Earnings call transcript: Timber Creek Financial Q4 2023 shows strong growth

Timber Creek Financial, a $400 million market cap lender, reported a robust performance in its fourth-quarter earnings call, with notable increases in net investment income and distributable income. The company highlighted its strategic focus on multifamily and industrial lending, as well as its expansion as a CMHC-approved lender. According to InvestingPro data, the company maintains a healthy 7.11 current ratio and an impressive 10.18% dividend yield, positioning it well in the Canadian real estate market despite challenges from expected credit loss reserves.

Key Takeaways

• Q4 Net Investment Income increased to $27.9 million, up from $25.4 million in Q3.
• Distributable Income rose to $17.7 million or $0.21 per share.
• Portfolio value grew by $140 million, reaching just under $1.1 billion.
• The company became a CMHC-approved lender, enhancing its product offerings.
• Anticipates continued strong distributable income and portfolio growth in 2025.

Company Performance

Timber Creek Financial demonstrated strong performance in Q4 2023, with significant growth in net investment income and distributable income. The company’s strategic focus on expanding its lending capabilities and deepening borrower relationships has positioned it well in the recovering commercial real estate market. Timber Creek’s portfolio value increased by $140 million, reflecting its robust growth trajectory.

Financial Highlights

• Net Investment Income: $27.9 million, up from $25.4 million in Q3.
• Distributable Income: $17.7 million or $0.21 per share, up from $15 million and $0.18 in Q3.
• Portfolio Value: Just under $1.1 billion, an increase of $140 million from the end of 2023.
• Q4 Payout Ratio: 80.8% (Full Year: 88%).

Outlook & Guidance

Looking ahead, Timber Creek Financial expects continued strong distributable income in 2025, driven by portfolio growth and potential increases in loan margins. With revenue growth of 2.23% and a "GOOD" overall financial health score from InvestingPro, the company is actively managing its Calgary office loan exposures and is optimistic about the improving market environment, supported by anticipated rate cuts and strong net migration to regions like Alberta and Calgary. For detailed analysis and additional insights, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

Scott Rowland, CIO, noted, "We’re seeing a significant improvement in overall business fundamentals." Jeff McTate, Head of Originations, added, "We’re well positioned to deploy capital into high-quality loans this year." These statements underscore the company’s confidence in its strategic direction and market positioning.

Risks and Challenges

• Potential changes in Canada-US trade relationships could impact market dynamics.
• The company’s exposure to Calgary office loans requires careful management.
• Macroeconomic pressures, such as interest rate fluctuations, could affect loan margins.

Q&A

During the earnings call, analysts inquired about the company’s covenant compliance despite ECL reserves, and Timber Creek confirmed its adherence. Discussions also covered a potential two-year timeline for resolving Calgary office loans and strategies for new loan origination. To access more detailed financial metrics, real-time alerts, and exclusive ProTips about Timber Creek Financial, visit InvestingPro, where you’ll find comprehensive analysis tools and expert insights.

Full transcript - Thai Capital Fund Inc (TF) Q4 2024:

Operator: in a listen only mode. Following the presentation, we will conduct a question and answer session for analysts. Analysts are asked to raise their hand to register for a question. As a reminder, today’s call is being recorded. I would now like to turn the meeting over to Blair Camblin.

Please go ahead.

Blair Camblin, CEO/President, Timber Creek Financial: Thank you, operator. Good afternoon, everyone. Thanks for joining us to discuss the fourth quarter financial results. I’m joined as usual by Scott Rowland, CIO Tracy Johnson, CFO and Geoff McTate, Head of Canadian Originations and Global Syndications. During 2024, we saw most commercial real estate asset classes emerging from a challenging post pandemic environment, resulting in a significant improvement in the company’s business fundamentals.

