Timbercreek Financial Corp.

Good afternoon, everyone. Thanks for joining us to discuss the fourth quarter and full year 2025 results.

Unfortunately, Blair Tamblyn is delayed on a plane and is not currently available for the call. So joining me today is Tracy Johnston, CFO; and Geoff McTait, Head of Canadian Originations and Global Syndications.

I will begin today's call by reading Blair's prepared remarks. Q4 marked a strong finish to the year from an investment activity standpoint as we anticipated on our last earnings call.

We closed the year with strong fourth quarter originations of more than $330 million, driving portfolio growth of 18% over Q3. Net investment income was solid at $25.7 million supported by portfolio growth and offset by the lower interest rate environment.

Importantly, lower policy rates are now working in our favor, reducing funding costs and supporting net interest margins as origination activity accelerates. Distributable income was $0.18 per share in the quarter with a payout ratio of 95%.

And we continue to advance the remaining stage loans as we look to return this balance to historical levels in the near term. As we move toward resolution on these stage loans, we have seen valuation adjustments in several cases, leading to a reported loss and book value contraction this period.

However, importantly, our distributable income has remained healthy as the underlying portfolio continues to generate strong recurring income to support our consistent monthly dividend. Our disciplined cycle-tested approach remains firmly intact and we are well positioned to benefit from an improving market environment and the resulting uptick in transaction activity.

Moreover, as these legacy assets are positioned for sale and capital is redeployed this will further align the portfolio with our growth strategy and add to earnings. This concludes Blair's opening remarks.

At this point, 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. Looking at the portfolio of KPIs.

Most were consistent with recent periods and historical performance. At quarter end, 84% of our investments were in cash flowing properties.

Multi-residential real estate assets continue to comprise the largest portion of the portfolio of roughly 62%. First mortgages represented 95% of the portfolio.

The weighted average loan-to-value for Q4 was 67.4%, which is slightly below Q3. We continue to be very comfortable in this range in this economic environment.

The weighted average interest rate was 8.1% in Q4 versus 8.3% in Q3 and 8.9% in Q4 last year. The decrease reflects the Bank of Canada's policy rate cuts, bringing the wear closer to a long-term average of roughly 8%.

Portfolio wear is also protected by the high percentage of floating rate loans with rate floors 89% portfolio at year-end. Roughly, 97% of the loans with floors are currently at their floor rates.

I will highlight that we have begun to expand our margins as rates continue to trend downwards. In this phase of our business cycle, borrower interest rates tend to decrease with reductions in prime.

However, this is offset by opportunities to capture incremental credit spreads, a reduction in the cost of our bank financing facility and higher fees driven by increased transaction volumes. This dynamic is familiar to our team.

Over 18 years in this market, we have consistently managed through both rising and falling rate environments, to ensure that the dividend remains well supported by distributable income. In terms of the asset allocation by region, 96% of the capital is concentrated in Ontario, British Columbia, Quebec and Alberta and focused on urban markets.

We continue to be active from an asset management perspective. We resolved $6.5 million of Stage 3 loans in December 2025 and over the past year, most remaining files have made notable progress with zoning and other milestones close to completion.

These achievements will position the assets for sale and substantial progress is anticipated throughout 2026. Overall, we are focused on reducing stage loan balances to traditional levels by year-end and then redeploying the capital into new accretive loan investments.

At this point, I'll ask Geoff to comment on the transaction activity in the portfolio.

Thanks, Scott. Clear that the real estate industry has navigated another year of transition, albeit marked by several encouraging developments.

Broader environment of monetary easing supported a healthy volume of commercial real estate transactions with approximately $47 billion changing hands across Canada last year. This momentum, coupled with growing optimism for ongoing sector improvement sets the stage for a strong 2026, the transaction volume is projected to reach nearly $56 billion by year-end.

