Ladies and gentlemen, please stand by. Your conference is about to begin. Welcome to the Atrium Mortgage Investment Corporation's fourth quarter results conference call. At this time, all lines are in listen-only mode. Later in the call, we will conduct a question-and-answer session. At that time, if you have a question, you'll be asked to press star two on your touch-tone keypad. A reminder that this conference is being recorded Friday, March 7, 2025. Certain statements will be made during this phone call that may be forward-looking statements. Although Atrium believes that such statements are based upon reasonable assumptions, actual results may differ materially. Forward-looking statements are based on the beliefs, estimates, and opinions of Atrium's management on the date the statements are made. Atrium undertakes no obligations to update these forward-looking statements in the event that management's beliefs, estimates, opinions, or other factors change.
I would now like to turn the conference over to your host, Robert Goodall, CEO of Atrium. Mr. Goodall, please go ahead.
Thank you, and thank you all for calling in this morning. Our CFO, John Ahmad, will start by talking about our financial results, and then I'll speak about our performance from an operational and portfolio perspective. John?
Thanks, Rob. I'm very pleased to announce that Atrium finished the year strong, with earnings per share of $0.27 in the fourth quarter. This was slightly above EPS of $0.26 in Q3 and consistent with $0.27 in the prior year fourth quarter. We completed fiscal 2024 with an earnings per share of $1.06, which includes a special dividend of $0.16 for the year. To give some perspective, this was the third-best year earnings-wise as a public company in what continued to be a challenging year for real estate markets. In light of our consistent performance, you may recall that we ended the year with an increase in our monthly dividend to shareholders from an annualized rate of $0.90 to $0.93 beginning in December 2024.
Over the course of the year, our mortgage portfolio remained relatively flat, finishing the year at CAD 887 million, slightly down from CAD 894 million at the beginning of the year and down from a record CAD 926 million at Q3. The decrease over the fourth quarter was largely due to payouts of stage two and stage three loans, which does improve the risk profile of our mortgage book. On an annual basis, advances were CAD 352 million and were more than offset by repayments of principal and interest capitalized on stage two and stage three loans. While activity was below historical levels for most of the year, Q4 did see a pickup in activity, with principal originations totaling CAD 120 million and repayments of CAD 125 million.
As expected, the rate on our mortgage portfolio came down from 10.52% at Q3 to 9.98% at year-end on the heels of two 50-basis point Bank of Canada rate cuts on October 23 and December 11. There are two offsetting factors at play here as well. Firstly, the fact that the majority of our portfolio does have rate floors in place, which has helped cushion the blow. Secondly, the fact that we have focused on lower-risk mortgages, which do command lower rates. Shifting production to lower-risk loans has been part of our strategy to protect shareholder capital as we navigate through uncertain market conditions. As an offset, the rate on our credit facility has also come down as it is priced off prime and short-term core market rates.
The average rate on our credit facility was 6.34% for the quarter, down from 6.96% in Q3 and 7.55% in the prior year quarter. Another key objective this year was to maintain a highly liquid and well-capitalized balance sheet, which we achieved. Our balance sheet leverage remained very low at 45% at year-end, with our drawn credit facility at CAD 199 million. This implies plenty of capacity as the maximum amount is CAD 340 million. The maximum was increased by CAD 25 million in June after adding RBC as a lender to the credit facility. This not only provides capacity for future growth, but is also a source of liquidity and provides us with optionality in terms of building an optimal capital structure.
During the year, we paid down our CAD 25.3 million June debenture on the first business day of the following quarter in Q3 using the facility, and we have the capacity to do the same with our upcoming March debenture. Our debt capacity provides us with an opportunity to potentially lock into longer-term debt commitments when market rates are more favorable. Finally, we also shored up our shareholder capital in October to support future growth with an oversubscribed share offering with total gross proceeds of CAD 28.8 million that was well received by the markets. The credit risk profile of our mortgage portfolio continues to improve. The Q4 provision of CAD 2.1 million has trended downward over the course of the year and is down significantly from CAD 4.8 million booked in the prior year comparable quarter.