In recent quarters, we’ve been anticipating that additional rate cuts will strengthen market conditions and drive increased financing opportunities, and we’re seeing that play out. We ended the year with strong fourth quarter originations, allowing us to grow the portfolio materially over the prior year to roughly $1,100,000,000 The increased volume represents return to normalized levels and activity is robust in the current pipeline as you will hear from Jeff shortly. This contributed to a solid quarter across most key metrics, including net investment income of $27,900,000 We generated distributable income of $0.21 per share at a healthy payout ratio of 81%, continuing our long track record of stable monthly dividends. And we grew the portfolio by $72,000,000 from Q3. In light of our continued progress, you can expect to see us taking a more proactive approach to communicating to the market that our dividend today is yielding roughly 10%, a more than 7% premium over the short term Canada bond yields currently.

And at $8.27 per share, which is net of our ECL provisions, of course, our current book value is roughly 19% above the weighted average trading price in Q4. At the same time, as the core business fundamentals are strengthening, we continue to leverage the firm’s asset management experience to advance the remaining stage loans towards resolution. We have been fully repaid on many of these files and made significant progress on others in recent quarters, with one recent transaction resulting in a meaningful $3,400,000 reversal when complete of an earlier reserve. While we are working our way through these remaining situations, we recorded a larger ECL reserve at year end, which impacted our reported EPS. This reserve is primarily tied to two Calgary office loans.

We believe that this is a cyclical low point in the Calgary office market and we expect market conditions and fundamentals to improve. Office and Calgary office in particular has been a challenge for owners and lenders. On a positive note, these two loans represent all of our Calgary office exposure. As we have demonstrated over our fifteen year history in the public markets, our team is skilled at navigating these situations to achieve the best outcomes for our shareholders. This ECL reserve does not impact our distributable income or dividend.

Our team is confident in the company’s ability to generate higher transaction volumes to support continued strong net investment income and distributable income in 2025 as noted below. As well as we resolve asset management files, this capital is redeployed into lower risk, higher yielding opportunities, which also supports the dividend. Our optimism is underpinned by an improved market environment driven by a reduction in interest rates and the beginning of a new real estate cycle. I’ll ask Scott to take over for the portfolio review. Scott?

Scott Rowland, CIO, Timber Creek Financial: Thanks, Blair, and good afternoon. I’ll comment on portfolio metrics and provide an update on stage loans. I will ask Jeff to comment on the originations activity and lending environment. Looking at the portfolio KPIs, most were stable relative to recent periods and consistent with historical averages. At quarter end, 81.9% of our investments were in cash flowing properties.

Multi residential real estate assets, apartment buildings, continue to comprise the largest portion of the portfolio at roughly 60%. First mortgages represented 89.6% of the portfolio. As expected, we have seen this percentage trend upward toward 90%. Our weighted average loan to value for Q4 was 63.3% and reflects conservative positioning over the last couple of years. On new originations, we expect LTVs to increase back to historical levels, but with the benefit of lower reset valuations as the denominator.

This will result in a gradual increase in LTV in the coming quarters closer to historical norms. Jeff will also expand on this in a moment. The portfolio’s weighted average interest rate was 8.9% in Q4 versus 9.3 in Q3 and 10% in Q4 last year. Decrease is reflective of higher interest rate loans repaying in the period as well as Bank of Canada’s policy rate cuts totaling 175 basis points in 2024. The wear is also reverting toward a longer term average.

For example, since 2016, which captures a few rate environments, the average wear for the business at an exit rate of 7.8%. While the wear is moderating towards that longer term average, so is our interest expense with respect to the credit facility. This enables us to maintain a healthy net interest margin. The portfolio where it is also protected by the high percentage of floating rate loans with rate floors. North of 80% of the portfolio at year end and more than 80% of the loans with floors are currently on their floors.

In terms of the asset allocation by region, there were no major shifts to highlight with approximately 92% of the capital invested in Ontario, BC, Quebec and Alberta and focused on urban markets. From an asset management perspective, we continue to pursue resolution and monetization of our stage loans and real estate inventory. I will comment on the main developments in the period and I would direct you to the MD and A for a further update. In the category of significant executions, we recently announced the firm sale of the Rosemont retirement asset to Chartwell REIT with closing scheduled for early March. This resulted in a recovery of $1,500,000 into Q4 net income with a further $1,900,000 expected to be recognized at close, a total reserve recovery of $3,400,000 Our team has also made meaningful progress on the second loan tied to group selection of approximately $18,000,000 The loan is performing, construction of the apartment building is now more than 90% complete, and we expect to receive repayment of all principal and interest upon the near term refinancing of the asset.