Against this backdrop, as was previously highlighted, new investments in the fourth quarter were strong. We advanced nearly $334 million in 23 new net mortgage investments and advances predominantly targeting low LTV multifamily assets.

These were offset by total mortgage portfolio repayments of $135 million, resulting in a turnover ratio of 12% and a portfolio balance of $1.24 billion, up $185 million from Q3 levels. As another measure of the level of activity, gross originations in Q4 were $425 million.

Looking ahead, the Q4 momentum has carried into 2026, resulting in a healthy new business pipeline. For Timbercreek, the current interest rate environment aligns well with our typical 2-year bridge financing offerings and is helping drive borrower demand while supporting requisite credit spreads.

In terms of asset types, we are seeing particular strength in multiresidential assets, continued improvement in retail and tightening conditions emerging in industrial markets. Although the office market still faces hurdles, return to office mandates are changing the outlook of premium well-situated properties poised to outperform their peers.

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 average portfolio size has grown year-over-year, offset by the wear returning to a more typical range following the Bank of Canada rate cuts.

Q4 net investment income on financial assets measured at amortized costs was $25.7 million, consistent with Q3 of 2025. We reported distributable income of $15 million or $0.18 per share compared with $14.1 million or $0.17 per share in Q3.

The payout ratio on DI, both for the fourth quarter and full year fell within our targeted range. And as Scott noted, distributable income continues to provide solid coverage of our monthly dividend.

We reported a net loss of $1.1 million in Q4 driven by 3 specific items, all related to the continued resolution of legacy loans and assets. We recorded ECLs of $8.3 million in the quarter driven by updated market appraisals on a small number of remaining stage loans.

As we have discussed previously, these provisions reflect valuation adjustments, and we continue to make progress on advancing these toward resolution. Second, we recorded a net fair value loss of $4.5 million on net mortgage investments measured at fair value through profit and loss.

This reflects the lower-than-anticipated sales price on underlying collateral assets. Third, we completed the disposition of a land inventory asset, which included an operating marina.

This resulted in a loss of $2.1 million relative to carrying value. Importantly, the associated operating losses incurred in this marina will not recur going forward.

Looking at quarterly EPS over the past 3 years, with and without ECLs, you'll 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 $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 under $1.24 billion at the end of the quarter, an increase of $150 million year-over-year.

We continue to have capacity to deploy capital against a strong pipeline as we move into 2026. I will now turn the call back to Scott for closing comments.

Thanks, Tracy. As we look ahead to 2026, our outlook is increasingly constructive.

The Canadian commercial real estate market has begun to regain momentum supported by monetary easing and improving transaction volumes. While 2026 is not without its macro risks, our team believes that conditions for a continued recovery in the real estate industry are deeply rooted.

We are seeing this translate directly into a stronger opportunity set for Timbercreek. Our origination volumes remain strong, and we expect this momentum to support continued portfolio growth as the year progresses.

In addition, we expect to substantially reduce the stage loan balances to traditional levels by year-end and that, in turn, creates the opportunity to redeploy the capital into new accretive loan investments to drive distributable income. Taken together, we believe the company is well positioned for the next phase of the real estate cycle while continuing to deliver stable monthly income and attractive risk-adjusted returns for shareholders.

That completes our prepared remarks. And with that, we will open the call to questions.

There is strong growth in the mortgage portfolio in Q4 and you highlighted that the momentum is continuing into 2026. When you look at funding these loans, is there a specific ceiling for leverage that you're targeting on the overall portfolio?

And when you say leverage, you mean like the loan to value of the loans, what you mean by...

In terms of debt as a percentage of the loan.

So just to make sure, hopefully, I answer your question correctly. Please feel free to ask again if I don't.

Typically, right, we are leveraged at around 50%, 45%, that's equity, right? So we're going to use sort of $0.45-ish of leverage across the book.

So that would sort of continue in that manner, Zach. So for us, right, as we look at to 2026, we basically use a combination of our debt facility, right, or repayments to generate capacity for new loans.

