Finance U.S. Holding LP are related
parties as they are managed by the Manager, and they have co-invested in 2 mortgages (December 31, 2021 – 2)
and other investments totaling $35.5 million (December 31, 2021 – $33.2 million), on gross basis including
mortgage syndications. The Company’s share in these mortgage investments is $10.5 million (December 31,
2021 – $9.8 million).
As at December 31, 2022, the Company is invested in junior debentures of Timbercreek Real Estate Finance
Ireland Fund 1 ("TREF Ireland 1") Private Debt Designated Activity Company totaling $4.7 million or €3.3 million
(December 31, 2021 – $5.0 million or €3.5 million), which is included in loan investments within other investments.
TREF Ireland 1 is managed by a wholly-owned subsidiary of the Manager.
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.
40
TIMBERCREEK FINANCIAL 33
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
CRITICAL ACCOUNTING ESTIMATES
In the preparation of the Company's consolidated financial statements, 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, other than
the global market volatility noted below, that the Manager believes will materially affect the methodology or
assumptions utilized in making those estimates and judgements in these consolidated financial statements.
Global financial markets continued to be volatile during 2022, in part due to Russia's military invasion of Ukraine
and the related sanctions and economic fallout as well as high levels of inflation globally and rising interest rates.
There remains some uncertainty associated with the estimates, judgements and assumptions made by
management in the preparation of the consolidated financial statements. Given the current geopolitical landscape
and the economic uncertainty, it is difficult to predict with certainty the impact these will have on the Company's
estimate of allowance for credit losses and investments measured at FVTPL, both in the short term and in the
long term.
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.
The information about the assumptions made in measuring fair value is included in the following notes of the
Company's annual financial statements:
Note 4 – Mortgage and other investments, including mortgage syndications;
Note 5 – Investment properties; and
Note 6 – Land inventory
Note 20 – Fair value measurements.
TIMBERCREEK FINANCIAL 34
41
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
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 4(d) of the Company's annual financial statements.
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.
Net realizeable value of land inventory
Land inventory is stated at the lower of cost and net realizable value. In determining the net realizable value of
land inventory, the Company estimates the selling prices of land parcels based on assumptions surrounding
zoning and density approvals on those lands, prevailing market prices, and selling costs. The determination of net
realizeable value for the measurement of land inventory includes management estimates of the ultimate disposal
values of various plots of land when in consideration with different sales strategies. Management applies
judgement with respect to the potential scenarios for which the land can be disposed of under including
assumptions around zoning and permitting of said lands
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies are outlined in note 3 to the consolidated financial statements
OUTSTANDING SHARE DATA
As at February 22, 2023, the Company’s authorized capital consists of an unlimited number of common shares, of
which 83,775,016 are issued and outstanding.
CAPITAL STRUCTURE AND LIQUIDITY
Capital structure
The Company manages its capital structure in order to support ongoing operations while focusing on its primary
objectives of preserving shareholder capital and generating a stable monthly cash dividend to 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.
42
TIMBERCREEK FINANCIAL 35
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
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 $554.5 million through its
credit facility – mortgage investments and intends to utilize the credit facility to fund mortgage investments, and
other working capital needs. As at December 31, 2022, 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, 2022, including expected interest payments:
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)1
Convertible debentures2
Unadvanced mortgage commitments3
Total contractual liabilities, excluding mortgage
syndication liabilities4
$
Carrying
value
4,450 $
4,824
1,098
1,345
4,721
450,347
139,420
$ 606,205 $
—
Contractual
cash flow
Following
Within
a year
4,450 $
4,824
1,098
1,345
4,721
year 3–5 years 5 + Years
—
4,450 $
—
4,824
—
1,098
—
1,345
—
4,721
—
484,688
179,500
15,563 104,984
680,626 $ 54,297 $ 505,782 $ 15,563 $ 104,984
—
293,386 293,386
— $
—
—
—
—
30,286 454,402
51,380
— $
—
—
—
—
—
7,573
—
—
$ 606,205 $
974,012 $ 347,683 $ 505,782 $ 15,563 $ 104,984
1
2
3
4
Credit facility (mortgage investments) includes interest based upon December 2022 weighted average interest rate on the credit facility
assuming the outstanding balance is not repaid until its maturity on Feb 10, 2024.
The convertible debentures include interest based on coupon rate on the convertible debentures assuming the outstanding balance is
not repaid until its contractual maturity on June 30, 2024, July 31, 2028 and December 31, 2028.
Unadvanced mortgage commitments include syndication commitments of which $144.6 million belong to the Company's syndicated
partners.
The principal repayments of $609.0 million mortgage syndication liabilities by contractual maturity date is shown net with mortgage
investments.
As at December 31, 2022, the Company had a cash position of $2.8 million (December 31, 2021 – $6.3 million)
and an unutilized credit facility (mortgage investments) balance of $103.5 million (December 31, 2021 – $115.0
million). 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, 2022, unadvanced mortgage commitments under the existing mortgage investments,
including mortgage syndications, amounted to $293.4 million (December 31, 2021 – $407.4 million) of which
$144.6 million (December 31, 2021 – $253.5 million) belong to the Company’s syndicated partners. The Company
expects the syndication partners to fund their respective commitments.
TIMBERCREEK FINANCIAL 36
43
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
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 and
other loan funding holdbacks, prepaid mortgage interest, credit facility, convertible debentures, derivative liability
(interest rate swap contract) 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, 2022, $1,173.7 million of net mortgage
investments and $5.0 million of other investments bear interest at variable rates (December 31, 2021 – $1,104.8
million and $15.6 million, respectively). As of December 31, 2022, $1,105.7 million of net mortgage investments
have a "floor rate" (December 31, 2021 – $1,048.0 million).
If there were a decrease or increase of 1.50% in interest rates, with all other variables constant, the impact from
variable rate mortgage investments and other investments to net income and comprehensive income would be a
decrease in net income of $16.0 million (December 31, 2021 – 0.5% and $46) or an increase in net income of
$17.7 million (December 31, 2021 – 0.5% and $3.9 million). The Company manages its sensitivity to interest rate
fluctuations by managing the fixed/floating ratio and its use of floor rates in its investment portfolio.
44
TIMBERCREEK FINANCIAL 37
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted
The Company is also exposed to interest rate risk on the credit facilities, which have a balance of $451.0 million
as at December 31, 2022 (December 31, 2021 – $450.7 million). As at December 31, 2022, net exposure to
interest rate risk was $451.0 million (December 31, 2021 – $450.7 million), and assuming it was outstanding for
the entire period, a 1.50% decrease or increase in interest rates, with all other variables constant, will increase or
decrease net income by $6.8 million (December 31, 2021 – $2.3 million per 0.50% decrease of increase in
interest rates).
The Company's other assets, interest receivable, accounts payable and accrued expenses, prepaid mortgage
interest, mortgage and other loan funding holdbacks, dividends payable and due to Manager have no significant
exposure to interest rate risk due to their short-term nature. Convertible debentures carry a fixed rate of interest
and are not subject to interest rate risk. Cash and cash equivalents carry a variable rate of interest and are
subject to minimal interest rate risk.
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, 2022, the Company has US$7.1 million and €3.3 million in other investments denominated in
foreign currencies (December 31, 2021 – US$7.1 million and €3.5 million). The Company has entered into a
series of foreign currency contracts to reduce its exposure to foreign currency risk. As at December 31, 2022, the
Company has one U.S. dollars currency contract with an aggregate notional value of US$7.0 million, at a forward
contract rate of 1.2971, that matured in January 2023. The Company also has one Euro currency contract with an
aggregate notional value of €3.2 million at a contract rate of 1.3525, that matured in January 2023.
The fair value of the foreign currency forward contracts as at December 31, 2022 is a liability of $705 which is
included in accounts payable. 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.
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, 2022 relating to net mortgages and other investments amount to
$1,273.7 million (December 31, 2021 – $1,248.3 million).
TIMBERCREEK FINANCIAL 38
45
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted TIMBERCREEK FINANCIAL
Management's Discussion and Analysis
For the three months and year ended December 31, 2022
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.
