Welcome to Atrium Mortgage Investment Corporation Q3 conference call. At this time, all lines are in a listen-only mode. Later, we will kick off a question-and-answer session. At that time, if you have a question, you will be asked to press star one on your touchtone phone. As a reminder, this conference is being recorded today, Friday, October 29th, 2021. Certain statements will be made during this phone call that will be forward-looking statements. Although Atrium believes that these statements are based upon reasonable assumptions, actual results may differ materially. Forward-looking statements are based on the beliefs, estimates, and opinions Atrium's management makes as such statements are made. Atrium undertakes no obligation to update these forward-looking statements in the event its management's beliefs, statements or opinions or other factors change.
I would now like to turn the conference over to your host, Mr. Goodall. Sir, please go ahead.
Thank you, and thanks for calling in today. Our CFO, Jennifer Scoffield, will start by talking about our financial results, and then I will speak about our performance from an operational and portfolio perspective. Jennifer?
Thanks, Rob. Atrium had a very good Q3, with revenues of CAD 16.9 million and net income of CAD 10.6 million, or CAD 0.25 per share. Mortgage interest received was CAD 15.7 million for the quarter, up 3.6% from the Q3 of 2020. We had net rental income of CAD 201 thousand for the quarter compared to net rental income of CAD 127 thousand in the comparable quarter. Net income of CAD 10.6 million for the three months ended September 30th, 2021, was 11.4% higher than net income from the Q3 of 2020. Basic and diluted earnings per common share of CAD 0.25 for the Q3 are up from CAD 0.22 basic and diluted earnings per common share for the Q3 of the prior year.
Dividends declared during Q3 2021 totaled CAD 0.225. Our earnings per share year to date were CAD 0.73, which exceeds our dividends declared year to date of CAD 0.675. Operating expenses, excluding the provision for mortgage losses for the Q3, remained consistent with prior quarters at approximately 1.1% of assets on an annualized basis. Our allowance for mortgage losses on September 30th, 2021, was CAD 10.4 million, or 1.36% of our mortgage portfolio. Our provision for mortgage losses for the quarter was CAD 400 thousand, and our year-to-date provision is CAD 1.27 million. Our interest expense for the Q3 was CAD 2.8 million, down from CAD 3.4 million last quarter and CAD 2.9 million in Q3 of 2020.
Interest on our convertible debentures was lower this quarter due to the repayment on June 30 of our 5.5% convertible debentures for a total of CAD 39.8 million. Borrowing under our credit facility totaled CAD 211 million at September 30th, 2021. This is compared to CAD 116 million a year ago. The annualized weighted average interest rate on our credit facility was 2.87% in the current quarter, up from 2.6% in the comparable quarter last year. Our mortgage portfolio grew to CAD 756 million on September 30th, the largest portfolio balance in Atrium's history. Our mortgages receivable balance on September 30th was CAD 758 million, an increase of 2.6% from year-end.
During the quarter, we funded mortgages totaling CAD 119 million and had repayments of CAD 67 million. Over 60% of the loans funded in the quarter were advanced in September, so only one month of interest income on these loans is included in our Q3 earnings. On September 30th, 2021, the portfolio had a weighted average loan-to-value of 60.9%. The weighted average interest rate on the portfolio at quarter end was 8.14%. This compared to 6.6% on June 30th and 2.65% at year-end. This drop was primarily due to the repayment during Q3 of a CAD 27 million high-ratio loan that had an interest rate of 10.5%. We also funded a larger than usual proportion of first mortgages this quarter.
We closed the quarter with a conservative debt-to-total assets ratio of 39% and total assets of CAD 774 million. Our portfolio remains resilient as it has throughout the pandemic due to a conservative lending approach and our focus on high-quality properties and borrowers. I'll now pass you over to Rob Goodall, our CEO.
Thank you. As Jennifer mentioned, Atrium had a strong quarter, generating earnings of CAD 0.25 per share. This result was better than I expected due to a strong quarter of loan origination, but also due to lower than expected repayments. Some of those anticipated repayments were deferred until Q4. Mortgage advances were almost CAD 119 million, versus CAD 93 million in Q2. Any quarter where we surpass CAD 100 million of mortgage advances is a very good quarter for us. Loan originations for the first nine months have been more than double the pace of 2020 and is a reflection of the expansion of our tech team to seven loan originators and four analyst managers and ADPs. Overall, the mortgage portfolio in Q3 increased by CAD 55 million from CAD 711 - CAD 756 million.