And then the other thing we do is, as our sort of credit line, it's near to its optimal capacity is then what we also do is we increase the level of syndications of loans. So we will go out and use more of an AB structure.

So we will lay off sort of an A note and hold the B note that tends to be accretive to the overall book. The analogy I would use is kind of like a hotel, right?

Like you want to increase the occupancy of your hotel as much as you can, and then you want to drive rates, right? So for us, it's a question of making sure we have the book nice and full, which we were able to accomplish at year-end.

Definitely seeing a lot of it, I'll let Geoff comment as well, but we're seeing a lot of transaction activity, which is great, which will help keep the book full. And then we use syndications and our leverage strategy to help increase that equity return within the book to drive our margins.

Does that answer your question, Zach? Or are you trying to get at something else?

No, that answers it appreciate that. And my last question here is regarding the impaired loans.

There are assets listed for sale or slated to be marketed in the near term. Can you comment on the bidding activity and specifically your willingness to accept the current market pricing versus potentially holding the assets for longer.

Yes. I wouldn't -- specific bidding activity is the -- there are assets that are in the market with bids to come.

So I wouldn't necessarily comment on activity yet. I think it's a little premature.

When it comes to the price, we're hopeful, obviously, that we could trade at the current price. I think it makes sense to do that.

We -- obviously, we will evaluate any bid that we get. We felt it was -- if it doesn't make sense, where we felt it was ultimately dilutive, we're not forced to make some of these decisions.

That said, we feel pretty good about where we think market pricing is going to be. And what we are really kind of attracted to is that ability to see those resolutions of these files and then redeploy that capital into a more accretive situation, right?

So basically, the stage -- one of the issues with the stage loans is that they tend to be at lower wear today. They don't churn books.

We don't get the [indiscernible] and those new loans. So we're not generating fees from those assets.

And these are the things that kind of hamper us in our distributable income model. So for us, right, when we look at an asset, although the price may not be fantastic in today's market, that ability to take that asset, take that capital and then redeploy it into a new loan at likely a higher wear, earning a new fee.

Those are the reasons why we're excited about resolving these issues and taking that transfer price while a negative potentially upfront is accretive to the portfolio down the road. And that's one of the things we're focused on and certainly a key part of that calculus that we evaluate when we're looking at bids.

Yes. I mean I think it is very much asset-specific decisioning.

And as we look at again, dependent on the specific asset. In some cases, you have a current market value and kind of whether it's perfectly optimal or not, part of the analysis we consider in the circumstances where in addition to the fact that it's not generating a yield for our investors, it may also be an asset that obligates additional capital investment beyond the existing exposure to carry further to maintain, to potentially drive incremental future value.

And it's a -- and there's no definitive confirmation that, that incremental exposure will drive a future positive or accretive outcome such that decisions got get made on that basis as well, right? It's -- again, it depends on the assets specifically how the decisioning is made, but it is -- there's a fundamental detailed analysis we consider for the specific offset in question.

First question just on loan growth, just sort of understand it was a good quarter for activity, strong loan growth. Is your messaging that, that could persist into Q1?

Should we see further loan growth or just further turnover of the portfolio.

It's a bit of both. So we are -- listen, the pipeline is strong, which we're very happy about.

We also have some decent repayment activity, which is important for us to fuel to be able to do those loans and generate those fees. We expect to be at sort of a near optimal level in Q1 and going into Q2.

Okay. Great.

I appreciate the disclosure you provided on Page 21 of the MD&A, just around the individual or the key loans within Stage 2 and Stage 3. The retail Vancouver property, it seems to be the most sizable at $158 million.

And it's been in Stage 2 for almost 2 years now. Two questions, just why would the asset not be sitting in Stage 3 because it's been in Stage 2 for so long?

And then how much of your current ACL is provisioned against that asset? Or how you're feeling about your loss exposure there?

Yes. I can jump in.