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
Blair Tamblyn, CEO
Tracy Johnston, CFO
Karynna Ma, Vice President, Investor Relations
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
46
TIMBERCREEK FINANCIAL 39
Timbercreek FinancialManagement’s Discussion and AnalysisFor the three months and year ended December 31, 2022 In thousands of Canadian dollars, except units, per unit amounts and where otherwise noted (cid:3)(cid:3)(cid:3)(cid:100)(cid:47)(cid:68)(cid:17)(cid:28)(cid:90)(cid:18)(cid:90)(cid:28)(cid:28)(cid:60)(cid:3)(cid:68)(cid:75)(cid:90)(cid:100)(cid:39)(cid:4)(cid:39)(cid:28)(cid:3)(cid:47)(cid:69)(cid:115)(cid:28)(cid:94)(cid:100)(cid:68)(cid:28)(cid:69)(cid:100)(cid:3)(cid:18)(cid:75)(cid:90)(cid:87)(cid:75)(cid:90)(cid:4)(cid:100)(cid:47)(cid:75)(cid:69)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:18)(cid:381)(cid:374)(cid:400)(cid:381)(cid:367)(cid:349)(cid:282)(cid:258)(cid:410)(cid:286)(cid:282)(cid:3)(cid:38)(cid:349)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)(cid:94)(cid:410)(cid:258)(cid:410)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)(cid:381)(cid:296)(cid:3)
Timbercreek Financial
(cid:38)(cid:381)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:455)(cid:286)(cid:258)(cid:396)(cid:3)(cid:286)(cid:374)(cid:282)(cid:286)(cid:282)(cid:3)(cid:24)(cid:286)(cid:272)(cid:286)(cid:373)(cid:271)(cid:286)(cid:396)(cid:3)(cid:1007)(cid:1005)(cid:853)(cid:3)(cid:1006)(cid:1004)(cid:1006)(cid:1006)(cid:3)
(cid:3)
(cid:3)
47
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
INDEPENDENT AUDITOR'S 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, 2022 and December 31, 2021
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, 2022 and December 31, 2021, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial
Statements" section of our auditor's 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.
Key Audit Matter
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements for the year ended December 31, 2022. These matters were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our auditor’s
report.
48
TIMBERCREEK FINANCIAL 1
Timbercreek Financial TIMBERCREEK FINANCIAL
Evaluation of allowance of credit losses on mortgage and other loan investments classified at amortized
cost
Description of the matter
We draw attention to Note 2(d), Note 3(b) and Note 4(d) of the financial statements. The Entity has recorded an
allowance of credit losses ("ACL") on mortgage and other loan investments classified at amortized cost ("Debt
Investments") of $11.4 million.
The ACL for non-credit impaired Debt Investments reflects a probability-weighted outcome that considers Entity's
assessment of all expected cash shortfalls over 12- months after the reporting date or expected life, as applicable,
and reasonable and supportable information about past events, current conditions and forecasts of future events
and economic conditions is considered. The significant assumptions include probability-weighting and expected
cash shortfalls.
ACL for credit-impaired Debt Investments is recorded for individually identified credit impaired Debt Investments to
reduce their carrying value to the probability-weighted expected recoverable amount based on the estimated
future cash flows discounted at the Debt Investment's original effective interest rate. The significant assumptions
include the capitalization rates and comparable transactions.
The Entity exercises significant credit judgment in the determination of a significant increase in credit risk since
initial recognition, credit impairment of Debt Investments and expected recoverable amount of credit impaired
Debt Investments.
Why the matter is a key audit matter
We identified the evaluation of the ACL on Debt Investments classified at amortized cost as a key audit matter.
Evaluation of ACL on Debt Investments represented an area of significant risk of material misstatement given the
high degree of measurement uncertainty associated with the estimate of the ACL. Significant auditor judgment
was required to evaluate the results of our audit procedures regarding the Entity's significant assumptions.
Further, professionals with specialized skills and knowledge were needed to evaluate the Entity's methodology
and significant assumptions for non-credit and credit impaired Debt Investments.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
For a selection of non-credit impaired Debt Investments, we evaluated the Entity's assigned credit risk ratings
against the Entity's borrower risk rating scale, and the Entity's assessment of significant increase in credit risk and
of credit impairment. Our evaluation was based on information prepared by the Entity and assessed against
source documents, as applicable.
For a selection of credit impaired Debt Investments, we assessed the recoverable amount by comparing the
capitalization rates and comparable transactions assumptions to reports of real estate commentators and
available industry transaction databases, considering the features of the specific property.
We involved credit risk and valuation professionals with specialized skills, industry knowledge and relevant
experience who assisted in:
•
•
evaluating the ACL model methodology including the assessment of significant increases in credit risk in
accordance with relevant accounting standards;
assessing the probability-weighting and expected cash shortfalls by comparing to publicly available
information;
TIMBERCREEK FINANCIAL 2
49
Timbercreek Financial TIMBERCREEK FINANCIAL
•
evaluating the capitalization rates and comparable transactions assumptions by comparing to reports of
real estate commentators and available industry transaction databases, considering the features of the
specific property for a selection of credit impaired Debt Investments.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management's Discussion and Analysis filed with the relevant Canadian
Securities Commissions;
the information, other than the financial statements and the auditor's report thereon, included in a
document likely to be entitled "Annual Report."
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 auditor's 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 auditor's report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditor's report thereon, included in a document likely
to be entitled "Annual Report" is expected to be made available to us after the date of this auditor's report. If,
based on the work we will perform on this other information, we conclude that there is a material misstatement of
this other information, we are required to report that fact to those charged with governance.
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 International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB), 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.
50
TIMBERCREEK FINANCIAL 3
Timbercreek Financial TIMBERCREEK FINANCIAL
Auditor’s Responsibilities 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 auditor's 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 auditor's 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 auditor's report.
However, future events or conditions may cause the Entity to cease to continue as a going concern.
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.
TIMBERCREEK FINANCIAL 4
51
Timbercreek Financial TIMBERCREEK FINANCIAL
•
Determine, from the matters communicated with those charged with governance, those matters that were
of most significance in the audit of the financial statements of the current period and are therefore the key
audit matters. We describe these matters in our auditor's report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our auditor's report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditor's report is Amit Shah.
Toronto, Canada
February 22, 2023
52
TIMBERCREEK FINANCIAL 5
Timbercreek Financial TIMBERCREEK FINANCIAL
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
(In thousands of Canadian dollars)
ASSETS
Cash and cash equivalents
Other assets
Land inventory
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)
Mortgage syndication liabilities
Convertible debentures
Total liabilities
Shareholders’ equity
Total liabilities and equity
Commitments and contingencies
Subsequent events
See accompanying notes to the consolidated financial statements.
Note
December 31, 2022 December 31, 2021
16(c)
6
4
4(e)
5
10(c)
16(a)
7(a)
7(b)
4(a)(c)
9
$
2,832
9,511
30,245
1,800,506
72,945
—
$
6,344
6,788
—
1,603,639
71,230
44,063
$
1,916,039
$
1,732,064
4,450
4,824
1,098
1,345
4,721
450,347
—
611,291
139,420
1,217,496
5,125
4,726
1,377
258
3,961
419,179
30,690
444,429
137,736
1,047,481
10
698,543
1,916,039
$
684,583
1,732,064
$
4, 7 and 22
10(c)
TIMBERCREEK FINANCIAL 6
53
Timbercreek Financial
TIMBERCREEK FINANCIAL
CONSOLIDATED STATEMENT
OF NET INCOME AND COMPREHENSIVE INCOME
(In thousands of Canadian dollars, except per share amounts)
Year ended December 31,
Note
2022
2021
Investment income on financial assets measured at amortized cost
Gross interest and other income, including mortgage syndications
$
147,263 $
113,549
Interest and other expenses on mortgage syndications
(37,460)
(23,300)
Net investment income on financial assets measured at amortized cost
4(b)(e)
109,803
90,249
Fair value gain (loss) and other income on financial assets measured at FVTPL
4(a)(e)
1,388
(10,291)
Total income on financial assets
Income on real estate properties
Revenue from real estate properties
Property operating costs
Net rental (loss) income
Fair value loss on real estate properties
Total loss on real estate properties
Expenses
Management fees
Servicing fees
Allowance for credit loss
General and administrative
Total expenses
Income from operations
Financing costs
Financing cost on credit facilities
Financing cost on convertible debentures
Fair value gain on derivative contract
Total financing costs
8
5, 6
12
12
4(d)
7
9
111,191
79,958
1,379
(1,530)
(151)
(296)
(447)
3,023
(1,524)
1,499
(4,374)
(2,875)
12,230
12,031
771
7,482
2,109
22,592
88,152
23,234
9,022
—
32,256
700
1,660
1,846
16,237
60,846
16,734
6,745
(3,940)
19,539
Net income and comprehensive income
$
55,896 $
41,307
Earnings per share
Basic
Diluted
See accompanying notes to the consolidated financial statements.
