Thank you, operator. Good afternoon, everyone. Thanks for joining us to discuss the first quarter's financial results. I'm joined, as usual, by Scott Rowland, CIO, Tracy Johnston, CFO, and Geoff McTait, Head of Canadian Originations and Global Syndications. The second quarter delivered solid performance across key metrics. We expanded the portfolio from Q1 levels with significant year-over-year growth. This supported net investment income of $25.2 million. Distributable income was $0.18 per share, consistent with our historical quarterly range. As we signaled on our last earnings call, we resolved a material portion of Stage 2 and Stage 3 loans, close to $83 million since that time. We're pleased to report that the renewal of our credit facility is nearly complete, featuring a substantial upsize and improved margin terms to support our plans for growth.
Transaction activity was healthy in the second quarter, and the pipeline is building, despite some lingering effects from the broader macro environment. While the tariff-related uncertainty poses challenges for certain sectors, our focus on multifamily residential real estate, an essential and resilient asset class, positions us to deliver stable income and protect investor capital. As rates have stabilized in a more typical range, we've seen an overall improvement in market conditions for commercial real estate this year, creating a positive backdrop as we look to further growth in the portfolio. With improving fundamentals, we've increased our proactive engagement with the investment community, highlighting our cycle-tested track record, strengthening our look, and the attractive yield. Our dividend is currently yielding roughly 9%, or more than 6% premium over short-term Canadian bond yields. At $8.26 per share, our current book value is roughly 18% above the weighted average trading price in Q2.
I'll now ask Scott to cover the portfolio review. Scott?
Thanks, Blair, and good afternoon. I'll quickly cover the portfolio metrics and provide a brief update on key developments with the stage loans, and Geoff will comment on the originations activity and lending environment. The portfolio KPIs were stable relative to recent periods and consistent with historical averages. At quarter end, 76.3% of our investments were in cash-flowing properties. Multi-residential real estate assets continue to comprise the largest portion of the portfolio at roughly 55%. As Blair highlighted, this core asset class has shown to be durable in periods of economic uncertainty. First mortgages represented 92% of the portfolio. The weighted average LTV for Q2 was 66%, similar to Q1. The portfolio's weighted average interest rate was 8.6% in Q2 versus 8.7% in Q1 and 9.8% in Q2 last year.
The decrease reflects the Bank of Canada's policy rate cuts, bringing the WAIR closer to a long-term average of roughly 8%. With rates coming down, we've seen a corresponding decrease in interest expense on the credit facility, supporting a healthy net interest margin. The portfolio WAIR is also protected by the high percentage of floating-rate loans with rate floors, above 87% of the portfolio at quarter end. Roughly 90% of the loans with floors are currently at their floor rates. In terms of asset allocation by region, there were no major shifts to highlight, with approximately 93% of the capital invested in Ontario, B.C., Quebec, and Alberta, and focused on urban markets. From an asset management perspective, it was a productive quarter as we resolved close to $83 million in Stage 2 and Stage 3 loans since our last earnings call.
Thanks to the team for their great work on these files. We are actively working towards the resolution and monetization of the outstanding stage loans and continue to advance the remaining files. While challenges remain, we expect to see further progress over the coming quarters, with the goal of ultimately returning this portion of the portfolio to historical norms. On that note, I'll ask Geoff to comment on the transaction activity within the portfolio.
Thanks, Scott. It was a solid quarter for new investments as we built back the portfolio to historical levels. The portfolio is 11%, or $111 million higher than Q2 of last year. During the quarter, we advanced over $168 million in new mortgage investments, all targeting multifamily and industrial assets. Continued uncertainty from tariff issues caused some transaction delays, pushing more of our origination volume to the end of the quarter, while other deals have moved into the back half of 2025. Total mortgage portfolio repayments in the quarter were $132 million, resulting in a turnover ratio of 12.9%. We ended the period with the portfolio balance a bit over $1.1 billion, which was a $35 million increase from Q1.
Looking at these trends over the past several years, you see a recovery in volume in 2024 as activity began its return to more normalized levels, along with the WAIR also returning to historical levels. While CRE transaction activity has improved, uncertainty tied to the Trump administration's tariff policies has continued to moderate the recovery somewhat, resulting in lengthier transaction timelines or deferred decisioning altogether. That said, the multifamily asset class most specifically remains the least impacted by this broader economic uncertainty, with the resiliency of the fundamentals supporting continued trades, which in conjunction with recent risk-off messaging from CMHC generating continued opportunity in the conventional multifamily bridge and construction lending space.