This loan is obviously on our watch list. It's not technically -- sorry, it's a parcel of a couple of loans.

But it's not technically in default. So we are monitoring it.

It is currently continuing to perform. But obviously, a significant watch list items for -- item for us.

So that's why it's not in Stage 3 versus the other stage loans -- Stage 3 loans, which are technically in default. In terms of overall provisioning on the asset, I mean, this year, we took about $5 million on that position, which is really bringing us to -- I am just adding things up here slightly.

So we're at about $6.4 million there as a provision on the overall portfolio.

And a little more color I can provide to you, Graham, is this is multiple projects actually, and they're very well located Vancouver redevelopment sites. So a major component of it -- so we've been basically -- so we started explaining the 2 years, which is obviously a long time to being staged, Part of that has been ongoing efforts by the borrower with rezoning applications.

Just to get the projects ready for sale. If I think about that $150 million, the largest component of it is a primary site downtown.

It represents about 45% of that exposure. That asset is actually going to go up for sale in Q1 this year.

So that's about half of that exposure. So we would expect and are very hopeful for resolution of that in later Q2, Q3.

There's a couple of other projects that are also working through similar time lines a little bit later -- longer than that. I'd say about 2 other projects about, call it, 15% each of that exposure.

We're ideally getting resolution at before the end of Q4 of 2026. So it's sort of going to be a multi-stage approach.

But it's been sort of the length of time has been sort of the length of steady rezoning processes, which do take a great deal of time. But it's a key component to unlocking the value and then to put it for sale in an optimal position.

So that's what we've been working through, and that's why that's in there as long as it has been. But we're feeling very optimistic that half of it is coming to market, and we're working with the borrower to get other assets ready for sale this year as well.

Okay. Great.

Appreciate the thorough response to that. My last one, if I could, just the weighted average interest rate.

Looking at 2025, overall, it's down 100 basis points year-over-year. I guess, given the spreads that you're sort of seeing with your recent activity and either your outlook or the consensus outlook for rates in 2026, what would you expect for further weighted average interest rate compression?

Yes. Good question.

I'll answer it a couple of different ways. So the wear rate as it is right now, let's just assume a stable rate environment for a moment.

Just obviously part of that math is a floating rate portfolio, right? So there was future rate cuts, you would expect to see that wear start to fall a bit?

That said, the other component for us is we have current floating rate loans that are on floors. So as those roll over and they get replaced with new loans you start to see a little pressure on wear as well.

So you might see a 10, 20, 30 basis point compression in wear. One of the big things that happens though, and this is a key component of this is in our business, in the bridge business, there's a certain coupon, right, that the borrower pays that the borrower can afford.

And the coupon is that combination of the prime interest rate and then the credit spread that we put on the loan, right, which is ultimately actually what drives our distributable income. So one of the things that we see as interest rates have been coming down, we're starting to expand our margin on our credit spend of those loans.

So as prime comes down 25, 50 basis points, we're able to recapture 25 basis points plus in incremental margin. When interest rates are really high, it's hard to do that.

And actually, credit spreads get tighter because the assets can only support so much of a coupon. But as interest rates have fallen, we're sort of in that I won't call it Goldilocks, but is a nice rate of interest where borrowers are happy to pay the coupon.

It makes sense for their business models when we're more in that 7% to 8% -- 9% range. And as interest rates if they were to continue to fall, we're able to capture expanding margins.

And I can tell you sort of over the last 6 months over those last couple of rate cuts, we have been expanding our margin across all of our property and asset classes. Geoff, if you want to add anything to add?

Yes. Look, yes, for sure.

I think over the last year, we've definitely seen in the 50 to 75 range of credit spread expansion which is, again, to Scott's point, I mean our leverage underlying is also coming down in cost as Prime has fallen, but we are able to capture incremental margin through this period of time while still maintaining sort of that the coupon is a little sticky. And it still allows us to compete very favorably in the market and win transactions.