13 $
13 $
0.67 $
0.67 $
0.51
0.51
54
TIMBERCREEK FINANCIAL 7
Timbercreek Financial
TIMBERCREEK FINANCIAL
CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands of Canadian dollars)
Year ended December 31, 2022
Common
shares
Deficiency
Equity
component of
convertible
debentures
Total
Balance, December 31, 2021
$ 723,377 $
(43,244) $
4,450 $ 684,583
Issuance of common shares, net of issue costs
Repurchase of common shares under normal course issuer bid
Dividends declared to shareholders
Issuance of common shares under dividend reinvestment plan
Repurchase of common shares for dividend reinvestment plan
14,077
(846)
—
5,401
(2,847)
—
—
(57,721)
—
—
Total net income and comprehensive income
—
55,896
—
—
—
—
—
—
14,077
(846)
(57,721)
5,401
(2,847)
55,896
Balance, December 31, 2022
$ 739,162 $
(45,069) $
4,450 $ 698,543
Year ended December 31, 2021
Common
shares Deficiency
Equity
component of
convertible
debentures
Total
Balance, December 31, 2020
$ 711,521 $
(28,409) $
1,938
685,050
Issuance of common shares, net of issue costs
Dividends declared to shareholders
7,460
—
—
(56,142)
Issuance of common shares under dividend reinvestment plan
Repurchase of common shares for dividend reinvestment plan
Issuance of convertible debentures
Total net income and comprehensive income
4,812
(416)
—
—
—
—
—
—
—
—
—
2,512
7,460
(56,142)
4,812
(416)
2,512
41,307
—
41,307
Balance, December 31, 2021
$ 723,377 $
(43,244) $
4,450 $ 684,583
See accompanying notes to the consolidated financial statements.
TIMBERCREEK FINANCIAL 8
55
Timbercreek Financial
TIMBERCREEK FINANCIAL
CONSOLIDATED STATEMENT
OF CASH FLOW
(In thousands of Canadian dollars)
OPERATING ACTIVITIES
Net income
Amortization of lender fees
Lender fees received
Interest and other income, net of syndications
Interest and other income received, net of syndications
Financing costs
Fair value loss and other income on financial assets measured at FVTPL
Fair value loss on real estate properties
Net additions to land inventory
Fair value gain on derivative contract
Net realized and unrealized foreign exchange gain
Allowance for expected credit loss
Net change in non-cash operating items
FINANCING ACTIVITIES
Net credit facility (repayments) draws – mortgage investments
Repayment of convertible debentures
Net proceeds from issuance of convertible debentures
Net proceeds from issuance of common shares
Interest and financing costs paid
Dividends paid to shareholders
Repurchase of common shares
INVESTING ACTIVITIES
Net proceeds received (additions to) investment properties
Net proceeds on maturity of forward contracts
Funding of other investments
Proceeds from other investments
Funding of mortgage investments, net of syndications
Discharges of mortgage investments, net of syndications
(Decrease) increase in cash and cash equivalents
Net foreign exchange loss on cash accounts
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
Year ended December 31,
Note
2022
2021
$
55,896 $
41,307
(8,726)
8,210
(9,275)
9,945
(103,312)
(83,395)
14
90,928
32,256
1,012
363
(270)
—
(144)
7,483
(525)
83,171
31,001
—
—
14,079
(31,616)
(52,224)
(3,693)
(42,453)
7,510
94
(9,525)
10,786
84,142
23,479
12,734
4,374
—
(3,940)
(337)
1,660
919
81,613
(38,824)
(46,000)
96,574
7,277
(21,533)
(51,254)
(416)
(54,176)
(575)
876
(55,519)
57,079
(746,589)
(700,801)
693,544
(44,180)
677,556
(21,384)
(3,462)
(50)
6,344
$
2,832 $
6,053
(137)
428
6,344
56
TIMBERCREEK FINANCIAL 9
Timbercreek Financial
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
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 February 22, 2023.
(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
basis except for certain items which have been measured at FVTPL at each reporting date and include:
investment properties, debt investments not meeting the solely payments of principal and interest criterion,
participating debentures, 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 Capital 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, other than the global
market volatility noted below, that the Manager believes will materially affect the methodology or assumptions
utilized in making those estimates and judgements in these consolidated financial statements.
TIMBERCREEK FINANCIAL 10
57
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
Global financial markets continued to be volatile during 2022, in part due to Russia's military invasion of Ukraine
and the related sanctions and economic fallout as well as high levels of inflation globally and rising interest rates.
There remains some uncertainty associated with the estimates, judgements and assumptions made by
management in the preparation of the consolidated financial statements. Given the current geopolitical landscape
and the economic uncertainty, it is difficult to predict with certainty the impact these will have on the Company's
estimate of allowance for credit losses and investments measured at FVTPL, both in the short term and in the
long term.
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.
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; and
Note 20 – Fair value measurements.
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. The Company exercises significant credit judgment in the determination of a significant increase in
credit risk since initial recognition, credit impairment of debt investments and expected recoverable amount of
credit impaired debt investments. Refer to note 4(d).
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.
58
TIMBERCREEK FINANCIAL 11
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
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.
Net realizeable value of land inventory
Land inventory is stated at the lower of cost and net realizable value. In determining the net realizable value of
land inventory, the Company estimates the selling prices of land parcels based on assumptions surrounding
zoning and density approvals on those lands, prevailing market prices, and selling costs. The determination of net
realizeable value for the measurement of land inventory includes management estimates of the ultimate disposal
values of various plots of land when in consideration with different sales strategies. Management applies
judgement with respect to the potential scenarios for which the land can be disposed of under including
assumptions around zoning and permitting of said lands.
(e) Functional and Presentation Currency
These consolidated financial statements are presented in Canadian dollars, which is the Company's functional
currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and cash equivalents
As at December 31, 2022 and December 31, 2021, the Company did not hold any 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.
TIMBERCREEK FINANCIAL 12
59
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
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.
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.
60
TIMBERCREEK FINANCIAL 13
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
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.
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 on
credit impaired loans (Stage 3).
TIMBERCREEK FINANCIAL 14
61
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
The determination of a significant increase in credit risk takes into account different factors and varies by nature of
investment. The Company uses investment specific factors in assessing significant change in credit risk, which
includes:
•
•
•
Investments secured by 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.
Investments secured by 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.
Investments secured by unimproved land - borrower or guarantor’s financial position, change in market
conditions, change in execution of business plan, adverse zoning change.
The Company assumes the credit risk on a financial asset has increased significantly if interest payment or
maturity date is more than 30 days past due and/or borrower or underlying security criteria as identified by the
Manager has deteriorated. As typical in shorter duration structured financing, the Manager does not solely believe
there has been a significant deterioration in credit risk of 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 to 90 days. The
Manager actively monitors these mortgage and other investments and applies judgement in determining whether
there has been a significant increase in credit risk. The Company considers a financial asset to be credit impaired
when the interest payment or maturity date is more than 90 days past due and/or the Company assesses 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.
The assessment of significant increase in credit risk requires significant 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 investment specific factors.
62
TIMBERCREEK FINANCIAL 15
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
Measurement of ECL - non credit impaired financial assets
The ECL for non credit impaired financial assets reflects a probability-weighted outcome that considers the
Company's assessment of all expected cash shortfalls over 12-months after the reporting date or expected life as
applicable, and reasonable and supportable information about past events, current conditions and forecasts
of future events and economic conditions is considered. The probability weighting and expected cash
shortfalls are significant assumptions.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial
instrument. 12-month 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 allowance, 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. 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 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.
Measurement of ECL - credit impaired financial assets
Allowances for Stage 3 are recorded for individually identified credit impaired debt investments to reduce their
carrying value to the probability-weighted expected recoverable amount. The capitalization rates and comparable
transactions are significant assumptions. We review our debt investments on an ongoing basis to assess whether
any debt investment carried at amortized cost should be classified as credit impaired and whether an allowance or
write-off should be recorded.
The review of individually credit impaired debt investments is conducted at least quarterly by the Manager, who
assesses the ultimate collectability and estimated recoveries for a specific debt investment based on all events
and conditions that are relevant to the loan. To determine the amount we expect to recover from an individually
credit impaired debt investment, we use the value of the estimated future cash flows discounted at the debt
investment’s original effective interest rate. The determination of estimated future cash flows of a collateralized
impaired debt investment reflects the expected realization of the underlying security, net of expected costs and
any amounts legally required to be paid to the borrower.
TIMBERCREEK FINANCIAL 16
63
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
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 entirely 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 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 were carried at fair value.
Gains or losses arising from changes in fair value were recognized in profit or loss during the period in which they
arose. The investment properties were 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 reflected, among other things, rental income from current leases and
assumptions about rental income from future leases in light of current market conditions. It also reflected any cash
outflows (excluding those relating to future capital expenditures) that could be expected in respect of the
investment properties. Subsequent capital expenditures were 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 could 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.