We do expect higher than normal repayments in Q4, and we estimate that we will experience close to a 60% portfolio loan turnover rate for the year as a whole. Atrium's normal portfolio turnover rate is 40%-45%. Most of the turnover has been in the very competitive GTA market. Fortunately, our pipeline of potential new loan opportunities with Atrium has never been so consistently high from week to week, so the repayment should be mostly offset with new loan business. I continue to believe that Atrium's loan portfolio will grow materially in size in 2022, as our loan turnover should be lower next year. The reason is that most of our new loans funded in 2021 have terms of approximately two years. The loan quality of the portfolio in Q3 remained high.
99% of our mortgages are located in our two preferred markets, Ontario and BC. These are the two markets where we have active offices and where we have experienced virtually no loan losses over our 20-year history. Loan loss provisions remain at a very healthy 136- basis points, which provides insurance against a slowdown in the market or a longer than expected recovery period from the pandemic. The average loan-to-value in the portfolio reduced slightly in Q3 to 61.0% and continues to be below our target of 65%. Turning to our operations. New loan activity was strong at CAD 108 million of fundings versus CAD 18 million last quarter. Geographically, approximately 63% of the funded loans were from Ontario and 37% from BC. However, 100% of the loan repayments in the quarter were based in Ontario.
The Ontario proportion of the portfolio fell in Q3. The geographic composition at quarter end is now 67% in Ontario, down from 72% last quarter, and in BC it's at 32%, up from 27% last quarter. BC had no loan repayments in Q3. Alberta continues to represent less than 1% of the total portfolio. By sector, 84% of the new loans funded in Q3 were residential or multi-residential loans, with the balance being commercial loans. The single-family mortgage division had a strong quarter with CAD 15 million in funded loans. While single-family mortgages have a lower than average mortgage rate, it also has a low risk profile. The single-family portfolio is entirely located in the GTA, Ottawa, and Hamilton, and all of the mortgages are under 75% loan to appraised value.
In Q3, our average mortgage rate was 8.42%, down from 8.56% last quarter. The reasons were less about competition or a drop in interest rates and more about a change in portfolio composition. For example, we were repaid on a CAD 27 million high-ratio mortgage, which had a 10.5% coupon. We funded CAD 15 million of single-family mortgages at an average rate of 6.99%. We had a higher than normal proportion of first mortgages funded in Q3. In fact, Atrium's percentage of first mortgages increased from 84% at the end of Q2 to almost 88% this quarter. This is the highest percentage I can remember in many years and possibly in our entire history.
Each of the three provinces where we operate have more than 85% of its loan portfolio in first mortgages. Perhaps the risk metric which best exemplifies our defensive lending philosophy is that 96% of the portfolio is less than or equal to 75% loan-to-value, up from 92% last quarter, and again, at the highest level that I can ever remember. Of the two loans which are above 75% loan-to-value, the largest loan will almost certainly be repaid in Q4. By year-end, we will likely only have one loan with a loan-to-value of greater than 75%, and it will represent less than 1% of the total portfolio. Looking at defaults, the following commercial borrowers had loans in default in Q3. A CAD 5.5 million first mortgage on an estate subdivision in southwest Calgary.
This first mortgage is one of only two loans remaining in Alberta and has been in arrears for a couple of years. Phase two and three of the property were sold in Q1 2021, thereby reducing the outstanding loan balance to its current levels. The remaining security is phase four, composed of 31 un-serviced lots and the most prestigious of the four phases in the development. Phase four was listed for sale for 12 months, but generated no compelling offers, so we pulled the listing in April and decided to relist it later this year. One of the reasons for doing so is that the Calgary housing market was beginning to strengthen for the first time in four to five years, and we hope to take advantage of that trend. That market has indeed strengthened, and we're now moving to relist the property.
We have had the property reappraised, interviewed real estate agents, and selected a realtor to list the property once court approval is obtained, which will probably occur in late November. We are anticipating a loss on the sale of phase four, but we have had a specific provision in place for several quarters to deal with that loss. This is the only loan in the portfolio, by the way, where we do expect to incur a loss. The second loan in default is a CAD 6.15 million first mortgage in Tottenham, Ontario. This loan is in default due to an excessive amount of debt subordinate to Atrium and an uncooperative borrower who we've removed over a year ago from operations in favor of a third-party development manager. Atrium actually holds the senior tranche of the first mortgage and has an estimated loan-to-value of only 64%.