Material progress was made on several Stage two and three files. We have roughly $44,000,000 of exposure on two loans related to an industrial developer in the GTA. 1 is in Stage two and one is in Stage three. These loans are currently being consolidated into one facility that will see commencement of construction on an industrial site combined with security from a second land site. Together, exposure will be approximately 70% loan to value, we expect this loan will return to Stage one in late Q1 or early Q2 twenty twenty five.

We continue to expect full repayment upon construction completion. We have roughly $22,000,000 exposure on an Edmonton multifamily asset that is currently listed for sale, with the closing expected in Q2 twenty twenty five. Subsequent to year end, dollars 8,500,000.0 was received and applied against the whole loan. This materially deleversed the loan and we continue to expect full repayment of principal and interest in 2025. Several other large assets are being carefully managed by the team.

The previously reported Vancouver loan is stable with no material updates at this time. However, material progress is expected by the end of twenty twenty five. The other larger balance is our Calgary office portfolio. As Blair mentioned, our year end valuation update resulted in an $11,100,000 credit loss provision. This reflects valuation challenges in Calgary office as a result of vacancy at this low point in the market cycle.

I would reinforce that there has been no change to the strategy or operating performance of the assets. We continue to work with the borrower towards stabilization of the assets and eventual repayment when market conditions improve. We expect that over the remainder of 2025, this portion of the portfolio will decline toward historical averages, both through positive resolution of specific files and the growth of the portfolio. We look forward to redeploying the capital into new loans in our core asset types such as multi residential and industrial, where we see positive long term market drivers. Importantly, the majority of the current portfolio was originated or renewed after Q1 twenty twenty two, therefore taking into account the rising interest rate environment and by extension the general reset in commercial real estate valuations.

We expect these investments to perform well with a more typical level of asset management required in the range of 5% to 7% of the portfolio. On that note, I’ll ask Jeff to comment on the transaction activities in the market. Jeff? Thanks, Scott.

Jeff McTate, Head of Canadian Originations and Global Syndications, Timber Creek Financial: It was a great second half of the year for new investments. We’ve been successful in building back the portfolio towards historical levels following several quarters of high repayments. In Q4, we advanced nearly $242,000,000 in new mortgage investments and advances on existing mortgages, including 22 new loans which were largely centered around low LTV multifamily investments. Total (EPA:TTEF) mortgage portfolio repayments in the quarter were $171,300,000 resulting in a healthy turnover ratio of 16.7%. The net result is we grew the portfolio by about $72,000,000 over Q3.

Significantly, the portfolio grew by more than $140,000,000 year over year. To put a finer point on these trends over the past several years, on this slide you see the dip in originations during 2022 and 2023 as overall market activity slowed and our team was intentionally cautious. The increased volume in 2024 represents a return to normalized levels. The current pipeline activity robust and Q1 twenty twenty five looking to be another strong quarter for originations. In addition to the improved market environment, we’re poised to benefit from Timber Creek Capital’s recent status as a CMHC approved lender.

We can now work with borrowers to provide third party term takeout financing. This is a significant positive for our bridge loan business as our team can deepen borrower relationships by providing a broader range of financing solutions towards capturing a larger share of wallet. While origination volumes are reverting to historical levels, portfolio LTV ratios remain below our historical average. This provides us with the ability to generate improved loan margins as we return to a more typical higher loan to value environment with confidence of asset value growth in a strengthening market. In short, we are well positioned to deploy capital into high quality loans this year.

I will now pass the call over to Tracy to review the financial highlights. Tracy?

Tracy Johnson, CFO, Timber Creek Financial: Thanks, Jeff, and good afternoon, everyone. As the team has highlighted, the portfolio is returning to a more typical size based on strong originations, and we are seeing this translate to top line income NDI. Q4 net investment income on financial assets measured at amortized cost was $27,900,000 up from $25,400,000 in Q3. We reported strong distributable income of $17,700,000 or $0.21 per share, up from $15,000,000 and $0.18 per share in Q3. The Q4 payout ratio on DI was 80.8%.

