Timbercreek Financial Corp

Timbercreek Financial Corp (TSX: TF) is a Canada-based non-banking commercial real estate lender. The company provides shorter-duration, customized financing solutions to professional real estate investors. The company directly invests in a diversified portfolio of structured mortgage loans which are secured by stabilized, income-producing commercial real estates, such as multi-residential, office and retail buildings located in urban markets across Canada.

The Management has declared a monthly cash dividend of CAD 0.0575 per common share, payable on September 15, 2020.

Q2FY20 Financial Highlights: TF announced its quarterly results, wherein the company posted Net Mortgage Investments of CAD 1,210.3 million as compared to CAD 1,214.5 million in the previous corresponding period (pcp). However, on a sequential basis, mortgage portfolio recorded growth aided by lower new investment volume, partially offset by lower repayments and higher renewals. The company maintained a conservative portfolio risk position focused on income-producing commercial real estate, wherein 92.1% of the mortgage investment portfolio are first mortgages, and 85.8% of the mortgage investment portfolio is invested in cash-flowing properties. The company reported Net Investment Income at CAD 22 million as compared to CAD 25 million in the previous corresponding period (pcp). Net income and comprehensive income stood at CAD 11.7 million, lower than CAD 13.6 million in pcp. Cash-Flowing Properties were reported at 85.8%, as compared to 86.1% in Q2FY19.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: The spread of the COVID-19 pandemic might impact the financial health of the company’s borrowers, which is likely to hinder the performance of the company.

Valuation Methodology: Price to Book Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendations:  The stock of TF tumbled ~14% so far this year amid volatility in the equity market. Despite a tepid macro Scenario, the company has reported a stable quarter, aided by the company’s conservative approach of focusing on income-producing assets in urban markets. The Management has highlighted that due to the current economic cycle, the operations faced several challenges and reported lower turnover and more renewals in the portfolio during the quarter. The group mentioned that there had been no material impact on interest and principal payments to date, and the Management is monitoring the loan portfolio very closely. The company continue to meet its distributable income targets and have a strong capital position to take advantage of improved transaction volumes in the coming quarters. Despite the challenging time, the group continued to distribute dividend. At the last traded price, the stock was offering a dividend yield of ~8.1%, which is lucrative considering the current interest rate environment in the economy. We have valued the stock using Price/Book based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Atrium Mortgage Investment Corp, Equitable Group Inc etc. Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating in the stock at the closing market price of CAD 8.56 on September 16, 2020.

TF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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