Total stage two and three loans have also come down from 17.8% of the mortgage portfolio at the beginning of the year to just 8.9% at year-end. As a percentage of the mortgage portfolio, which did decrease slightly over the quarter, the allowance for mortgage losses was 333 basis points at year-end, up slightly from 323 basis points at Q3 and up from 253 basis points at the beginning of the year. Our stage one provision still remains high at 91 basis points due to a soft macroeconomic outlook. Overall, Atrium posted strong financial results for shareholders this year, and we have successfully executed in terms of taking steps to de-risk the portfolio and build capacity for growth.
While macroeconomic conditions started to show signs of improvement at year-end by way of lower inflation and interest rates, potential economic slowdown from a tariff war can prolong the downturn in the credit cycle. Our business is structured so that we have the capacity to seize growth opportunities if they arise, but we are also equally ready to deal with soft market conditions that do appear likely to persist. Looking back, real estate markets have, in fact, become increasingly challenging since rates started rising in 2022, and we've consistently posted strong results during this timeframe. Over the year, we've taken the right steps to strengthen the quality of our mortgage portfolio, increase our liquidity, improve our balance sheet, and the depth of our team, which has experience operating across all cycles in the market. Rob, I'll pass it back to you for portfolio and business updates.
Thank you. As John said, we had a strong quarter and a very strong year. Atrium Mortgage Investment Corporation generated basic earnings per share of $0.27, which was up $0.01 from last quarter. For calendar 2024, our earnings per share of $1.06 was the third-best earnings per share result in our 23-year history. Indeed, our last three years have been the best three years from an earnings per share perspective as a public company. I think this is a huge accomplishment in a very difficult economic environment. In fact, if you look at our results during the 2008 and 2009 financial crisis, we also outperformed our peers from an earnings per share perspective during that time. Calendar 2024 was especially strong when one considers that our portfolio quality actually improved in the second half of the year.
Stage two and stage three loans, that is, high-risk and impaired loans, decreased dramatically to CAD 78 million in Q4 from CAD 130 million in Q3. We had only three stage three commercial and multi-residential loans in the entire portfolio at year-end, and we are adequately reserved on all of them. We increased our loan loss provision in Q4 by CAD 2.1 million, as John said. The quarterly provisions have been gradually reducing as we resolve our problem loans. We have not had any problem loans where our provisions were inadequate. In fact, in every circumstance, there was a net recovery. Overall, the portfolio decreased slightly from CAD 926 million last quarter to CAD 887 million in Q4. Loan advances in Q4 were actually very strong at CAD 120 million. For the year as a whole, total mortgage advances were CAD 352 million, which is 25% above last year.
This is an accomplishment which few other lenders can make because market activity was subdued, as you know, in 2024. Loan repayments in Q4 were unusually high at CAD 125 million, equivalent to an annualized portfolio turnover rate of almost 60%. Throughout the year, most of our loans were repaid by institutional lenders, which is a testament to our loan quality. We also made really good progress implementing our strategy to increase our exposure to commercial loans and to single-family mortgages. In 2024, commercial loans rose from 9.9% of the portfolio to 21.5%, and single-family mortgages and apartment mortgages rose from 13.2% to 17.5% by year-end. We expect that trend will continue in calendar 2025. Atrium's average mortgage rate dropped from 10.52% last quarter to 9.98% in Q4, entirely due to reductions in the prime rate of interest.
The total of high-ratio loans, that is, loans above 75% loan-to-value, was only CAD 38.5 million in Q4, equal to just 4.3% of the portfolio. This total is down dramatically from Q3 when the balance was CAD 90.1 million, almost 10% of the portfolio. At the end of last year, the balance was also higher at CAD 53.4 million, representing about 6% of the portfolio. In Q4, the average loan-to-value of the portfolio dropped from 64.1% last quarter to 61.9% at year-end, which continues to be well within our desired range. Atrium's percentage of first mortgages remained very high at 96.7%, and construction loans represented only 5.4% of the total mortgage portfolio. Construction costs are becoming more stable and, in many cases, actually dropping, so we are more willing to consider underwriting construction loans with experienced developers.
Turning to the few defaults that we have, in Q4, the total of stage two and stage three loans dropped sharply from CAD 130 million to CAD 78 million. In fact, our combined stage two and stage three loans have dropped by almost CAD 80 million in the last four quarters. There was a lot of progress in dealing with the higher-risk commercial loans during the quarter, as you will hear. I will briefly describe each of the stage three commercial and multi-residential loans. First, two loans are located in Greater Vancouver to a single borrower. At one time, there were four loans to this borrower. One loan was repaid earlier in 2024, and another loan was repaid in full in Q4 of 2024. As a result, the loan balance was reduced from CAD 34.5 million in Q3 to CAD 23.5 million at the end of 2024.