(d) Land inventory
Land inventory are lots of land that will be sold by the Company and are recorded at the lower of cost and
estimated net realizable value. Impairment is reviewed at each reporting date, with any losses recognized in net
income when the carrying value of the inventory exceeds its net realizable value. The net realizable value is
defined as the entity-specific future selling price in the ordinary course of business less estimated costs of
completion, if any, and selling costs.
64
TIMBERCREEK FINANCIAL 17
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
(e) Joint arrangements
The Company was 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).
(f) Convertible debentures
Compound financial instruments issued by the Company comprise convertible debentures that can be converted
to ordinary shares at the option of the holder, when the number of shares to be issued is fixed and does not vary
with changes in fair value. 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. 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.
TIMBERCREEK FINANCIAL 18
65
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
(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.
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 and interest rate swap
The Company may enter into foreign currency forward contracts and interest rate swaps to economically hedge its
foreign currency risk and interest rate risk exposure of its mortgage and other investments. The value of forward
currency contracts and interest rate swaps 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 or interest rate swap is designated and effective as a hedging instrument under IFRS. The Company has
elected to not account for the foreign currency contracts and interest rate swaps as an accounting hedge.
66
TIMBERCREEK FINANCIAL 19
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
(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) New IFRS pronouncements not yet effective
Definition of Accounting Estimates (Amendments to IAS 8)
On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8).The
amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the
financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship
between accounting policies and accounting estimates by specifying that a company develops an accounting
estimate to achieve the objective set out by an accounting policy.
The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is
permitted. The Company will adopt the amendments in its financial statements for the annual period beginning on
January 1, 2023. The Company is currently evaluating the impact of the new standard on the financial statements.
Disclosure initiative – Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
On February 12, 2021, the IASB issued Disclosure Initiative – Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2 Making Materiality Judgements). The amendments help companies provide useful
accounting policy disclosures. The key amendments include:
•
•
•
requiring companies to disclose their material accounting policies rather than their significant
accounting policies;
clarifying that accounting policies related to immaterial transactions, other events or conditions are
themselves immaterial and as such need not be disclosed; and
clarifying that not all accounting policies that relate to material transactions, other events or conditions
are themselves material to a company’s financial statements.
The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is
permitted. The Company will adopt the amendments in its financial statements for the annual period beginning on
January 1, 2023. The Company is currently evaluating the impact of the new standard on the financial statements.
TIMBERCREEK FINANCIAL 20
67
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
4. MORTGAGE AND OTHER INVESTMENTS, INCLUDING MORTGAGE SYNDICATIONS
(a) Mortgage investments
As at December 31, 2022
Mortgage investments, including mortgage syndications -
at amortized cost
Interest receivable
Unamortized lender fees
Allowance for expected credit loss
Mortgage investments at amortized cost
Mortgage investments at FVTPL
Interest receivable
Mortgage investments at FVTPL
Mortgage investments, including mortgage syndications
Unadvanced Mortgage commitments
As at December 31, 2021
Mortgage investments, including mortgage syndications -
at amortized cost
Interest receivable
Unamortized lender fees
Allowance for expected credit loss
Mortgage investments at amortized cost
Mortgage investments at FVTPL
Interest receivable
Mortgage investments at FVTPL
Mortgage investments, including mortgage syndications
Unadvanced mortgage commitments
Mortgages classified at FVTPL
$
$
Mortgages,
including
mortgage
syndications
Note
Mortgage
syndication
liabilities
Net Mortgage
Investments
4(b)(c) $
1,799,321 $
(609,012) $
1,190,309
4(d)
$
$
14,694
1,814,015
(8,456)
(10,605)
1,794,954
5,500
52
5,552
(3,934)
(612,946)
1,655
—
(611,291)
—
—
—
1,800,506 $
(611,291) $
10,760
1,201,069
(6,801)
(10,605)
1,183,663
5,500
52
5,552
1,189,215
293,386 $
144,627 $
148,759
Mortgages,
including
mortgage
syndications
Mortgage
syndication
liabilities
Net Mortgage
Investments
$
1,553,476 $
9,669
1,563,145
(10,510)
(2,970)
1,549,665
51,474
2,500
53,974
1,603,639 $
(445,316) $
(1,345)
(446,661)
2,232
—
(444,429)
—
—
—
(444,429) $
1,108,160
8,324
1,116,484
(8,278)
(2,970)
1,105,236
51,474
2,500
53,974
1,159,210
407,402 $
253,546 $
153,856
In April 2022, the Company obtained title of the land inventory securing one of its FVTPL mortgage loans in
exchange for discharging two of its mortgage investments at FVTPL. On acquisition of the properties the
Company classified the then fair value of $29,975 of the property to land inventory. The Company intends on
executing a sales strategy for the lands and disposing of the lands opportunistically.
68
TIMBERCREEK FINANCIAL 21
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
In November 2022, the Company discharged the remaining mortgage investment at FVTPL of $24,000 in
exchange for cash of $19,000 and a vendor-take-back mortgage classified at FVTPL, with a contractual value of
$6,500 and an estimated fair value of $5,500. The Company funded an interest reserve of $500 as part of this
transaction. The Company continues to measure the retained vendor-take-back portion using the direct
comparison method, comparing the assets to directly comparable lands and has not recorded any further
adjustments as at December 31, 2022.
For the year ended December 31, 2022, the Company generated net interest income and other income on
mortgage investment at FVTPL of $2,400 (2021 – $2,443). During the year ended December 31, 2022, the
Company recorded a $1,402 (2021 – $13,584) fair value loss in the statement of net income and other
comprehensive income as it continued to use the direct comparison method for its FVTPL assets. During the year
ended December 31, 2021, the Company changed its realization strategy for these assets to an exit strategy by
way of disposition compared to development/redevelopment of the sites.
The changes during the year ended December 31, 2022 and year ended December 31, 2021 are as follows:
Mortgage investments, measured at FVTPL
Year Ended December 31, 2022
Year ended December 31, 2021
Balance, beginning of year
Funding
Discharges
Transfer to land inventory
Fair value loss
Balance, end of year
$
$
51,474 $
5,734
(20,331)
(29,975)
(1,402)
5,500 $
60,716
4,342
—
—
(13,584)
51,474
(b) Net mortgage investments
As at
Interest in first mortgages
Interest in second and third mortgages
December 31, 2022
December 31, 2021
92.4 % $
7.6 %
100.0 % $
1,105,431
93.2 % $
90,378
6.8 %
1,195,809
100.0 % $
1,080,376
79,258
1,159,634
The mortgage investments are secured by real property and will mature between 2023 and 2026 (December 31,
2021 – 2022 and 2025). During the year ended December 31, 2022, the Company generated net interest income
and other income on net mortgage investments, excluding lender fee income and fair value losses of 98,022
(2021 – 78,163).
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, 2022, the Company recognized lender fee income on net mortgage
investments, net of fees relating to mortgage syndication liabilities of $8,459 (2021– $8,820). For the year ended
December 31, 2022, the Company recorded non-refundable upfront lender fees on net mortgage investments, net
of fees relating to mortgage syndication liabilities, of $7,913 (2021 – $10,139), which are amortized to interest
income over the term of the related mortgage investments using the effective interest rate method.
TIMBERCREEK FINANCIAL 22
69
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
Principal repayments, net of mortgage syndications, by contractual maturity dates are as follows:
As at
2023
2024
2025
2026
Total
December 31, 2022
676,561
398,124
45,284
75,840
1,195,809
$
$
(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 position
recorded as a non-recourse mortgage syndication liability. The interest and fees earned on the transferred
participation interests and the related interest expense are 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 20).
(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 $11,350 as at December 31, 2022 (December 31, 2021 - $3,868), of which $10,605 (December 31,
2021 – $2,970) was recorded against mortgage investments and $745 (December 31, 2021 – $898) was recorded
against other investments. Multi-residential mortgage investments is categorized by asset type that includes
apartments, condominium constructions and senior retirement housing. Other Mortgage Investments is
categorized by asset type that includes retail, unimproved land, office, industrial, self-storage, condominium
inventory and single-residential housing, etc.