On a full year basis, the payout ratio was 88%. As Blair mentioned, we recorded a reserve on net mortgage investments and other loans of $15,100,000 reflective of the changes in Stage two and Stage three loans predominantly in the Calgary office loans. As a result, these reserves reported as a result of these reserves reported net income decreased to $2,400,000 this quarter. Net income before ECL was $17,400,000 versus $14,100,000 in Q3 twenty twenty three. Looking at quarterly EPS over the past three years with and without ECLs, you will see it has been quite stable as has DI per share.

Going back even longer, you can see quarterly DI per share has been between $0.17 and $0.22 averaging just over $0.19 per share over this time period. In short, the monthly dividend remains well covered. Looking quickly at the balance sheet. The value of the net mortgage portfolio excluding syndications was just under $1,100,000,000 at the end of the quarter, an increase of about $140,000,000 from the end of twenty twenty three. At quarter end, we had net real estate held for sale of $65,300,000 which is the three senior living facilities acquired in August 2023.

As Scott touched on, this was sold with a March 2025 closing. In Q4, the company recorded a gain of $1,500,000 with another gain of $1,900,000 expected on closing. The balance on the credit facility was $396,000,000 at the end of Q4, up from $324,000,000 at the end of Q3 based on the increased portfolio. We continue to have capacity to deploy new capital as activity in the commercial real estate market accelerates. I will now turn the call back to Scott for closing comments.

Scott Rowland, CIO, Timber Creek Financial: Thanks, Tracy. As you hear in our tone today, we have a positive outlook for 2025. We’re seeing a significant improvement in overall business fundamentals, transaction activity is robust and the manager’s new CMHC lender status should act as a further tailwind for Timber Creek Financial’s bridge loans business. Distributable income is strong and we see this continuing. We believe these improved market conditions should accelerate the resolution of the remaining stage loans.

We look forward to recycling that capital into compelling investments that our pipeline is generating. As a final thought, I wanted to convey that we are actively monitoring developments in the Canada U. S. Trade relationship and the potential threat of tariffs. While it is too early to comment on what will happen, there are obvious risks to the Canadian economy that would affect various sectors and various markets differently.

There may also be opportunities as Canada refocuses on interprovincial trade and pursues other avenues for growth. Positively, the company is focused on multifamily lending, and we believe that this asset class will be relatively well protected from near term implications. That said, I’d like to ensure investors that we are monitoring developments closely and are prepared to modify our investment parameters to ensure optimal results for our shareholders. That completes our prepared remarks. With that, we will open the call to questions.

Operator: We will now take any analyst questions. Our first question comes from Stephen Boland. Stephen, your line is open. Feel free to go ahead.

Stephen Boland, Analyst: Hi. Can you hear me okay?

Scott Rowland, CIO, Timber Creek Financial: Hey, Stephen. How’s it going?

Stephen Boland, Analyst: Good. So I understand when you say strong distributable income dividend well covered, I get that point. But this quarter your book value did go down. You do say that your covenants are fine. Can you just break that down a little bit?

Like if you continue to have ECLs like this, like how close are you to breaching your covenants? Like I think there was twenty twenty late twenty twenty three when you had to get an extension. Maybe you can just talk about the GAAP or the buffer you have right now on some of the covenants?

Tracy Johnson, CFO, Timber Creek Financial: Hi, Steve. It’s Tracy. I mean, the covenants on the credit facility are largely cash flow covenants as well as leverage. So while we did take these ECLs, we continue to be well covered on our covenants. And these loans that were there have been staged for a while.

So the only implication where we are is on the staging covenants effectively and these have been in place since, what was it, Q3 of Q3 or Q4 of twenty twenty three. So none of that is new news. But otherwise, on any of the cash flow covenants, we remain well covered. Okay. No concerns there.