The market also continues to respond well to Timbercreek Capital's status as a CMHC-approved lender, with the prospect of an eventual term takeout option driving more bridge opportunities with existing clients and interest for both products from new prospects. In summary, despite delays to a more fulsome market recovery, our positioning in the market and strong client relationships continue to support our ability to deploy capital into high-quality loans in the second half of this fiscal year and shift to growth mode as transaction activity normalizes thereafter. I will now pass the call over to Tracy to review the financial highlights. Tracy.
Thanks, Geoff, and good afternoon, everyone. As we look at the main drivers of income, the portfolio has grown year over year, offset by the WAIR returning to a more typical range following the Bank of Canada rate cuts. Q2 net investment income on financial assets measured at amortized cost was $25.2 million, down from $28.6 million in Q1 and $26.4 million in Q2 last year. We reported distributable income of $14.6 million, or $0.18 on a per-share basis versus $16.3 million and $0.20 per share in Q2 last year. The payout ratio on DI was 97.8% this quarter. The payout ratio will bump around a bit quarter to quarter, however, we expect it to land in the 95% range over the full year, consistent with our past performance.
In addition to the deployment leg that Geoff mentioned, the DI this quarter reflects a modest decrease in the weighted average lender fee this quarter as one sizable transaction was structured with a backend fee instead. We recorded a reserve of $2.1 million this quarter, driven by the extended holding period associated with the remaining Stage 2 and Stage 3 loans. Net income was $12.4 million this quarter, and net income before ACL was $14.5 million versus $15.3 million in Q2 2024. Looking at quarterly EPS over the past three years, with and without ECLs, you will see it's been quite stable, as has DI per share. Over the medium term, quarterly DI per share has been between $0.17 and $0.21, averaging just over $0.19 per share over this time period.
Looking quickly at the balance sheet, the value of the net mortgage portfolio, excluding syndications, was just over $1.1 billion at the end of the quarter, an increase of about $111 million year over year. The balance on the credit facility was $345 million at the end of Q2, up modestly from $331 million at the end of Q1. The credit utilization rate at the end of the quarter was 87%. We have ample capacity to deploy new capital against the pipeline Geoff and team are building. I will now turn the call back to Scott for closing comments.
Thanks, Tracy. We're encouraged by the results for the year to date and our outlook. The portfolio is growing, and we anticipate this continuing. Despite ongoing tariff-related macro volatility, commercial real estate conditions remain generally positive, and this is reflected in our growing pipeline. We are delivering a stable monthly dividend, currently yielding close to 9%, and we continue to resolve Stage 2 and Stage 3 loans, freeing up this capital for new investments. That completes our prepared remarks. With that, we will open the call to questions.
I'll now take any analyst questions. If you have a question, please click the raise hand button on the bottom right-hand side of the screen. Our first question comes from Zach. Zach, your line is now open. Please go ahead. Zach, you'll just need to unmute yourself. I'll turn it to our next question, which is from Stephen. Stephen, your line is open. Please go ahead.
Can you hear me okay?
Yes. Afternoon, Stephen. Yeah.
Great. Just remind me again, like, with the payout ratio, you know, 98%, if you can remind me how close do you get to that 100% over time? Has it been up this high? Forgive me for not looking this up before, but I'm just curious about distributable income versus the payout ratio.
Versus the payout or as part of the payout ratio. If you're talking distributable income ratio just for a second, right?
Yeah, yeah.
As a MIC, right, we have to, for compliance reasons, we have to distribute 100% of our income every year, right? 100% is sort of that theoretical target, but of course, that's too high. As a management team, we're typically targeting in the mid-90s for a payout ratio.
That said, for sure, quarter to quarter, there's variance, and that can be driven by, you know, the book was a slightly smaller one quarter, larger, maybe we received some more fees in a given quarter, so you're going to have that variance. I can think of some quarters even where we were over 100%, and certainly there were some quarters where we're in the mid-80s. I think it bounces around a bit. I think one of Tracy's remarks was, you know, this year we're sort of, we think we're going to average 95%.
This quarter is a little higher, it was a little elevated. Going back to some of Geoff's comments, if I looked at this past quarter, what sort of practically happened was we had some early repayments in the quarter, and then we had some, and normally those are replaced very quickly with new deals.
Because of some of the Trump implications from Q1, we had some deals that flipped. We did get those deals. We did close the deals. We had a successful end of the quarter. We actually ended the end of the quarter up another $30 million. Net net through the quarter, if you look at our average AUM, it was a little lower than we would have liked. That sort of drives up that payout ratio to that higher 90s, which I would expect to reverse itself in Q3 based on the higher balance that we're starting Q3 with, if that makes sense.