70
TIMBERCREEK FINANCIAL 23
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
Multi-Residential
Mortgage Investments
Mortgages, including mortgage
syndications1
Mortgage syndication liabilities1
Net mortgage investments
Allowance for credit losses2
Other Mortgage Investments
Mortgages, including mortgage
syndications1
Mortgage syndication liabilities1
Net mortgage investments
Allowance for credit losses2
As at December 31, 2022
As at December 31, 2021
Stage 1 Stage 2 Stage 3
Total
Stage 1 Stage 2 Stage 3
Total
$ 1,020,893 $ — $ 132,767 $ 1,153,660 $ 980,245 $ — $ — $ 980,245
— 283,528
382,077
— 696,717
638,816
—
882
1,424
— 695,835
637,392
— 60,361 442,438 283,528
— 72,406 711,222 696,717
882
— 1,409
— 70,997 708,389 695,835
—
—
—
—
2,833
Stage 1 Stage 2 Stage 3
Total
Stage 1 Stage 2 Stage 3
Total
628,128
170,508
457,620
414
457,206
— 170,508 163,133
— 32,227 660,355 549,078 8,404 25,418 582,900
— 163,133
—
— 32,227 489,847 385,945 8,404 25,418 419,767
2,088
— 7,358
— 24,869 482,075 385,662 8,352 23,665 417,679
52 1,753
7,772
283
—
Other Loan Investments
Stage 1 Stage 2 Stage 3
Total
Stage 1 Stage 2 Stage 3
Total
Other loans, including mortgage
syndications1
Other loans syndication liabilities1
Net other loans investments
Allowance for credit losses2
60,742
—
60,742
745
— 58,999
—
—
— 58,999
898
—
745
$ 59,997 $ — $ — $ 59,997 $ 58,101 $ — $ — $ 58,101
60,742 58,999
—
60,742 58,999
898
—
—
—
—
—
—
—
—
—
—
—
—
—
1Including interest receivable
2Allowance for credit losses in finance lease receivable (note 4(e)) and unadvanced commitments (note 4) are all considered to be in Stage 1
with minimal ACL.
TIMBERCREEK FINANCIAL 24
71
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In 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
Balance, beginning of year
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Gross Write-Offs
Recoveries
Discharges
Balance, end of year
Other Mortgage Investments
Balance, beginning of year
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Gross Write-Offs
Recoveries
Discharges
Balance, end of year
Other Loan Investments
Balance, beginning of year
Allowance for credit losses:
Remeasurement
Transfer to/(from)
Stage 1
Stage 2
Stage 3
Total allowance for credit losses
Fundings
Gross Write-Offs
Recoveries
Discharges
Balance, end of year
Year Ended December 31, 2022
Year Ended December 31, 2021
Stage 1 Stage 2 Stage 3
$
882 $
— $
— $
Total
882 $
Stage 1
Stage 2
Stage 3
967 $
91 $ 1,405 $
Total
2,463
352
—
1,277
1,629
17
(5)
76
88
(132)
—
—
1,102
698
—
—
(376)
1,424
—
—
—
—
—
—
—
—
—
—
—
132
1,409
—
—
—
—
1,409
Stage 1 Stage 2 Stage 3
283
52
1,753
(132)
—
132
2,511
698
—
—
(376)
2,833
Total
2,088
—
—
—
984
447
—
—
(549)
882
—
—
—
86
—
—
—
(86)
—
—
—
—
1,481
—
(1,202)
(279)
—
—
Stage 1
Stage 2
Stage 3
293
—
954
—
—
—
2,551
447
(1,202)
(279)
(635)
882
Total
1,247
119
—
5,553
5,672
22
47
794
863
—
—
—
402
58
—
—
(46)
414
—
(52)
—
—
—
—
—
—
—
—
—
52
7,358
—
—
—
—
7,358
Stage 1 Stage 2 Stage 3
898
—
—
—
(52)
52
7,760
58
—
—
(46)
7,772
Total
898
(10)
—
—
305
107
—
—
(129)
283
—
5
—
52
—
—
—
—
52
—
—
5
1,753
—
—
—
—
1,753
Stage 1
Stage 2
Stage 3
97
—
1,516
(10)
5
5
2,110
107
—
—
(129)
2,088
Total
1,613
(111)
—
—
(111)
(191)
—
1,373
1,182
—
—
—
787
22
—
—
(64)
745 $
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
— $
$
—
—
—
787
22
—
—
(64)
745 $
975
—
—
881
27
—
—
(10)
898 $
—
—
—
—
—
—
—
—
— $
—
—
(975)
1,914
—
(1,914)
—
—
— $
975
—
(975)
2,795
27
(1,914)
—
(10)
898
72
TIMBERCREEK FINANCIAL 25
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In 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,
population of location of the collateral and an assessment of possible loan deterioration factors. These factors
include consideration of the sponsor's ability to make interest payments, the condition of the asset and cash flows,
economic and market factors as well as any changes to business strategy that could affect the execution risk of
the loan.
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 on interest payment or maturity date and/or the
Company assesses 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.
TIMBERCREEK FINANCIAL 26
73
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
As at December 31, 2022
As at December 31, 2021
Stage 2
Stage 3
Total
Stage 1
Stage 2
Multi-Residential
Mortgage Investments
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net Mortgage Investments1
Allowance for credit losses
Other Mortgage Investments
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net Mortgage Investments1
Allowance for credit losses
Stage 1
$ 117,051 $
324,592
194,748
2,425
—
638,816
1,424
637,392
Stage 1
107,417
233,874
116,329
—
—
457,620
414
457,206
— $
— $
—
—
—
—
—
—
— 72,406
— 72,406
—
1,409
— 70,997
Stage 2
Stage 3
—
—
—
—
—
—
—
—
— 32,227
— 32,227
—
7,358
— 24,869
—
—
—
60,742
—
60,742
745
$ 59,997 $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
Low risk
Medium-Low risk
Medium-High risk
High risk
Default
Net Mortgage Investments1
Allowance for credit losses
1. Net of mortgage syndications
(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
Total Other Investments
117,051 $ 140,125 $
324,592 474,200
194,748 76,608
5,784
—
711,222 696,717
882
708,389 695,835
2,425
72,406
2,833
— $
—
—
—
—
—
—
—
Stage 3
Total
— $ 140,125
— 474,200
— 76,608
5,784
—
—
—
— 696,717
—
882
— 695,835
Stage 1
Total
107,417
9,120
233,874 321,997
116,329 54,828
—
—
489,847 385,945
283
482,075 385,662
—
32,227
7,772
Stage 2
Stage 3
Total
—
9,120
—
— 321,997
—
— 63,232
8,404
—
—
—
— 25,418 25,418
8,404 25,418 419,767
2,088
1,753
8,352 23,665 417,679
52
—
—
—
—
—
—
60,742 58,999
—
60,742 58,999
898
745
—
59,997 $ 58,101 $
—
—
—
—
—
—
—
— $
Stage 3
Total
—
—
—
—
—
—
— 58,999
—
—
— 58,999
—
898
— $ 58,101
December 31, 2022
December 31, 2021
$
$
59,956 $
6,020
4,744
2,225
72,945 $
58,000
6,020
4,985
2,225
71,230
Other Loan Investments
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
For the year ended December 31, 2022, collateralized loans in other investments generated interest income of
$5,257 (2021 – $5,186) and amortized lender fee income of $267 (2021 – $455). For the year ended December
31, 2022, the Company recorded non-refundable upfront cash lender fees of $296 (2021 – $455), which are
amortized over the term of the related collateralized loans using the effective interest rate method. For the year
ended December 31, 2022, investment measured at FVTPL received distribution income of $452 (2021 – $1,014).
74
TIMBERCREEK FINANCIAL 27
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
In October, 2017, the Company entered into a 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, 2021 - $6,020) is included
in other investments. The lease payment began in the third quarter of 2018. Concurrently, the Company entered
into a 20-year $3,300 construction loan on the leased property with the lessee which is included in other loan
investments. The loan amortization payment began in the fourth quarter of 2019.
The lease receivable payments are due as follows:
Less than one year
Between one and five years
More than five years
5. INVESTMENT PROPERTIES
Future minimum
lease payments
Present value of
minimum lease payments
$
$
$
$
125
768
12,376
13,269
$
$
$
$
131
657
5,232
6,020
On April 28, 2022, the Company disposed of its interest in the Saskatchewan Portfolio. The Company recognized
a loss on disposal of $201, recorded in fair value loss on real estate properties. In connection with the transaction,
the Company and its former partner also issued a vendor take-back mortgage to the purchaser, the Company's
share of the mortgage is $5,500. In December 2022, $82 was received as part of working capital settlement that
reduced overall loss on disposal.
The portfolio, comprised of 14 investment properties totaling 1,079 units located in Saskatoon and Regina,
Saskatchewan, was 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 was classified as a
joint operation and, accordingly, the Company recognized its share of the assets, liabilities, revenue and
expenses generated from the assets in proportion to its rights.