Clearly, we do not foresee a loss. The reason that the loan is in default is because a private receiver was needed to be engaged in order to prevent the borrower from interfering with the development process. The final borrower who's in default has four mortgages totaling CAD 45 million in Vancouver. I can best describe the borrower as asset rich and cash poor. In Q2, we successfully negotiated a forbearance agreement whereby the borrower was forced to list the properties for sale with real estate agents approved by Atrium and has until early December to sell the properties, after which time Atrium will assume control of the sales process. The good news, three of the four loans totaling CAD 27 million are secured by well-located development sites near a major SkyTrain station. These three loans are also cross-collateralized.
All three loans have loan-to-value to loan-to appraised values of less than 75% and are considered very marketable properties. In fact, two of the properties have been sold at prices above Atrium's loan exposure. One is a firm sale, while the other is conditional until mid-November. The fourth loan, totaling CAD 8.1 million, is a first mortgage secured by an apartment building, and a conditional offer has been accepted on that property as well, with a waiver date in mid-November. We hope next quarter to report that three of the four properties are firm sales in place. Defaults on the single-family mortgage portfolio were minimal, totaling just CAD 1.47 million. Since quarter end, one of those loans was repaid in full, and another of those properties has been sold by the borrower with a closing date in December.
Overall, we feel very comfortable with the quality of the portfolio. Please note that we analyze and risk rate each loan every quarter to make sure we're on top of any new issues. Turning to foreclosures, we continue to have two foreclosed properties totaling CAD 16.1 million. The first is a four-plex in Leduc, and the second a nine-unit rental project in Regina. The Leduc cost base is CAD 1.1 million, and the cost base in Regina is CAD 15 million. The four-plex was 100% leased throughout Q3. The Regina apartment finished the quarter with an 84% occupancy rate. We have recently increased the level of digital marketing, and the property manager is now reporting increased traffic at the property. These properties generate significant distributions to Atrium each quarter. Our economic outlook is as follows.
Although the overall economy contracted by 1.1% in Q2, the Bank of Canada is still forecasting 5% GDP growth in 2021 and 4.25% growth for 2022. The primary causes for the slowdown have been the service sector recovering less quickly than hoped and supply chain issues. Both prospects are forecasted to improve in Q3 and Q4, assuming a continuing reopening of the economy and widespread adoption of vaccine passports. A labor shortage in many industries, including food and hospitality and supply chain issues in manufacturing, have jointly stimulated inflation. Inflation is currently at 4.4% in Canada and forecasted to increase to 4.75% by year-end.
Most economists believe that the increase in inflation is temporary and that supply chain issues should work themselves out by mid-2022. However, some prominent business leaders, including Dave McKay, CEO of RBC, and Louis Vachon, CEO of National Bank of Canada, believe that labor shortages and supply chain issues will persist for a longer timeframe, which will result in a more prolonged period of inflation. In the real estate sector, there are a lot of conflicting issues which could affect the strength of the housing market in the coming year. Negative trends include the supply chain issues, labor cost increases, and higher mortgage rates. Offsetting those trends are continuing price increases supported by a very tight resale market and an expectation of increasing immigration levels. In Q3, the housing market performed very well in our target markets.
First, looking at resales, September saw the transition from the slower summer market to the busier fall market, with listings and sales beginning to increase after Labor Day. In the GTA, the resale housing market saw a significant increase in sales activity compared to the same period in 2020, while new listings were down by a third, driving an increase in average prices on both a month-over-month and a year-over-year basis. Sales growth was strongest in the condominium segment. The average price of a detached home in the GTA increased by 29% year over year, while semi-detached homes and townhouses increased by 21% and 22% respectively. Condo apartment resale prices continued their climb up and were up 12% year over year in September, owing to a renewed confidence in and demand for downtown urban lifestyles.
In the Vancouver area, the situation was similar. September sales were 21% above the 10-year average for the month. Total listings were down 30% year-over-year. Total listings are 28% below the 10-year average for the month. The sales to active listings ratio remains robust for all property types in September. The ratio was 26% for detached homes, 53% for townhomes, and 37% for condominiums. The real estate board ratio suggests upward price pressure, the typical ratio is about 20%. In Greater Vancouver, year-over-year, the benchmark price for detached homes was up 20%, 18% for townhouses, and 8% for condos. The new home markets in Toronto and Vancouver are also very healthy. The GTA positive story about the resale market is also evident in the new home market.