In addition, I'm pleased to report that another one of the loans to the sponsor was repaid subsequent to year-end, so there is now only one CAD 14.3 million loan outstanding to the sponsor. The only other loan that is stage three is a CAD 2.85 million loan secured by three Toronto office buildings, which represents the subordinate tranche of a CAD 17 million first mortgage. In Q4, we negotiated additional security and anticipate a substantial paydown of the loan by the end of Q2, so we are feeling more optimistic about the prospects of being repaid in full on this loan. As we mentioned earlier, we increased Atrium's loan loss reserve in Q3 by CAD 2.1 million. The loan loss reserve now totals a very healthy CAD 29.6 million, equal to 333 basis points on the overall portfolio.
It is worth noting that we continue to have a large general reserve against our highest quality stage one loans. We strongly believe that we have adequate reserves in place for the few stage three loans, which will protect our profits for the future. My economic commentary is as follows. The economic news in Canada was actually much better than expected in Q4. Canada's fourth quarter GDP growth was 2.6%, significantly better than the forecasted growth of 1.8%. Employment rose by a surprising 76,000 jobs in January, following another large gain of 91,000 jobs in December, resulting in the unemployment rate dropping to 6.6%. If we were not absorbed by a trade war, there would actually be more discussion about a comeback in the Canadian economy. CPI in Canada rose slightly to 1.9% in January, up from 1.8% in December.
Nevertheless, it was the sixth consecutive month below Canada's 2% inflation target. Most bank economists are forecasting the Bank of Canada will reduce the Bank of Canada rate by 25 basis points at its next meeting on March 12th, and most still expect the Bank of Canada rate to be between 2-2.5% by the end of 2025. Unfortunately, all this economic news is now ancient history, and we are forced to wait for further details about the United States' tariff implementation plan and a possible early renegotiation of the free trade agreement. Turning to the commercial real estate markets, cap rates were relatively steady for the second straight quarter, rising only two basis points in Q4. Year over year, CBRE reports that cap rates rose only nine basis points, suggesting that cap rates for commercial real estate may have peaked.
Cap rates had average annual increases of 53 basis points in the last two years in 2022 and 2023. Most real estate sectors are performing quite well with moderate vacancy rates, including multi-residential, industrial, retail, and seniors' housing. The exception is the office sector, which continues to be very weak across most of Canada. Looking at the residential and multi-residential real estate markets and resales in particular, after showing approximately 40% growth in resales in October and November, the GTA market paused in December. In 2025, GTA sales were up marginally in January but down 27% in February on a year-over-year basis as a result of buyer concern about a trade war. The average selling price in February was down 1.8% on a year-over-year basis, but listings did moderate in February and are now up only 5.4% on a year-over-year basis.
TRREB is forecasting a 12.4% increase in sales and a 2.6% increase in the average price in calendar 2025. Metro Vancouver resales rose 8.8% over the last 12 months. However, resales dropped 11.7% in February. Listed properties rose 11% year-over-year, and the home price index in Metro Vancouver was down 1.1% from a year earlier and 0.3% from last month. Turning to new home sales, that market remains very slow. In the Greater Toronto Area, there were less than 10,000 new home sales in calendar 2024, which represented a decrease of 47% compared to the same period in 2023. The number of high-rise and low-rise sales both declined year-over-year, with high-rise sales falling more significantly. The inventory on the market increased by 1.6% year-over-year for high-rise and 52% for low-rise, albeit from a very low base, resulting in an overall inventory increase of 9.7%.
The benchmark price dropped by 3.4% for low-rise and 2.8% for high-rise on a year-over-year basis. The combination of lower prices and higher construction costs has significantly impacted the profitability of new home sales. In Metro Vancouver, new home sales were marginally better. New sales totaled 2,000 units in Q4, which was up 2% from the previous quarter but down 39% compared to the same quarter last year. Twenty-one projects representing 2,300 units were launched in Q4 and were 27% presold by the end of the quarter. To summarize, resales gradually improved in 2024 and are forecasted to increase more strongly in 2025. However, the new home market remains very weak, particularly the high-rise condominium market. The low-rise market has a lower level of unsold inventory, so most experts see that market recovering more quickly than the high-rise market.