Stephen Boland, Analyst: And just the shareholders sorry, go ahead.

Scott Rowland, CIO, Timber Creek Financial: Go ahead, Steve.

Stephen Boland, Analyst: Just the shareholders equity covenant, I mean, is that is there a buffer there as well if the book value continues to go down? I mean, it shouldn’t, but I’m just saying worst case, is there a possibility of that being breached?

Tracy Johnson, CFO, Timber Creek Financial: Yes. I mean, well, sorry. No. Like we’re well covered on that. And really the shareholders equity covenant is a test where the full principal of those loans is removed.

So the ECL so it’s actually a harder test that we’ve already implemented five quarters ago where the full principal value on our book of those loans is put into that test. So the ECLs don’t really impact that. Does that make sense?

Stephen Boland, Analyst: Yes. Okay.

Scott Rowland, CIO, Timber Creek Financial: And

Blair Camblin, CEO/President, Timber Creek Financial: Steve, we can go through it with you offline if you want, but we’re really not there’s no concern.

Stephen Boland, Analyst: Okay. I just because I don’t remember actually seeing the actual covenants listed like the actual metrics that you I don’t know if you published them. So maybe you told me in the past, but maybe they’re not published. Just the second thing, in terms of the Calgary offices, you’re saying that Calgary has troughed. So when we look at some of the loans that are in Stage two, Stage three, some of them have been eighteen months working through.

I mean, is that the kind of timeline we’re looking at Calgary trying to recover? Like is it it probably seems like not twelve months, but is it twenty four months that you think these are going to be on the books?

Scott Rowland, CIO, Timber Creek Financial: No, it’s a good question. I think probably most people on the call would have want to hear an update here. So I’m happy to give a little bit more depth. When we look at Calgary, right, so we got into these loans in Calgary before COVID when we originally made these loans. And obviously, COVID comes into play and you sort of have two major things happening in Calgary.

The combination of there was a lot of new supply came into the market and then you had work from home and you sort of have and this is happening in office everywhere, the work from home issues, the demand side issues. The supply side issue was especially acute in Calgary. And so that was definitely what has been happening over the last couple of years and why these loans went into staging in the first place and our borrower was under some stress. So as we sit there and we look at the assets today, what’s basically happened is in 2023 there was really no trades. In 2024, especially towards the second half of the year, some of the major sort of institutional owners of assets have been selling assets and selling them into sort of the one or two private hands that are buying and certainly selling at an extremely low price.

So basically, if you were to take a DCS model and we can and I’ll talk about this in a minute, so some of the potential positives to come in the future, that’s not happening in the market today. Basically, if you’re prepared to sell and you’re prepared to liquidate, you’re going to get a very low valuation. So as we got into and this is happening with anyone with exposure in Calgary right now. As we had as we went through our sort of year end valuation process, we were faced with some of those realities of some of those sales and working with the valuation team, we concluded this ECL, okay. So it’s not that the occupancy went down, it’s not that our borrower has changed, it’s that the market has changed.

And if you wanted to sell into this market, you’re going to get hurt for it and our ECL reflects that. If we look at Calgary now, some of the things that are happening is there are some green shoots where vacancy has started to turn around a bit. There are initiatives to take some over 1,000,000 square feet of office out of the market. And you’re starting to see more emphasis sort of on that uptick on oil and gas sector. I think if we look forward over the next couple of years with changing governments, we have more and more sort of positive aspects to Calgary.

You have more people coming to move to live and work into the downtown, and it’s still a very affordable place to be. And net migration numbers into Calgary and Alberta are the strongest in the country. So we look at those factors together and our assets are attractive. One of the assets over 80% occupied. So it’s just a question of when do you sell and then coming to your last part of your question is what is that timeframe?

We want to be pragmatic about it, but we’re actively managing this project. We’re working with our borrower. But I could see these assets on the books for two years. I could see that for an additional two years. It’s possible.

But we will just continue to monitor the market, work with our borrower and just try to make that sort of optimal decision on when we want to exit the loans. Hopefully that’s helpful for everyone on the call.

