Romspen Mortgage Investment Fund Annual General Meeting June 6, - - PowerPoint PPT Presentation

Romspen Mortgage Investment Fund Annual General Meeting June 6, 2014

Introductory Remarks Sheldon Esbin Formal Business Managing General Partner Mandate, Strategy & Direction Mark Hilson 2013 Review Managing General Partner Outlook & 2014 Q1 Issues/Opportunities Wesley Roitman Managing General Partner

Agenda

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This presentation contains forward-looking statements related to our future growth, and our financial and operational results and performance that are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to: variability of

• perating results among periods, which include: the pace, size and nature of

mortgage investments, repayments and other realization events, the volatility

• f interest rates; changes in the market value of commercial real estate in

Canada & the US; and other activities and events within our business. These and other risks and uncertainties and factors are discussed in the Fund’s various filings available on the Fund website, www.romspen.com.

Safe Harbour

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Sheldon Esbin Managing General Partner Formal Business

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Mark Hilson Managing General Partner Strategy, 2013 Review, Outlook & 2014 Q1

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Mandate/Strategy/Direction

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Mandate/Strategy/Direction

Mandate:  capital preservation  strong absolute returns  consistent performance Strategy:  source attractive opportunities in defined niche  underwrite mortgages conservatively  identify & reduce risk  thorough execution/”high-touch” lending

Mandate & Strategy

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Transactions

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Social Housing Project, Montreal Paper Factory Hostel, Brooklyn Jane/Bloor Retail Development, Toronto Bayer Industrial/Commercial Complex, Toronto Fortius Sport & Health Facility, Burnaby Royal Park Hotel, Michigan

Mortgage Lending Real Estate Equity Canada US

Direction

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• RMIF remains the principal focus
• Leverage experience, relationships, infrastructure
• Apply same mandate to build real estate equity platform
• Offer alternative yield driven tax-advantaged, real estate opportunities

Real Estate Segments RMIF M a r k e t s

2013 Results

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2013 Results

2013 Highlights

• Distributions $0.72/unit to yield net 7.4% compounded return
• Performance solid absolute & comparative results
• Mortgage portfolio up 16% to $1.15 billion
• Portfolio interest rate virtually unchanged from 10.6% to 10.5%
• Investor capital up 11% to $1.1 billion
• Losses on disposed properties minimal, reserves increased

Another solid year

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Key Financial Metrics

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Net income ($M)

Strong net earnings

$51 $63 $77 2011 2012 2013

Source: Romspen Audited Financial Statements

Key Financial Metrics

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Strong portfolio growth

Mortgage portfolio ($M)

$749 $995 $1,154 2011 2012 2013

Source: Romspen Audited Financial Statements

Key Financial Metrics

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Low financial leverage

Mortgage portfolio (%)

3% 4% 6% 2011 2012 2013

Source: Romspen Audited Financial Statements

Key Financial Metrics

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Modestly higher unit value

$/unit

$9.92 $9.92 $9.94 2011 2012 2013

Source: Romspen Audited Financial Statements

Key Financial Metrics

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Solid distributions

$/unit

$0.79 $0.74 $0.72 2011 2012 2013

Source: Romspen Audited Financial Statements

Key Financial Metrics

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Solid returns

Annual compounded net % return

8.2% 7.7% 7.4% 2011 2012 2013

Source: Romspen Audited Financial Statements

Portfolio Remains Well Diversified

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Source: Romspen Audited Financial Statements term 49% construction 23% pre-development 28% under $5 million 16% $5-$10 million 21% $10-$20 million 35%

• ver $20 million

28% >2 years 2% under 1 year 72% 1-2 years 26% US 14% Other 9% Ontario 46% Alberta 16% British Columbia 15%

By Type By Geography By Amount By Maturity

Romspen outperforms fixed-income benchmarks

Source: Bank of Canada, Romspen Audited Financial Statements Note: Romspen returns are net, comparative returns are gross.

2013 Performance

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13.0% 1.0% 1.7% 7.4%

S&P/TSX T-Bills DEX-STBI Romspen

Romspen outperforms major benchmarks 3-Year Performance

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Source: Bank of Canada, Romspen Audited Financial Statements Note: Romspen returns are net, comparative returns are gross.

11% 3% 9% 25%

S&P/TSX T-Bills DEX-STBI Romspen

Romspen outperforms major benchmarks 10-Year Performance

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Source: Bank of Canada, Romspen Audited Financial Statements, PriceWaterhouse Coopers Report Note: Romspen returns are net, comparative returns are gross.

115% 21% 49% 139%

S&P/TSX T-Bills DEX-STBI Romspen

20 Year Historical Performance

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Source: PriceWaterhouseCoopers Report, Romspen Analysis

One negative monthly return in 240 months

Year January February March April May June July August September October November December Annual Compound Net Return 1994 0.64 0.75 0.77 0.65 0.80 1.05 0.78 0.74 0.82 1.00 0.70 0.79 9.9 1995 0.79