And again, we'll see where interest rates go through the balance of this year. But certainly, there is an ability to recapture at least a portion of any future cuts through credit spread expansion.

And you would have seen that in that sort of COVID period when just rates were so low, our wear, obviously, went down quite a bit, but we were still able to hit that sort of mid-90s payout target ratio. And that's a combination, as Geoff mentioned, the lower credit line cost for us, but also an expanded margin so that we are able to maintain that equity yield as necessary to protect the dividend.

So it's a big part of the calculus and the model that we run as we look forward and look at the rates -- the rate environment that we're in.

So just on the unimproved land and the improved land, we're hearing through the banks and things about projects being delayed. So I can imagine that these are not income-generating properties.

So you're relying on the developer to continue to pay the mortgage. So I'm just wondering, has there been more like what -- I guess the easy question what's the protection that you get comfort that the developer has the cash to keep paying the mortgage if there is delays in the projects and that's assuming there is delayed.

I mean in general, where and when we contemplate land loans, which is -- again, it's a very small component of our overall portfolio. I mean they are fundamentally much lower leverage positions to start, right?

So you're -- given the non-income producing reality of those assets, you're prepared to advance less dollars relative to the value of the collateral security facilities and again, in general, a typical analysis for us and any loan we're looking at and certainly, with increased focus over the last few years relative to underlying sponsor strength, access to liquidity and cash flow, et cetera, from other assets they own towards ensuring that they can support the interest positions on our loan. We also include structures, interest reserves, set capital aside and you identify an exposure amount you're comfortable with and then you reduce that amount by whatever you set aside for specific interest obligations.

So those are general structural elements that we would look to look at and consider when it comes to land positions, right. Not sure if that answers your question.

Yes, I think so. I just -- I mean, obviously, when you're not income generating I mean, is it -- has there been -- obviously, you're doing your diligence all the time, but is that portfolio getting extra diligence that these developers are solvent or continue to be solvent.

Well, I think, listen, and again, I mean, to Geoff's point, is a smaller component of our portfolio. But 100%, it's -- I think when we have land projects, you're looking at what is the strategy?

Are they being delayed? Is there -- or take that construction takeout?

Is that happening or not? So in our business, in the bridge business, right, we have sort of a constant relationship with our borrowers, what I mean, like a sort of ongoing communication.

And to Geoff's point, we typically structure a land loan with interest reserves. So as you get towards what would be the normal maturity event -- and let's say, the borrower needs a renewal, you've got an extension.

You're negotiating like a replenishment of that interest reserve, right, to take that period going forward. And to your point though, like, listen, this is happening in land projects.

If a borrower doesn't have that liquidity, right, because they don't have the income. They didn't have the balance sheet to support it.

I mean that's when you -- that's when you unfortunately, that's where you can get yourself into a workout loan and you have to enforce or come up with a plan with that borrower. Fortunately, for us, again, it's not a huge part of our realty.

And we've been dealing with -- as everyone knows, we have a fair amount of stage loans in our portfolio, but it hasn't really been growing, right? For us, most of it has been -- we've been focused on resolutions.

I think that just speaks to the quality of things but we -- before that interest rate environment went up in 2023, when these loans, these stage loans are from that period before that, right? When interest rates -- when everyone is -- when the borrowers' balance sheets were super strong, interest rates were very low.

Those are some of the borrowers that got caught in the shock of the higher interest rate environment. Those are unfortunately for us are the stage loans we have.

Now we're working through diligently with our borrowers or through enforcement to get rid of those positions. We've made a lot of progress on that, and that's what we're focused on.

We feel good about our ability to resolve those in '26. But I do think -- I think about land, right?

I mean some -- there's no question there's land loans out there today, especially in the trial in the Vancouver market that I think are under pressure for sure. And those headlines you've seen in other firms and just in the real estate in use, which is very factual and that's a challenge in those markets.