We need a continued drop in interest rates, declining construction costs, and sustained price appreciation in the resale market before we see a recovery in the new home market. To conclude, Atrium's results for calendar 2024 were very strong and well ahead of our peers. The last three years have been the best three years since Atrium went public in 2012. Some of the credit, of course, for our 2024 results is due to higher interest rates. In the Ontario market, which now represents more than 90% of the total portfolio, we underwrote much more conservatively than most other non-bank lenders. If you look at Atrium's results during the financial crisis in 2008 and 2009, we also outperformed our peers from an earnings-per-share perspective. We have proven that we know how to build a strong portfolio of loans that is resilient to market downturns.
Our portfolio quality has improved materially since the beginning of the year, which is remarkable in this depressed market. We have only two commercial and multi-residential stage three loans in the entire portfolio. We have been successfully shifting the portfolio to have a greater amount of commercial and single-family residential mortgages, which we view as the two lowest-risk sectors. We expect that both sectors will continue to increase in calendar 2025. Meanwhile, we see some of our competitors experiencing serious loan quality issues and believe that there may be less competition in 2025. While it is very difficult to make any accurate forecast in today's volatile economic and political environment, one thing is clear: our earnings are very strong, our portfolio is in great shape, and we are well positioned to take advantage of opportunities in the market. Thank you.
That's all for the presentation, but we'd be pleased to take any questions from the listeners.
Q&A session will now begin. Please enter Star two on your keypad to let the operator know you have a question. It appears that there are no other questions at this time. Oh, sorry. First question is from Mr. Graham Ryding from TD Securities. Graham, please go ahead.
Hi. Good morning. Sorry, I was pressing Star one, not Star two. That threw me off. The condo market in the GTA, it's clearly quite soft, as you flagged in your comments. Just looking at your portfolio, it looks like roughly around 40% of your portfolio might be exposed to sort of mid-rise and high-rise in the GTA. Is that number accurate? And then how much of that would be condo-related versus purpose-built rental?
Yeah. It is a combination of purpose-built rental and condo. I don't have that number off the top of my head. Much of the loans that we have, particularly in high-rise, do have existing improvements on the properties that generate income, but those projects are stalled until the condo market recovers, which we think will be probably in 2026 or 2027. We think 2025 will be another difficult year for the condo market. Some of the borrowers are looking into converting from condominium to rental, so it'll be interesting to see how many of them pivot and actually do that.
What does that mean for those borrowers? Do those loans stay on your books for a couple of years, or do they just keep servicing them, or what's the exit strategy there if they're not going to be moving on their projects?
Yeah. Believe it or not, a lot of these loans were repaid in 2024 by institutional lenders. These are good borrowers. These are not troubled borrowers that can't make it through the next year and a half or two years. As you saw in 2024, we literally had no condominium projects that caused us difficulties in the Ontario office. Literally nothing. We were surprised at the number of condominium loans which were repaid, as I say, by institutional lenders, not by other non-bank lenders, because the borrowers are high-quality lenders. If you look at Urbanation reports, there's going to be a real shortage in about 18-24 months, and it's going to be severe. Any developer that can manage through the next 18-24 months will see a much, much stronger market. It'll probably be V-shaped at that point.
I mean, I think the recovery is clearly U-shaped right now, but at that point, it'll become V-shaped.
Developers are sort of sitting on permits and sitting on land right now and just sort of waiting before moving projects further. Is that?
Yeah. I mean, I think the wealthier they are, the more they're just waiting for the condo market to return because they know it'll return. If they have the liquidity and the moderate leverage, then they can wait for a year and a half. If they can't, then they're looking at purpose-built rental, which, in my opinion, never really makes much money, but it's a way of dealing with your land.
Okay. Okay. That's helpful. Just looking at the equity that you raised in late 2024, was that in part due to the pending convertible debenture maturities that you saw coming through, or were you also sort of thinking this is the right time to improve the balance sheet and raise some equity just given the softness in the macro conditions?