Jointly Controlled Assets
Location
Property Type
December 31, 2022
December 31, 2021
Saskatchewan Portfolio
Saskatoon &
Regina, SK
Income Properties
— %
20.46 %
Ownership Interest
Balance, beginning of year
Additions
Dispositions
Fair value loss on investment properties
Balance, end of year
$
$
44,063 $
105
(43,967)
(201)
— $
47,862
575
—
(4,374)
44,063
The investment properties were pledged as security for the credit facility (note 7(b)). Investment properties have
been categorized as Level 3 fair value assets 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.
TIMBERCREEK FINANCIAL 28
75
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
6. LAND INVENTORY
On April 12, 2022 the Company obtained title to parcels of land, which it intends to sell, in exchange for the
discharge of certain mortgage investments at FVTPL. On exchange the Company recognized a fair value loss of
$95 recorded in fair value loss on real estate properties.
As at December 31, 2022, the Company has land inventory of $30,245 (December 31, 2021 – nil), which is
recorded at the lower of cost and net realizable value, refer to discussion on the exchange in Note 4a.
7. CREDIT FACILITIES
As at
Credit facility (mortgage investments)
Unamortized financing costs (mortgage investments)
Credit facility (investment properties)
Total credit facilities
(a) Credit facility (mortgage investments)
December 31, 2022
$
$
451,000 $
(653)
450,347
—
450,347 $
December 31, 2021
419,999
(820)
419,179
30,690
449,869
As of December 31, 2021, the Company had an aggregate credit limit of $535,000 and an accordion option of
$100,000 on its credit facility - mortgage investments. On February 10, 2022, the Company entered into an
amendment to its existing revolving credit facility ("Eighth Amending Credit Agreement") in order to, among other
things, extend the maturity date to February 10, 2024 and increase the aggregate credit limit to $575,000, with an
accordion option of $60,000. In July 2022, the Company exercised its accordion option by drawing an additional
$25,000 off the accordion and increasing the overall limit on the facility to $600,000. General terms of the credit
facility remain unchanged. The facility is secured by a general security agreement over the Company’s assets and
its subsidiaries.
The interest rates and fees of the Eighth Amending Credit Agreement are either at the prime rate of interest plus
1.00% per annum (December 31, 2021 - prime rate of interest plus 1.00% per annum) or bankers’ acceptances
with a stamping fee of 2.00% (December 31, 2021 - 2.00%) and standby fee of 0.40% per annum (December 31,
2021 - 0.40%) on the unutilized credit facility balance. As at December 31, 2022, the Company’s qualified credit
facility limit, which is subject to a borrowing base as defined in the Eighth Amending Credit Agreement is
$554,528.
During the year ended December 31, 2022, the Company incurred financing costs of $801 (2021 – $1,264). The
financing costs are netted against the outstanding balance of the credit facility and are amortized over the term of
the 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, 2022, included in financing costs is interest on the credit facility of $21,996,
additionally, prior year figures included a realized loss on the derivative contract (2021 – $14,898) and financing
costs amortization of $968 (2021 – $968).
76
TIMBERCREEK FINANCIAL 29
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
(b) Credit facility (investment properties)
Concurrently with the acquisition of the Saskatchewan Portfolio, 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. In January 2023, the facility was paid down by
$15,000 to $135,000.
On April 28, 2022 the credit facility was amended to the Second Restated Credit Agreement to, among other
things, extend the maturity date to October 28, 2022. On June 30, 2022 it was amended again to the First
Amendment to the Second Amended and Restated Credit Agreement, which among other things provides for two
three-month extension options on the facility. On October 28, 2022 the two extension options were exercised by
way of the Second and Third Amendments to the Second Amended and Restated Credit Agreement, extending
the maturity date to March 3, 2023. As of April 28, 2022, the co-owners had borrowed $150,000 from the Credit
Facilities. The Company's share of the outstanding principal amount was $30,690 prior to disposition. On April 28,
2022, in connection to the disposition of the Saskatchewan Portfolio (Note 5), the Company's share of the
outstanding principal was assumed by the purchaser, however the Company still remains a borrower and a
guarantor on the facility up to its share of the outstanding principal as of the date of disposal. Notwithstanding, the
lender's recourse is limited to each co-borrower's proportionate interest in the investment properties' credit facility.
Interest on the credit facility investment properties is recorded in financing costs using the effective interest rate
method. For the year ended December 31, 2022, included in financing costs is interest on the credit facility of
$253 (2021 – $814) and financing costs amortization of $17 (2021 – $54).
8. REVENUE FROM PROPERTY OPERATIONS
As part of the joint arrangement of the Saskatchewan Portfolio, the Company leased residential properties under
operating leases generally with a term of not more than one year and, in many cases, tenants leased rental space
on a month-to-month basis. Rental revenue from operating leases for the year ended December 31, 2022 was
$1,043 (2021 – $3,023). On April 28, 2022, the Company disposed of its interest in the Saskatchewan Portfolio.
Revenue from land inventory for year ended December 31, 2022 was $336 (2021 – nil).
TIMBERCREEK FINANCIAL 30
77
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
9. CONVERTIBLE DEBENTURES
As at December 31, 2022, and December 31, 2021, the Company's obligations under the convertible unsecured
debentures are as follows:
Series
June 2017
Debentures
July 2021
Debentures
December 2021
Debentures
Interest
Rate
Date of
Maturity
Interest Payment
Date
Conversion
Price per
share
Equity
Component
December
31, 2022
December
31, 2021
5.30 %
June 30,
2024
June 30 and
December 31
11.10
560
45,000
45,000
5.25 %
July 31,
2028
5.00 % December
31, 2028
January 31 and
July 31
11.40
1,107
55,000
55,000
June 30 and
December 31
11.40
1,405
Unsecured Debentures, principal
Unamortized financing cost and amount allocated to equity component
Debentures, end of period
46,000
146,000
46,000
146,000
(6,580)
(8,264)
139,420
137,736
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
June 2017 Debentures
Year ended December 31,
2022
7,562 $
1,460
9,022 $
2021
5,362
1,383
6,745
$
$
On June 13, 2017, the Company completed a public offering of $40,000, plus an over-allotment 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 were 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.
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.
78
TIMBERCREEK FINANCIAL 31
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
July 2021 Debentures
On July 8, 2021 the Company completed a public offering of $50,000, plus an over-allotment option of $5,000 on
July 15, 2021, of 5.25% convertible unsecured subordinated debentures for net proceeds of $52,140 (the “July
2021 Debentures”).
The July 2021 Debentures are redeemable on or after July 31, 2024 and prior to July 31, 2026. The July 2021
Debentures may be redeemed, 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 and after July 31, 2026 and prior to the maturity date, the July 2021 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.
The issue costs of $2,860 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.
December 2021 Debentures
On December 3, 2021 the Company completed a public offering of $40,000 plus an over-allotment option of
$6,000 on December 10, 2021, of 5.00% convertible unsecured subordinated debentures for net proceeds of
$43,765 (the “December 2021 Debentures”).
The December 2021 Debentures are redeemable on or after December 31, 2024 and prior to December 31, 2026.
The December 2021 Debentures may be redeemed, 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 and after December 31, 2026 and prior to the maturity date, the December
2021 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.
The issue costs of $2,235 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.
TIMBERCREEK FINANCIAL 32
79
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
10. 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.
On June 10, 2021, the Company filed a 25-month period base shelf prospectus in all provinces and territories of
Canada which allows the Company to offer and issue common shares, debt securities, subscription receipts,
warrants, and units (collectively, the “Securities”) from time to time up to an aggregate offering price of $500,000.
The changes in the number of common shares were as follows:
Balance, beginning of year
Issuance of common shares
Common shares issued under dividend reinvestment plan
Common shares repurchased for dividend reinvestment plan
Common shares repurchased under normal course issuer bid
Balance, end of year
(a) At-the-market equity program (the "ATM Program")
Year ended December 31,
2021
2022
80,887,433
852,100
527,877
(47,808)
—
82,219,602
82,219,602
1,504,300
641,944
(360,830)
(117,500)
83,887,516
The Company announced on June 18, 2021 that it has established an ATM Program which allows the Company
to issue common shares from treasury having an aggregate gross sales amount of up to $90,000 to the public
from time to time, at the Company’s discretion. Sales of the common shares under the equity distribution
agreement are 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 "TSX"). The common shares
distributed under the ATM Program are at the market prices prevailing at the time of sale, and therefore prices
vary between purchasers and over time.
The Company currently intends to use the net proceeds of the ATM Program for general investment and working
capital purposes, including, if and as required, repaying amounts owing under its secured revolving credit facility.
The credit facility is used for day to day working capital requirements of the Company and for other general
corporate purposes, particularly the funding of mortgage loans.