But for us, we haven't done a lot historically. If you're doing land today, it's not bad because it's at a reset valuation.

And you can evaluate -- again, you can ongoing evaluate those borrowers' balance sheets.

Yes. I mean, it's a great -- it really is a good question.

It does sort of get to the fundamental tenet of Timbercreek Financial and the largely income-producing oriented focus of our platform, right? I mean certainly, as I think of it relative to some of our peers in the market would be less income producing and much more land and construction focused.

I think for all the very questions you've raised, I mean I think it's why we've always historically been opportunistic and limited in scope in terms of where we step into that part of the market and it can provide good augmentation and enhancement of the portfolio and diversity, et cetera. And to Scott's point, at this point, in the current land reality, it's not about a point in time to be looking at and seeing good opportunities with strong sponsors on a very attractive risk-adjusted return basis.

But for us, we're very happy that we aren't largely exposed to this on a legacy historical basis, and it remains -- we've got a smaller part of the overall strategy in general.

Okay. Sorry to beat that to death.

Maybe I want to follow on Graham's question in terms of growth, but not from a loan perspective but an income perspective. So you've got $600 million of loans maturing this year.

And you've got these properties that are nonincome generating right now that are for sale and hopefully, you come out with the cash and you can turn those into loans that are income generating. But that's one portion of the growth.

But I guess with the loans rolling off, is the goal to -- if a $10 million loan gets paid off, now you redeploy it maybe into a bigger loan using the credit line? Like is that how we should think about you generating income growth and not just loan growth, I guess.

But there is a portion of -- to maintain that growth right now you're going to have to continue to use the credit line and bring that number up, I guess?

Yes. Look, our use of the credit line and I'd say it's consistent.

And repayments create capacity, okay? So it is kind of a closed loop system that we want repayments, right?

Repayments for us generates an ability to go out and do a new loan. And one of the -- the key component of that is a new fee for us as well, right?

So you want -- for us, historically, I'm going to say the easy number for us is about 50% of our loan book should churn every year. We used the word churn to sort of describe that repayment and then redeployment.

Churn is a key part of our business. It allows that redeployment at a current risk level, at a current market rate and we earn a new fee.

So it's an attractive thing to do. How we structurally leverage that like using our bank line or using a syndication.

Those are both tools and they're both effective tools. We're very focused on what is our equity returning, right?

Because that is ultimately what pays the dividend. So I think sort of getting to your question, I think, so if I get $10 million back I am looking at my margin on that loan.

So if I had a margin that was a little less. Absolutely, Geoff McTait and his team and myself, we evaluate what's out there in the market and where do we think we can get our best risk-adjusted returns.

We might sit there and say, something that I got a 250 credit spread, I see an opportunistic part of the market in today's market, where I could capture 300 over, that's the way I can have an accretion, right, to the -- what you're talking about to the DI. The other thing for us is the stage loans, which are absolutely sort of in a sort of a substandard current income position as that money comes back, we can absolutely deploy that at a higher yield than we're making today, right?

So it is a big part of -- it's opportunistic for us to get repayments. It allows us to redeploy what we typically think is the best risk return at the time and try to drive incremental margin with those decisions.

It is key part of what we do. And that's why we really want to get these stage loans back because they don't -- those don't churn, right?

It's sort of like managing the portfolio with an arm tied behind your back. So for us, we are excited to turn the page on the stage loans and then be able to pivot these discussions towards growth.

And calls like today, when we have to take impairments to sort of write off positions which hurts the book value. These aren't fun calls for us, and we know it's not fun for our investors either.

And unfortunately, it was a part of that environment, that COVID environment and the rapid rate increase, but we very much look forward to -- we've been working very hard to resolve these issues and then move to more of a growth narrative.

Okay. Well, thank you, everyone, for joining us today.

We look forward to speaking again when we release our Q1 2026 results. And as always, please reach out to the team with any questions.