Yeah, it does. Apologize if that was a confusing way to ask that question, but you should repeat. I think the goal is $1.3 billion to the end of 2025. Is that the public goal? I think you've said that before, right? Or maybe it's in the disclosure. Apologize again.
Yes, that is where we think we'll be able to grow the book to by the end of the year.
Between $100, $150 in Q3, Q4, I presume the winter, the seasonality does impact how much business you do towards the end of the year, I guess.
Yeah, and in our business too, as a private lender, we normally find for us in that first six months of the year, it's a more competitive market, right? You have more of the traditional players, some of the banks are trying, and life goes, trying to fill their books earlier in the year. Sometimes the private guys are a little more on the back foot. Some are going to be a little slower. Normally that sort of final trimester, September to December, is a very strong period for MICs like ourselves.
Sorry, I was just going to jump in there quickly. I agree with Scott, but I think just to clarify, the banks have a cheaper cost. They're lending deposits, right? We're lending equity. We just don't want to do deals earlier in the year at the pricing that the banks are going to do it rather than, you know, losing them per se.
Okay, that's all I had. Good quarter, guys.
Thanks, Stephen.
I'll try again with Zach. Zach, your line is now open. You can go ahead and unmute yourself.
Hey, Geoff, it's me.
Hey, Zach.
Slow down in multifamily construction activity expected over the next few years. Are you expecting a change in the asset mix with maybe greater weighting toward commercial assets?
Actually, we don't do a lot of construction loans out of the gate, just so you know, in the multifamily space. We typically are lending on existing product, so the existing universe of income-producing assets. Although we do some construction, not a ton, I think for us, you know, we sort of target, you know, we're going to do sort of that 50% to 70% multi. I don't think that really changes. I'm looking across at Geoff here. Maybe he'll comment as well. We're kind of a two-thirds, one-third, and that one-third will be a variety of commercial asset classes to fill the rest of the book.
Yeah, I think that's right, generally, for sure. The only other comment I would say, and certainly multifamily construction activity has declined nationally overall, but it's not an equivalent reality market to market. Certainly, Toronto, Vancouver, much, much softer in the current environment. There are other markets outside of those major geographies where the economics still can make sense. There are still opportunities to continue to build on economically viable multi-residential construction deals. Obviously, the fundamentals underlying the reality, irrespective of the softness here, is still strong demand and need for new supply. We're continuing to expect to see, and again, as Scott noted, it's a smaller allocation as it relates to our overall book, but we still do expect to see some construction activity and opportunities to lend into those opportunities. The primary focus is on the income-producing existing assets.
Okay, got it. Appreciate it.
In the quarter, there was a non-cash transfer out of other loan investments. Can you provide a little bit more detail on that?
Yeah, so that was one of the Stage 2, 3 loan resolutions. There was a $20 million or so loan, $23 million loan in other loans, which then returned to performing, so into Stage 1. As part of the restructure of that, it moved from another loan, like a mezzanine position, to an actual mortgage position. It just moved up to mortgages. You'll see it there as a transfer. Essentially, it is one of the resolutions we noted and returning to a performing loan.
Okay, got it. My last question, with the land inventory you're holding now producing any income, is there greater urgency to sell this type of asset versus a fully developed, stabilized property?
Urgency? It's a little different. We look at that particular, I look at that particular land, which is sort of single-family residential development land. For us, you know, really, you know, it's the same there as land. I can tell you there's like a farmer on it that we receive income from that covers the taxes. We kind of sit there and say, hey, what's the, it's not the, you know, it doesn't generate the same sort of active yield that we would like. Yes, I would like to move that position. I look at the current environment and the sort of the players we'd like to sell it to. This is a very challenging time in Ontario for some of these developers. For us, I'm probably looking, this probably doesn't get sold.
I would have, I know this is between us, I would sit there and say I would have liked to have sold that land in this year. It's probably going to move into next year.
Understood. Thanks, everyone, for their color. I'll turn it back.
Thanks, Zach.
Thank you. The next call will come from James. James, your line is open. Please go ahead.
Hey, James, yeah, we've got you now.
All right. Okay. I just wanted to get a little bit more color from you guys in terms of the loans that are still impaired. What gives you the confidence that you'll be able to get resolutions, not on all of them, but on some of them, through the end of the year? Is it borrowers returning to current on their payments? Is it asset sales? Where are you seeing the pockets of positivity, and how do you expect that to play out?