For the year ended December 31, 2022, the Company issued 1,504,300 of common shares for gross proceeds of
$14,323 at an average price of $9.52 per common share and paid $246 in commissions to the agent, pursuant to
the equity distribution agreement. For year ended December 31, 2021, the Company issued 852,100 of common
shares for gross proceeds of $8,243 at an average price of $9.67 per common share and paid $165 in
commissions to the agent, pursuant to the 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.
80
TIMBERCREEK FINANCIAL 33
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
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, 2022, the Company purchased from open market and issued under DRIP
360,830 common shares (2021 – 47,808) for total amount of $2,847 (2021 – $416). During 2022, common shares
were purchased from open market at an average price of $7.89 per common share.
For the year ended December 31, 2022, the Company issued from treasury under DRIP 281,114 common shares
(2021 – 480,069) and retained $2,553 in dividends (2021 – $4,397). During 2022, common shares were issued
from treasury at an average price of $9.08 per common share.
(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, 2022, the Company declared dividends of $57,721 or $0.69 per
common share (2021 – $56,142, $0.69 per common share).
As at December 31, 2022, $4,824 in aggregate dividends (December 31, 2021 – $4,726) were payable to the
holders of common shares by the Company. Subsequent to December 31, 2022, the Board of Directors of the
Company declared dividends of $0.0575 per common share to be paid on January 15, 2023 to the common
shareholders of record on December 31, 2022.
(d) Normal course offering bid ("NCIB")
On May 24, 2022, the Company announced that the TSX approved the Company's normal course issuer bid (the
"NCIB") to repurchase for cancellation up to 8,330,591 common shares over a 12-month period. Repurchases
under the NCIB were permitted to commence on May 26, 2022 and continue until May 25, 2023, when the bid will
expire.
The Company may repurchase under the NCIB by means of open market transactions or otherwise as permitted
by the TSX. All repurchases under the NCIB will be repurchased on the open market through the facilities of the
TSX and alternative Canadian trading platforms at the prevailing market price at the time of such transaction
For the year ended December 31, 2022, the Company repurchased 117,500 common shares (2021 – nil) for a
total amount of $846 (2021 – nil). The average price per common share repurchased was $7.20 for 2022.
Subsequent to December 31, 2022, 25,000 common shares were settled and cancelled for a total amount of
$177.
11. NON-EXECUTIVE DIRECTOR DEFERRED SHARE UNIT PLAN ("DSU PLAN")
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.
TIMBERCREEK FINANCIAL 34
81
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
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.
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, 2022, 36,704 units were issued (2021 – 36,953 units) and as at December 31,
2022, 99,037 units were outstanding (December 31, 2021 – 145,140 units).
For the year ended December 31, 2022, 82,807 DSUs were exercised (2021 – nil). DSU expense for 2022 was
$377 (2021 – $355). As at December 31, 2022, $102 (December 31, 2021 – $101) in compensation was granted
in DSUs, which will be issued subsequent to December 31, 2022.
12. MANAGEMENT, SERVICING AND ARRANGEMENT 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 equal 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 equal 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.
As compensation for the Manager’s work on syndicating any mortgage investments, the Management Agreement
permits the Manager to collect a portion of the lender fee paid by borrowers of mortgage investments. The
Management Agreement provides that, in respect of each mortgage investment made on or after April 1, 2020
involving syndication to another party of a senior tranche with the Company retaining a subordinated component,
the Manager shall be entitled to retain, from any lender fee generated in respect of such loan, an amount equal to
0.20% of the whole loan amount ("Arrangement Fee") if such syndication occurs within 90 days of closing of the
mortgage. The Arrangement Fee will not apply to any renewal of existing mortgage investments which already
include syndicated senior and subordinated components. The Manager may make an annual election, subject to
approval of the independent Directors of the Board, to receive the Arrangement Fee in common shares of the
Company instead of cash.
For the year ended December 31, 2022, the Company incurred management fees plus applicable taxes of
$12,230 (2021 – $12,031) and servicing fees including applicable taxes of $771 (2021 – $700). During 2022,
Arrangement Fees of $755 paid by borrower were retained by the Manager (2021 – $1,513).
13. 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.
82
TIMBERCREEK FINANCIAL 35
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
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 (basic)
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
14. CHANGE IN NON-CASH OPERATING ITEMS
Change in non-cash operating items:
Other assets
Accounts payable and accrued expenses
Due to Manager
Mortgage and other loans funding holdbacks
Prepaid mortgage and other loans interest
15. CASH FLOWS ARISING FROM FINANCING ACTIVITIES
Debentures
Balance, beginning of year
Debenture issuance
Capitalized issuance cost incurred during the year
Change in estimate of issuance cost
Debenture repayments
Total financing cash flow activities
Non-cash activity - amortization of issue costs and accretion expense
Balance, end of year
$
$
$
$
$
$
$
$
—
55,896 $
Year ended December 31,
2021
2022
41,307
55,896 $
—
41,307
81,324,595
—
81,324,595
0.51
0.51
0.67 $
0.67 $
83,622,130
—
83,622,130
Year ended December 31,
2021
2022
2,600
(2,113) $
(301)
287
(1,920)
253
919
20
(279)
1,087
760
(525) $
Year ended December 31,
2022
137,736 $
—
—
224
—
224
1,460
139,420 $
2021
88,962
101,000
(4,426)
—
(46,000)
50,574
1,383
137,736
TIMBERCREEK FINANCIAL 36
83
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
Credit Facilities
Balance, beginning of year
Deferred financing cost1
Net credit facility advances – mortgage investments
Total financing cash flow activities
Non-cash activity - credit facility - investment properties transfer out
Non-cash activity - amortization of financing costs
Balance, end of year
Year ended December 31,
$
2022
449,869 $
(814)
31,000
30,186
(30,692)
984
$
450,347 $
2021
488,955
(1,225)
(38,882)
(40,107)
—
1,021
449,869
1 Deferred financing cost is included in interest paid section in the annual statement of cash flow
16. RELATED PARTY TRANSACTIONS
(a) As at December 31, 2022, due to Manager mainly includes management and servicing fees payable of $1,098
(December 31, 2021 – $1,377).
(b) During 2022, Arrangement Fees of $755 paid by borrower were retained by the Manager (2021 – $1,513).
(c) As at December 31, 2022, included in other assets is $6,066 (December 31, 2021 – $4,219) 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.
(d) As at December 31, 2022, the Company has the following mortgage investments which a director or directors
of the Company are also officers and part-owners of a syndication partner of these mortgages.
•
•
A mortgage investment with a total gross commitment of $11,611 (December 31, 2021 – $11,611) was
repaid. The Company’s former share of the commitment was $931 (December 31, 2021 – $931). For the
year ended December 31, 2022, the Company has recognized net interest income of $71 (YTD 2021 -
$104) from this mortgage investment during the year.
A mortgage investment with a total gross commitment of $48,750 (December 31, 2021 – $45,715). The
Company’s share of the commitment is $4,375 (December 31, 2021 – $4,153). For the year ended
December 31, 2022, the Company has recognized net interest income of $501 (2021 - $263) from this
mortgage investment during the year.
(e) As at December 31, 2022, the Company and Timbercreek Real Estate Finance U.S. Holding LP are related
parties as they are managed by the Manager, and they have co-invested in 2 mortgages (December 31, 2021
– 2) totaling $35,479 (December 31, 2021 – $33,211). The Company’s share in these mortgage investments
is $10,508 (December 31, 2021 – $9,837).
(f) As at December 31, 2022, the Company is invested in junior debentures of Timbercreek Real Estate Finance
Ireland Fund 1 ("TREF Ireland 1") Private Debt Designated Activity Company totaling $4,744 or €3,281
(December 31, 2021 – $4,985 or €3,465), which is included in loan investments within other investments.
TREF Ireland 1 is managed by a wholly-owned subsidiary of the Manager.
84
TIMBERCREEK FINANCIAL 37
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
(g) As at December 31, 2022, the Company and Timbercreek North American Mortgage Fund are related parties
as they are managed by the Manager, and they have co-invested in 1 mortgage (December 31, 2021 – nil)
totaling $19,957 (December 31, 2021 – nil). The Company’s share in this mortgage investment is $9,979
(December 31, 2021 – nil).
17. INCOME TAXES
As of December 31, 2022, the Company has non-capital losses carried forward for income tax purposes of
$48,550 (December 31, 2021 - $32,620), which will expire between 2031 and 2042 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 $22,124 (December 31, 2021 - $19,498). These
temporary differences vary from year to year depending on the current year business activity and lender fee
income amounts.
18. 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, convertible debentures and the credit facilities.
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, 2022, the Company was in compliance with its investment restrictions.
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.