New home sales through the end of August increased by 36% when compared to the same period in 2020. The number of high-rise sales were up 63%, while low-rise sales saw an increase of 2%. On a year-over-year basis, high-rise inventory decreased by 13%, while low-rise inventory decreased by 62%. The benchmark price of CAD 1.52 million in August for new low-rise product represents a 30% increase on a year-over-year basis and a slight increase from the previous month. The benchmark price for new high-rise product increased by 10% year-over-year to CAD 1.07 million. In Q3, we saw the price gap between low-rise and high-rise continue to widen as it has since the pandemic started, making condominiums more affordable on a relative basis.
In Vancouver, the most recent new home sales stats are from Q2. New condo sales for Q2 totaled 5,500 units in Metro Vancouver, only 3% less than the peak sales figure achieved in Q2 of 2016. The ratio of sales between the North and South Fraser markets narrowed to 1.3 in Q2, versus 1.6 in the previous quarter. This reflects the sustained strength of demand in the more affordable suburban submarkets, as well as fewer project launches in the more expensive North Fraser markets. Although demand remains strong, the release of new condominium inventory outpaced demand. There were 1,230 more unsold units at the end of Q2. However, standing inventory of completed units remains very low at 514 units.
Although this represents an increase of 22% over Q1, it is still down 17% on a year-over-year basis. To summarize, the resale and new home markets in both cities are very strong, and this trend is expected to continue into 2022. To summarize the quarter, Atrium continued to generate strong earnings in Q3 as it has throughout the pandemic. The loan quality is also very high, as evidenced by the following risk metrics. First, our loan-to-value ratio on a portfolio basis has remained steady at approximately 60%-61% loan-to-value throughout the pandemic. Number two, 96% of our portfolio is composed of low-ratio loans, described as loans below 70%-75% loan-to-value. Almost 88% of the portfolio are first mortgages. From a sector perspective, we are well-positioned, with 82% of our loans focused on the strong residential housing markets.
Lastly, geographically, we targeted our portfolio towards the most liquid urban centers in the country, Toronto and Vancouver. We are looking forward to Q4 and completing one of the best years in our nine-year history as a public company. That's it for our presentation, but we would be pleased to take any questions from the listeners.
As a reminder, everyone, to ask a question, you will need to press star one on your touchtone phone. Thank you, and please stand by while we prepare the Q&A roster. Our first question comes from the line of Graham Ryding from TD Securities. Your line is open.
Hi, good afternoon.
Hi, Graham.
Just on, before it sounds like, you know, your expectation is going forward for assets to track to Q4 and then build in 2022. Is that the right message?
Yeah. If I was to guess today, yeah, that's about the way we would feel. We do have a pretty strong pipeline of new deals, Graham. Q4, as you know, is really two and a half months in terms of business, new business. Because from basically December fifteenth onwards, very few new loans were funded. They would be deferred till the beginning of the year. If it was a normal three-month period, we might well end up where we ended up this quarter, but I think we'll be slightly short just because inevitably some closings get deferred.
Okay. It sounds like what you saw was going to get repaid each quarter, some of that's been deferred to Q4. That's the-
Yeah.
That's driving that dynamic?
That's right.
Okay. In terms of the way average mortgage rates shift along with interest rates, just potentially moving higher here could just translate into higher average mortgage rates for you as well or is it more of a competition and...
You know, my guess is in Q4, because our largest remaining loan over 75% loan-to-value, which has a high coupon on it, comes off as well. My guess is we'll see a small contraction in the average mortgage rate in Q4, but I think that'll be the bottom. I think probably from that point forward, we'll be moving up because it's very unusual for us to have 1% of our portfolio in loans over 75% loan-to-value. It's not that we're averse to having it, you know, 5%, 7%, even up to 10%. We gotta be really comfortable with the transaction. We haven't seen that type of opportunity now that we want to take advantage of.
When we do, it'll start moving up the average rate. Did that answer your question?
Yeah, I wasn't trying to make too close. I'm not doing next year's call, but I just wanted to get the message. On the interest cost side, you know, your credit facility is variable. This will move with the prime rate. Is that how you should look at the interest cost side?
Yeah, prime and bankers' acceptance. I would say more bankers' acceptance than prime.
We keep very little on our prime facility. Majority is over 90%. 95% are on BAs at any one time.
Yeah. I think most large corporations will use the BA facility more than they will prime because it ends up being often less expensive than prime.
Okay. my last question, just to kind of look at sort of the mix of your portfolio. You've seen a noticeable increase over the last few years towards sort of mid and high rise and less on the, on the low rise side. Is that deliberate or is that more just a reflection of the growth in BC and the mix in the lending you're doing in BC tends to be more mid rise and high rise?