Yeah. I think each of the loans that are left in staging sort of have a different, they have a different story. I would sit there and say, you know, one of the larger ones is our exposure to Vancouver, the Vancouver retail assets, which is undergoing an entitlement process for, you know, to become multifamily development. That particular story is really tied to entitlement timing and approvals, which we are on track to, you know, before the end of the year to receive that final approval. It's been a process, really ongoing for a long time, but they're in those final stages. You have to get that entitlement approved before you'll look to move the assets. For us, it's sort of, I look at year-end.
Year-end is not so much what I think we'll be off that position, but year-end, I think we get to a position where then we can get that, the borrower can get those assets to market. That's probably a sort of a Q1, Q2 2026 off the books, but that is a sort of meaningful progress by year-end. I could think of two or three other ones where in the various stages where we're moving forward with our various legal remedies. A lot of the time getting ourselves into a position to get off of a file is moving it into the position that it can be sold or be cleaned up structurally. There are two or three of the other smaller files that, you know, whether we put in a receiver or we're doing an active sales process, those are ongoing in sort of September, October.
I can get us closer to resolution on some of those files by year-end.
Perfect. All right. Thanks so much.
Thanks, James.
Our next call comes from Michael McHugh. Michael, your line is now open. You can go ahead.
Hi, guys. Thanks for taking the question. You mentioned the upsize of the credit facility, and noticed that your cost of debt was down quarter on quarter. It looked like about 10 basis points. Just wondering about any new terms on the renewal or the upsize, what type of spread you might be paying, and if the upsize of this facility will allow you to reach that $1.3 billion portfolio goal on its own without any additional funding sources.
Hi, Mike. It's Blair. Yeah, your last question first, yes, it will provide sufficient capacity to get to the $1.3 billion. You'd note if you went back a couple of years and looked at our disclosures, the line was at $600 million for a period of time. You can sort of use that as guidance if you want. It's not technically closed yet. It will close next week, and we'll share the details then. You can use that kind of for now. Generally speaking, we're not putting out what the spread is, what the cost of debt is. What you saw, I'm actually not sure what you saw. Tracy might be looking right now because the reduction in, I guess, the reduction in interest expense is just because of SOFR or CORRA, sorry.
You'll see the reduction in our contractual reduction in spread starting, you won't, you'll see a reduction in interest expense because of the new facility starting next quarter. It increased modestly on the last renewal, and the banks have been very supportive on this renewal in a variety of ways, including being flexible on pricing. We're really happy with the way it worked out. It's very much part of generating more net income.
Great. Thanks for that detail. Obviously, great progress on the Stage 2 and Stage 3 resolutions in the quarter. Certainly a positive momentum there. I just noted that there was a $9 million incremental add to Stage 3 under other mortgage investments. Just wondering if you have any detail on if that was a single loan or a combination of loans or just that movement in Stage 3 other investments.
Yeah, sure. Hi, Mike. I'll take that one. That was a loan that was in Stage 2 in Q1, and just purely by the passage of time and interest arrears, it moved into Stage 3. This is one of the assets that we'll be looking at. It will be put up for sale in Q3 or Q4.
Great. Thank you. Just one more quick one, if I may, and then I'll leave the queue. I just noticed that the average rate on new loans originated in the quarter was 7.5%, and the average rate on the paid-off loans in the quarter was up in the nines, I think 9.3%. I'm just wondering what the outlook is there as some of these lower rate loans are coming on board, higher rate loans are being paid off, and we're in a sort of flat to uncertain policy rate environment if you have any outlook on the war for the next couple of quarters.
Yeah, I mean, listen, when I think of the WAIR there, I think that is a fact, right? We're going to have repayment of higher, historically higher yielding loans will start to come off. New loans will obviously just come on naturally. When we look at it, we look at it more on each loan as sort of what is the retained yield, right? When we do a new loan, whether we're using our credit facility or we're using a third-party A-notes syndication, those prices on the credit facility, the price on the third-party A-notes are also coming down, right? We maintain a margin, above obviously what we need to pay our dividend, right? That's the analysis that we do as we go. Over time, I think forward to the next few quarters, we will continue to see that WAIR compression.
We don't expect it to have a material impact on the DI ratio, if that makes sense.
Yeah, okay. Great. Thanks, Alex. Thanks. That's very helpful. That's all for me. Thanks for taking the time.
Thank you.
So, no other questions at this time. I'll turn the meeting back to Blair for closing remarks.
Great. Thanks, everyone, for joining us today. As usual, look forward to speaking again when we release Q3. Of course, if there are any questions in the interim, feel free to reach out to any of us. We'd be happy to chat. Have a good afternoon.