It was actually a combination of both those things. We knew the convertible debenture market was just too expensive. We still think it is too expensive. It is coming down, but more slowly than we hoped. I think as GIC rates come down, converts will become—and they have come down a lot already—converts will become more popular, and yields will come down. At some point, we will access that market, but we are not going to access the market at today's rates. It is just too expensive. Yes, we saw the stock price had risen, so it was a good time to raise equity. Yes, we looked at that and said, "Okay, this can replace the convertible debenture that's coming up."
Okay. Understood. My last question, just with the tariff overhang, are you seeing or are you expecting activity to slow broadly in the commercial lending space? Any evidence of that yet?
Yeah. We've grown our team. As I said in my notes, the Toronto market increased originations by 25% last year, which is absolutely remarkable. In BC, we had a changed management team, so we expect the BC market—our penetration in the BC market—to increase fairly significantly in 2025. That market is a little bit stronger than the GTA, I would say. We have, and we've ramped up on single-family mortgage staffing. I think we'll be able to offset the softness of the market. Right now, I think it's really hard to know how soft the market will be because every day the tariff situation changes.
As long as this—in my opinion, as long as these tariff uncertainties continue on, you're not going to see a ton of market activity. We also believe that, as I mentioned toward the end of my speech, we also believe that the competition will lessen in 2025. It's pretty clear there's some non-bank lenders with some pretty serious arrears. We've done exactly the opposite. Our arrears haven't been this low in a long time, and so our portfolio is in great shape. We don't have to spend much time worrying about them because we literally only have two phase II commercial loans.
We should have more of our effort, more of our attention devoted to origination of new loans. We have also staffed up. I am hopeful we can—regardless of what the market is, I am hopeful we can have a really good year for origination in 2025. What we found in 2008 and 2009 is we could move up on quality because the market was less liquid. That is what we are hoping we can do in 2025 as well. Okay. Great. How broad—when you say you are seeing some competition, have some arrears issues—is that two or three lenders you are seeing that, or is it half a dozen? How broad is the pressure that you are seeing from an arrears perspective? I think a lot of it—it is from only a few lenders because the vast majority of MICs, you know, and non-bank lenders are private.
But I do hear things about some private lenders which suggest they have issues as well. At some point, you would think it is going to come to a head because we are not heading into a V-shaped recovery in 2025, that is for sure.
Yep. That sounds reasonable. That is it for me, Rob. Thank you.
Okay. Thanks, Graham.
Next question is from shareholder Ben Ciallella. Ben, please go ahead.
Thank you, Rob. Congratulations to you and your team for the performance today. This is fantastic. Rob, can you perhaps comment on what you see in the residential rental market, that is, the rent prices, which seem to either—they are either flat or coming down? What trends you are seeing and whether that would affect the refinancing market, your portfolio, your portfolio is getting refinanced elsewhere, and so on and so forth? Thanks, Rob.
Thanks. Nice to hear from you, Ben. No question—I presume you're talking about residential rents—no question condominium and purpose-built rental rents have come down from a peak. They did have a pretty good run, so it's not surprising that they've taken a pause and actually retracted a bit. I can tell you a lot of purpose-built rental developers are counting on the shortage of housing being much more severe by the time they finish construction in two or three years. So they're performing rents that are not there today, but they believe will be there at the time of completion. Right now, on the purpose-built rental projects that we see, if you want to lease quickly, it's a very competitive market, and it's very sensitive. If you're 25 or 50 cents per sq ft per month too high on your requested rental rates, you'll probably stall out.
If you're competitive with where the market is, then the absorption isn't bad, and the lease-up isn't bad. No question it's weaker than it was at the peak. I just think it sort of got ahead of itself. In retrospect, not that surprising that the lease rates came back. I mean, it's the same situation in industrial. Industrial rents, when I was on the board of one of the office REITs, I used to ask questions as to why rents weren't higher than $5 a sq ft. Today, they're 17. Last year, they were 18. It's not surprising that both residential and industrial rents have come down a bit because they moved so quickly.
Thanks, Rob. That's it for me. Okay.
Thank you.
It appears that there are no other questions at this time. I'll now give the call back to Mr. Goodall. Thank you very much.
Thank you very much for attending our conference call. We're thrilled with our results in 2025. I hope our stock price reflects it going forward because we are disappointed with the way our stock has traded. I hope you're all very pleased as well. For our existing shareholders, I want to thank you for your continued support. Have a great day. Thank you all for participating. The conference call is now concluded. Please hang up.