Stephen Boland, Analyst: Yes, that’s great. I’ll sneak one more in. Let’s talk about something positive, the growth, the number of loans that are advances in the quarter, volume was pretty good. Is that across the board, across certain segments, geography, maybe you can just get a little bit more color on that?

Jeff McTate, Head of Canadian Originations and Global Syndications, Timber Creek Financial: Yes. Hi, it’s Jeff. I’ll answer that question. So, yes, so generally speaking, I’d say it’s probably from a geographic diversity perspective, I’d say it’s over weighted to Ontario a little bit with the balance split between Quebec and the West predominantly Alberta and BC. But again, pretty typical for us in terms of where we’re focused and a little stronger in Ontario, which has kind of been a focus of our originations and portfolio management strategy over the last year or so.

After classes remain again, it’s predominantly multifamily apartments with some industrial, but it’s overweight multifamily, which is obviously very good for us and what we’re focused on primarily.

Stephen Boland, Analyst: Okay. That’s all I had. Thanks very much.

Scott Rowland, CIO, Timber Creek Financial: Thanks, Ian.

Operator: Our next call will come from Graham Riving. Graham, your line is open. Please go ahead. Okay. We’ll move on to our next question for now.

Our next question comes from Jamie. Jamie, please go ahead.

Jamie, Analyst: Hello. Can you guys hear me?

Scott Rowland, CIO, Timber Creek Financial: Yep. I can hear you. Yeah. Hi. Alright.

Jamie, Analyst: So first question, just in terms of the weighted average interest rate and just trying to understand where it could go. I know you talked about it in the MD and A or the presentation about the the long run weighted interest rate around, like, 8¢ give or take, maybe a little bit lower. Where, and, like, 80% of the book today has floors. So I just wanted to get an update as to where the the average floor will be on the existing e book. And then when you’re these 22 new advances like are they all coming in with floors and where are those floors being set today?

Scott Rowland, CIO, Timber Creek Financial: That’s a good question. So let’s take that in a couple of different parts. Let’s maybe start with the new loans. So Neil, let me start with Jeff.

Jeff McTate, Head of Canadian Originations and Global Syndications, Timber Creek Financial: Yes. So it’s a I mean, it’s a great question and it’s definitely a hot topic as we’re in the market negotiating with our borrowers day in and day out. Obviously, through the prior historical low rate reality, our credit spreads grew substantially. And as rates rose, spreads did compress over that period of time. And obviously, as rates have continued to fall, our appetite all of our loans have floors maybe is the first comment to be clear.

Our willingness to contemplate any relief on the floor rate relative to the prime rate at the time we’ve originated the loan is reducing as rates continue to fall. And we’re at a point today where, again, it’s sort of at a threshold where we are starting to look at and discuss and convey to the market potential for increasing credit spreads with floors and limited floor rate relief. And so fundamentally for us, it’s a reality we’ve lived through in multiple prior cycles. And again, it is a function of our reality and understanding where the market is and obviously the dividend that we pay and the ability to change spreads. And again, we’re at that point where spreads are starting to push up and where there was any historical floor rate relief given how high rates had gotten.

We’re now at a point where again these all loans will have floors and the ability to contemplate any further relief tied to future rate cuts will be a function of what the spread underlying that loan is, right? So for the tightest spreads, the reality is it will be limited to no flow rate relief and for juicier spreads there may be an ability to contemplate. Okay.

Scott Rowland, CIO, Timber Creek Financial: And I’ll add to that. So like current loans sort of have a lot of the floors I want to say the weighted average is around 7.8%, the ones that are on their floors. One way to think of it is I actually like to try to think of it as coupons for a moment and think of it from the eyes of the borrower. So when we do these transitional bridge loans, there’s really only so much income that properties generate, right? So when interest rates got up there and I look at our normal sort of credit spread over prime, when rates were getting to sort of 9%, ten % plus, that does put that much extra strain on a property.

