Financial Highlights & Business Update
On June 16, 2016 the shareholders of the Company approved the orderly wind-up of the Company (“Orderly Wind-Up”). As such, the financial results reflect the ongoing reduction in the size of the portfolio as capital is returned to shareholders.
In Q1, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and our business are not known at this time. These impacts could include further decreases in the fair value of our mortgage investments or potential future decreases in revenue or the profitability of our ongoing operations. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company as it relates to its ability to complete the Orderly Wind-Up Plan.
For the three months ended March 31, 2020, income from operations increased by $240 thousand compared to the same period in 2019. The increase in income was a result of a $260 thousand decrease in the incentive fee expense due to a $1.3 million dollar fair value provision on one of the existing mortgages in the portfolio. Net Income was lower by $1.1 million dollars compared to the same period in 2019. The lower net income was a result of a $1.3 million decrease to the fair value of one mortgage. This decrease in net income was offset by the previously discussed higher income from operations. Basic and diluted income per share was $(0.11) compared to $0.04 in the same period in 2019.
At March 31, 2020, the Company had two mortgages remaining to be liquidated. Of the mortgages that are remaining, the more significant one is set to mature in December 2020. The Manager considers this loan to be performing however, subsequent to the quarter end the borrower requested a three month deferral of mortgage payments, due to the inability of tenants to pay rent as a result of the Covid-19 economic and health crisis. The Manager is assessing the situation and considering granting the deferral. Due to continued risk and the challenged nature of the loan, the Manager has reassessed the fair value of the property, the obligations to the loan-sharing partner and reasonability of being repaid on maturity. This analysis of the fair value of the mortgage resulted in an additional fair value decrease of $1.3 million during the quarter, bringing the total fair value adjustments against the mortgage to $4.75 million.
Regular Monthly & Special Distributions
In Quarter 3 of 2017, the Board made a decision to suspend regular monthly distributions until further notice. This decision was premised on a review of the last remaining mortgages and cash requirements. One of the two remaining mortgages is shared with an external senior loan-sharing partner. Given the limited amount of principal and interest payments expected in the future, the company intends to maintain its current cash levels until the senior position is fully repaid by the borrower. The Board anticipates making further special distributions as the two remaining mortgages in the portfolio mature or are sold, subject to reasonable expected operating expenditures and repayment of the senior loan participant.
Forward Looking Statements
Certain statements in this news release about the Company and its business, operations, investments and strategies, and financial performance and condition may constitute forward-looking information, future oriented financial information, or financial outlooks (collectively, “forward looking statements”). The forward-looking statements are stated as of the date of this news release and are based on estimates and assumptions made by Trez Capital Fund Management Limited Partnership (“Trez”) in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that Trez believes are appropriate and reasonable in the circumstances. There can be no assurance that such forward-looking statements will prove to be accurate, as actual results, performance and future events could differ materially from those anticipated in such statements. Past performance is not an indication of future returns, and there can be no guarantee that targeted returns or yields can be achieved. Trez refers you to the Company’s public disclosure for information regarding these forward-looking statements, including the assumptions made in preparing forward-looking statements and management’s expectations, and the risk factors that could cause the Company’s actual results, yield, levels of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements. Such public disclosure is available on SEDAR and at the request of Trez. This news release does not represent an offer or solicitation to sell securities of the Company.
About the Company
The Company holds a portfolio of mortgages in Canada. Trez is the manager of and portfolio advisor to the Company. On June 16, 2016 the Shareholders of the Company approved the orderly wind-up of the Company. Under the orderly wind-up plan the Company will distribute the net proceeds through special distributions, the repurchase of shares pursuant to the normal course issuer bid, or otherwise.
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