19. 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, 2022, $1,173,733 of net mortgage
investments and $5,000 of other investments bear interest at variable rates (December 31, 2021 – $1,104,838
and $15,626, respectively). Net mortgage investments totaling $1,105,708 have a "floor rate" (December 31, 2021
– $1,048,039).
TIMBERCREEK FINANCIAL 38
85
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
If there were a decrease or increase of 1.50% in interest rates, with all other variables constant, the impact from
variable rate mortgage investments and other investments to net income and comprehensive income for the next
12 months would be a decrease in net income of $16,041 (December 31, 2021 – 0.5% and $46) or an increase in
net income of $17,681 (December 31, 2021 – 0.5% and $3,851). The Company manages its sensitivity to interest
rate fluctuations by managing the fixed/floating ratio and its use of floor rates in its investment portfolio.
The Company is also exposed to interest rate risk on the credit facilities, which have a balance of $451,000 as at
December 31, 2022 (December 31, 2021 – $450,689). As at December 31, 2022, net exposure to interest rate
risk was $451,000 (December 31, 2021 – $450,689), and assuming it was outstanding for the entire period, a
1.50% decrease or increase in interest rates, with all other variables constant, will increase or decrease net
income and comprehensive income for the next 12 months by $6,765 (December 31, 2021 – 0.5% and $2,253).
The Company's other assets, interest receivable, accounts payable and accrued expenses, prepaid mortgage
interest, mortgage and other loan funding holdbacks, dividends payable and due to Manager have no significant
exposure to interest rate risk due to their short-term nature. Convertible debentures carry a fixed rate of interest
and are not subject to interest rate risk. Cash and cash equivalents carry a variable rate of interest and are
subject to minimal interest rate risk.
(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.
As at December 31, 2022, the Company has US$7,102 and €3,241 in other investments denominated in foreign
currencies (December 31, 2021 – US$7,102 and €3,465 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, 2022, the
Company has one U.S. dollar currency forward contract with an aggregate notional value of US$7,000, at a
forward contract rate of 1.2971,that matured in January 2023. The Company also has one Euro currency contract
with an aggregate notional value of €3,200 at contract rate of 1.3525, that matured in January 2023.
The fair value of the foreign currency forward contracts as at December 31, 2022 is a liability of $705 which is
included in accounts payable. 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.
86
TIMBERCREEK FINANCIAL 39
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
The exposure to credit risk at December 31, 2022 relating to net mortgages and other investments amount to
$1,273,679 (December 31, 2021 – $1,248,303).
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.
The following are the contractual maturities of financial liabilities, excluding mortgage syndication liabilities as at
December 31, 2022, including expected interest payments:
December 31, 2022
Carrying
value
Contractual
cash flow
Within
a year
Following
year 3–5 years 5 + Years
Accounts payable and accrued expenses
$
4,450 $
4,450 $
4,450 $
— $
— $
Dividends payable
Due to Manager
Mortgage and other loans funding holdbacks
Prepaid mortgage and other loans interest
Credit facility (mortgage investments)1
Convertible debentures2
Unadvanced mortgage commitments3
Total contractual liabilities, excluding mortgage
syndication liabilities4
4,824
1,098
1,345
4,721
4,824
1,098
1,345
4,721
4,824
1,098
1,345
4,721
—
—
—
—
450,347
139,420
484,688
179,500
30,286
454,402
7,573
51,380
15,563 104,984
$ 606,205 $
680,626 $ 54,297 $ 505,782 $ 15,563 $ 104,984
—
293,386 293,386
—
—
—
$ 606,205 $
974,012 $ 347,683 $ 505,782 $ 15,563 $ 104,984
—
—
—
—
—
—
—
—
—
—
—
1
2
3
4
Credit facility (mortgage investments) includes interest based upon December 2022 weighted average interest rate on the credit facility
assuming the outstanding balance is not repaid until its maturity on Feb 10, 2024.
The convertible debentures include interest based on coupon rate on the convertible debentures assuming the outstanding balance is
not repaid until its contractual maturity on June 30, 2024, July 31, 2028 and December 31, 2028.
Unadvanced mortgage commitments include syndication commitments of which $144,627 belongs to the Company’s syndicated
partners.
The principal repayments of $609,012 mortgage syndication liabilities by contractual maturity date are shown net with mortgage
investments in Note 4(b).
As at December 31, 2022, the Company had a cash position of $2,832 (December 31, 2021 – $6,344), an
unutilized credit facility (mortgage investments) balance of $103,528 (December 31, 2021 – $115,001), note that
the Company exercised the accordion feature on its credit facility in July 2022, expanding the capacity by
$25,000. Management believes it will be able to finance its operations using the cash flow generated from
operations, investing activities and the credit facilities.
TIMBERCREEK FINANCIAL 40
87
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars)
20. FAIR VALUE MEASUREMENTS
The following table shows the classification carrying amounts and fair values of assets and liabilities:
As at December 31, 2022
Assets measured at fair value
Financial assets
Carrying value
Note Amortized cost
Fair value through
profit or loss
Fair value
Cash and cash equivalents
Other assets
Mortgage investments, including mortgage syndications
Other investments
$
2,832 $
8,319
1,794,954
65,976
4(e)
— $
—
5,552
4,744
2,832
8,319
1,800,506
70,720
Financial liabilities
Accounts payable and accrued expenses
Dividends payable
Due to Manager
Mortgage funding holdbacks
Prepaid mortgage interest
Credit facility (mortgage investments)
Convertible debentures
Mortgage syndication liabilities
As at December 31, 2021
Assets measured at fair value
Investment properties
Financial assets
Cash and cash equivalents
Other assets
Mortgage investments, including mortgage syndications
Other investments
4(e)
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
3,006
4,824
1,098
1,345
4,721
450,347
139,420
611,291
1,444
—
—
—
—
—
—
—
4,450
4,824
1,098
1,345
4,721
451,000
131,078
611,291
Carrying value
Note
Amortized
cost
Fair value through
profit or loss
Fair value
5
$
— $
44,063 $
44,063
6,344
6,075
1,549,665
64,020
3,682
4,726
1,377
258
3,961
419,179
30,690
137,736
444,429
—
—
53,974
4,985
6,344
6,075
1,603,639
69,005
1,443
—
—
—
—
—
—
—
—
5,125
4,726
1,377
258
3,961
419,999
30,690
147,672
444,429
88
TIMBERCREEK FINANCIAL 41
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars
TIMBERCREEK FINANCIAL
Notes to the Consolidated Financial Statements
(In 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.
(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.
The fair value of the Contract is calculated as the present value of the estimated future cash flows discounted at
interest rates and an applicable yield curve with similar risk characteristics for the duration of the contract.
Estimates of the future cash flows are the sum of contractually fixed future amounts and expected variable future
amounts, which are based on quoted swap rates, futures prices and estimated borrowing 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, 2022.
21. COMPENSATION OF KEY MANAGEMENT PERSONNEL
During 2022, the compensation expense of the members of the Board of Directors amounts to $377 (2021 –
$355), 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 12).
22. 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.
TIMBERCREEK FINANCIAL 42
89
Timbercreek FinancialNotes to the Consolidated Financial StatementsIn thousands of Canadian dollars 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.
Blair Tamblyn
Director, Chief Executive Officer,
Timbercreek Financial
Scott Rowland
Director, Chief Investment Officer,
Timbercreek Financial
W. Glenn Shyba
Lead Independent Director, Timbercreek Financial
Founder & Principal, Origin Merchant Partners
Amar Bhalla
Independent Director,
Timbercreek Financial
Principal, Amdev Property Group
Deborah Robinson
Independent Director, Timbercreek Financial
President & Founder, Bay Street HR
Pamela Spackman
Independent Director,
Timbercreek Financial
Board member of WPT Industrial REIT
Leadership
Blair Tamblyn
Chief Executive Officer
Scott Rowland
Chief Investment Officer
Tracy Johnston, CPA, CA
Chief Financial Officer
Geoff McTait
Managing Director,
Origination – CANADA & Head of Global Syndication
Head Office
25 Price Street
Toronto, ON M4W 1Z1
T 844.304.9967
E info@timbercreek.com
timbercreekfinancial.com
Patrick Smith
Managing Director, Global Credit – Canada
JOHN WALSH
Vice President, Corporate Secretary
Karynna Ma
Vice President, Investor Relations
Stock Exchange Listings
TSX: TF, TF.DB.C, TF.DB.D and TF.DB.E
Transfer Agent & Registrar
TMX Trust
1 Toronto Street, Suite 1200
Toronto, ON M5C 2V6
Auditors
KPMG LLP
Legal Counsel
McCarthy Tétrault LLP
www.timbercreekfinancial.com