• 0.77

0.90 0.74 0.76 0.76 0.94 0.74 0.84 0.96 0.79 0.80 8.6 1996 0.80 0.85 0.87 0.83 0.91 0.77 0.88 0.96 0.75 1.03 0.83 0.78 10.8 1997 0.89 0.76 0.83 0.83 0.77 0.71 0.87 0.91 0.73 0.87 0.73 0.35 9.7 1998 0.92 0.89 0.92 0.77 0.69 0.76 1.02 0.75 0.80 0.93 0.77 0.87 10.6 1999 0.77 0.74 0.77 0.84 0.88 0.79 0.89 0.71 0.96 0.74 0.84 0.72 10.1 2000 0.87 0.78 0.93 0.74 0.88 0.75 0.81 0.75 0.73 0.79 0.82 0.80 10.1 2001 0.91 0.67 0.83 0.69 0.82 0.76 0.82 0.87 0.73 0.92 0.83 0.73 10.0 2002 0.88 0.71 0.86 0.86 1.01 0.67 0.94 0.81 0.77 0.76 0.77 1.06 10.6 2003 0.84 0.78 0.76 0.70 0.71 0.77 0.83 0.72 0.87 0.76 0.68 0.90 9.7 2004 0.67 1.08 0.83 0.88 0.71 1.02 0.76 0.83 0.63 0.62 0.74 0.68 9.8 2005 0.65 0.06 0.86 0.58 0.88 1.91 0.57 1.08 0.74 0.74 0.57 0.88 9.9 2006 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.90 0.80 0.80 0.80 0.95 10.3 2007 0.80 0.80 0.90 0.80 0.80 0.90 0.80 0.80 0.90 0.81 0.80 0.92 10.5 2008 0.80 0.80 0.90 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.70 0.70 9.9 2009 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 8.7 2010 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 8.7 2011 0.70 0.60 0.70 0.70 0.60 0.70 0.70 0.60 0.70 0.60 0.60 0.70 8.2 2012 0.70 0.60 0.60 0.60 0.70 0.60 0.60 0.60 0.60 0.60 0.60 0.60 7.7 2013 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 7.4

2014 Outlook & Q1 Performance

2014 Outlook & Q1 Performance

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• Soft, plodding recovery
• subdued growth
• global deleveraging cycle
• elevated unemployment
• low return environment
• Artificially low rates looming reduction in monetary accommodation
• Volatility ongoing economic theme
• Credit demand remains buoyant low interest rates
• Toronto/Vancouver cautious underwriting
• US strengthening, Canada slowing/softening

2014 Economic Environment

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The Rise and Fall of Canadian Interest Rates

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Interest rates have steadily declined since 1981

Source: Statistics Canada: Government of Canada marketable bonds, average yield: over 10 years

Bond Yield (%) Secular Inflation & Rise in Yields Secular Disinflation & Decline in Yields 2 4 6 8 10 12 14 16 18 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Interest Rate Comparison

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Lower rates, consistent spread

0% 2% 4% 6% 8% 10% 12% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 BOC Overnight Rate Romspen Return Relative Spread

Source: Bank of Canada, Romspen Audited Financial Statements Note: Romspen returns are net, comparative returns are gross.

Annual return (%)

Stable distributions Stable returns Modestly higher unit value

$9.92 $9.94 Q1 2013 Q1 2014 $0.18 $0.18 Q1 2013 Q1 2014 1.8% 1.8% Q1 2013 Q1 2014

Solid first quarter

Source: Romspen 2014 Q1 Financial Statements

2014 Q1 Performance

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Solid performance continues in Q1 Q1 2014 Performance

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Source: Bank of Canada, Romspen 2014 Q1 Financial Statements Note: Romspen returns are net, comparative returns are gross.

6.1% 0.2% 1.1% 1.8%

S&P/TSX T-Bills DEX-STBI Romspen

YTD 2014 – Comparative Performance

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Source: Bank of Canada, Romspen Analysis Note: Romspen returns are net, comparative returns are gross.

Solid performance continues YTD as at April 30, 2014

6.1% 0.3% 1.3% 2.5%

S&P/TSX T-Bills DEX-STBI Romspen

Wesley Roitman Managing General Partner Issues/Opportunities

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Issues/Opportunities

Issues/Opportunities

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Non-performing Loans

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Non-performing Loans

$208 $233 $207 28% 23% 18% 2011 2012 2013

Source: Romspen Audited Financial Statements

• Ongoing part of business
• Loan pricing takes this into account
• Non-performing loans ≠ losses

$M / % portfolio

Loss Reserves & Realized Losses

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Loss Reserves & Realized Losses Realized losses as a % of capital invested is 0.4%

1.3 4.9 7.3 9.8 3.9 9.5 12.0 16.1

• 1.3
• 0.5
• 5.9
• 0.3
• 1.1
• 1.4

2006 2007 2008 2009 2010 2011 2012 2013

$M

Loss Reserve Realized Losses

Source: Romspen Audited Financial Statements

Non-performing Loans

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Eco Cite – Ottawa, ON $14 million High Street & Raglan – Collingwood, ON $14 million Elm Business Park – Edmonton, AB $16 million Westshore Parkway – Victoria, BC $17 million Falconridge – Abbotsford, BC $31 million $92 million

• Attractive lending metrics - better than Canada
• Strong growth - $123 million (Q1/13) $207 million (Q1/14)
• US credit market dislocation continues
• Attractive risk/return trade-off
• Imbalance between credit supply/demand attractive

underwriting metrics

• Romspen US portfolio (Q1/14)
• $207 million 17% of portfolio
• NY, NC, Florida, Colorado, Texas, Pennsylvania, Hawaii
• 11% rate, 2-3 year average term
• 97% hedged

US Mortgage Update

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Opportunity  logical extension of current business/relationships  but… limited set of good opportunities Focus  Canadian & select US income-producing commercial/industrial/retail properties  tax advantaged yields of approximately 12% through property cashflow, NOI growth & long term gains  conservative, low-cost, third-party leverage of 60-65% Properties  Fortier – multi-tenant industrial, Montreal  Vista Heights – commercial office, Calgary  San Tan/Swanway – retail, Phoenix/Tuscon Returns  cash-on-cash: 7.6%  IRR: 12% Future  consolidate to fund structure, similar to RMIF

Real Estate Equity Opportunities

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Romspen Mortgage Investment Fund