Yeah, it's partly a reflection of BC. You know, what we find is banks are really aggressive on low rise. It's hard for us to find opportunities that are attractive to us where the risk profile is still low. Mid rise and high rise tend to be more capital intensive. There's just more opportunity for us. I wouldn't say the low rise is going to continue to go down, but it was maybe artificially high for a while because we had a very large client who paid us off in three loans, I think, in one quarter. In fact, he was maybe our largest client in the entire portfolio, and he was a low rise player. I don't know that he's going to go.
He's very wealthy, but I don't think he's going to go into developments of that size again. So we will have to find the business elsewhere. I think probably the portfolio composition we have now is probably more reflective of what it will look like in the future.
Okay. That's it for me. Thank you.
Okay.
Your next question comes from the line of Sid Rajeev from Fundamental Research. Your line is open.
Hey, Rob and Jennifer. Thank you and congrats on your record lending. I'm trying to get an idea of your exposure to first mortgages now that it's at record height. You talked about your pipeline being robust, strong. Can you give us more color on what are new deals looking like? Are they mostly first mortgages? It seems like Ontario is going to continue to dominate your mix. Can you talk a little bit about the deals in pipeline?
Yeah, the pipeline's pretty diverse now. I've Jennifer, I would say, what? At least 75% of it would be first mortgages.
Yes.
I don't have it in front of me. I'm sorry. Probably 75% or so are first mortgages. You might see the 88% come down marginally, but it probably won't be a huge number. It'll still be higher than what we would normally have in first mortgages.
Is it fair to say the lending rates, the average lending rates might increase, by year-end, roughly average?
No, I don't think so, because as I mentioned in my discussion earlier, we have 4% of our loan portfolio over 75% loan-to-value. It's only two loans. The by far largest of the two loans is scheduled to be repaid within the next two weeks. It has a high coupon. I think it's got a coupon of 10.75%. When it comes off, naturally we're going to drop the overall rate of the portfolio. Having said that, what's going on, I think, are reasonably healthy interest rates, but they're not 10.75%.
I think there will be a little bit of a drop in Q4, and then I think you'll see it either steady or moving up slightly in 2022 if I was to guesstimate.
Got it. Just one more question. Your debt to capital is low. You have enough room in your line of credit for accessing capital. Share prices are high, close to record highs. I feel like you might be tempted to do equity financing. Is that something in the works or?
We look at the benefits of all three of the sources of our balance sheet, which is equity. We're trading well. We think we should trade a little higher, but we can't say we're trading poorly. The subordinated debentures, you know, the last one done in the MIC industry was at 5%, so that started to make more sense to us, because there's a lot of costs that go with the subordinated debentures. Our line of credit is the cheapest, but it's also got a short term to it, right? It's a one- or two-year term. It's the least expensive source, but it's also got more risk in terms of the fact that convertible debenture has a 10-year term.
equity has an infinite term. You want to put a balance to the three. They're all attractive in their own way. We have talked about convertible debentures a little bit more, whereas when they were at 5.5%, 5.25%, we really weren't interested. equity is a possibility as well when we're ready.
Okay. Thank you so much. Have a good weekend.
You too.
Again, everyone, if you would like to ask a question, please press star then one on a touchtone phone. Our next question comes from the line of Lee Pan from iA Capital Markets. Your line is open.
Hi, good afternoon. Just a quick one for me. I guess I might have missed it. Rob mentioned that most of the loans this year that are, you know, prepared to repay are structured as around two years. Just what about your loans for your pipeline? When should we expect around a two-year term as well, or somewhere along those lines?
Yeah. The loans are almost always at somewhere between 12 months and 36 months. They would average 18-24 months. Yeah, two years is a pretty good assumption. That's why it's hard to believe we'll have the loan turnover in 2022 we've had in 2021.
Mm-hmm.
Much of our book was only bought in 2021, so it's unlikely that portion of the portfolio will be repaid in 2022.
Mm-hmm. Right. I was just trying to get a sense of if that high level of prepayment was going to kind of persist in 2022, but that makes total sense. Okay. Thanks so much. Have a good weekend.
Thank you.
There are no other calls for the question at this time. You guys please continue.
Okay. I just want to thank you for attending this conference call at 4:00 P.M. on a Friday. Thank you, those of you who are shareholders, for your continuing interest in our company. Have a good weekend.
This concludes today's conference call. Thanks to all for your participation. You may now disconnect.