So if you’re a borrower, right, you’re going to look to potentially maybe instead of getting a higher leverage loan, put in equity and take a really low leverage bank loan, sort of an alternative to a bridge lender because this gets too expensive for the property to carry. So as rates start to fall, that’s a headline coupon, right, like the mortgage coupon that the borrower has got to pay. It starts to fall sort of in tandem as we sort of see our wear coming down a bit. But then when it gets to sort of I would say historically when we talk to our customers, our borrowers, that’s 7% to 8% and change window is a comfortable rate for people to pay. And we obviously have a dividend that we have to distribute.

So as we’re continuing to fall, but when it starts getting down into the 7% s, that’s where we start. Even if prime were to fall, we push back and continue to sort of be more like a fixed rate it’s not a fixed rate structure per se, but we have more floors or higher credit spread that maintains that headline coupon for us. And in the eyes of our borrowers, that’s still considered a fair rate because they know that we’re taking on that bridge loan for them, that transitional aspect for them. So it is sort of like as the interest rate goes up, our credit spreads compress, but as interest rates come down, our credit spreads expand. We do that obviously to make sure we can maintain our business and it also works it’s a mutually sort of beneficial relationship with the borrower, right?

So works for their business. Yes.

Jamie, Analyst: Yes. So if I kind of try to bring this back to the financial performance of the business, so like the new loans coming on, I think we’re 8.5% on average today. So if we say like another 75 basis points, 100 basis points cut in the Bank of Canada rate, like that’s the point where we should start to think of your net interest spread widening out and being a tailwind for the investment income that you’re generating. Is that otherwise it’s kind of like neutral until we get to that point and then it’s widening from then forward. Is that the right way

Scott Rowland, CIO, Timber Creek Financial: to think about it? That’s exactly how I would look at it. And in the meantime, while that rate is coming down, our credit facility rate, which is a big part of our driver, that we that there’s no floor on our credit facility. So every quarter point of prime decrease, our credit facility decreases. So there’s a little bit of hedging there as it comes down, but then yes, then it starts to widen out as that overall coupon comes down exactly as you described it.

Yes. Okay. Good.

Jamie, Analyst: And then just one more, just I believe there was this is a new loan in the I guess the impaired loan book, the the Vancouver multifamily loan where you’re taking a reserve on it. Can you just Yeah. Can you just talk about the story there? What, what’s driven, that valuation to decline and then for a reserve to be required?

Scott Rowland, CIO, Timber Creek Financial: Yes. So this is a smaller overall loan and it’s a mezz sort of a second position for us. This is a multifamily rental complex and nearing completion. As we got to year end, we got a sort of evaluation update. It included a couple of things.

So one is, so cap rates had moved out a little bit on it. But there was also some cost overruns in the project that were fed by the first mortgage contractually. And as that first mortgage got a little bigger than originally planned, that basically eats into the cushion of our position. And so when you put those two factors together, it resulted in the ECL impairment. I will say this is a full recourse loan and we are negotiating with the borrower, to not just we don’t put recourse into our valuations.

We don’t put recourse into our consideration of an ECL. What we can do is structure with individual borrowers to receive additional hard security. And when we receive hard security, then that does get as part of our calculation. We’re actually in negotiations with this customer now with an awareness of that we believe there was this ECL required. We’d like to see hard security added to this position so that we can not have to just rely on the recourse down the road is that we can basically rightsize the loan.

That didn’t happen before year end, and therefore, it’s reflected as the ECL in our results. But we hope to like at all of our files, right, we’re hoping to improve that situation here in the coming months.

Blair Camblin, CEO/President, Timber Creek Financial: Okay, good. Thank you.

Scott Rowland, CIO, Timber Creek Financial: Thanks very much. Maybe we could circle back to Graham and see if he’s if we can get him on the line.

Operator: Graham, I can open your line again. Graham, your line is now open.

Scott Rowland, CIO, Timber Creek Financial: Any further questions?

Operator: It doesn’t look like there are any further questions at this time. So I’ll turn the meeting back to Blair for closing remarks.

Blair Camblin, CEO/President, Timber Creek Financial: Great. Thank you very much, operator. I appreciate everyone taking the time to join us today. And we’ll look forward to connecting again next quarter. Have a good afternoon.

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