DJ GETTING PERSONAL CANADA: Another Way To Generate Income
By Ben Dummett
Of DOW JONES NEWSWIRES
TORONTO (Dow Jones)--Investors don't need to limit themselves to the
traditional investments of dividend-paying stocks and bonds to generate income.
For example, there's Timbercreek Mortgage Investment Corp. (TMC.T), a fund
that invests in mortgages and aims to pay a steady income stream to its
shareholders to generate a 7%-8% annual cash return over the long term. The
fund's average annual return has been about 8.3% since going public in 2008.
In targeting this level of return, Timbercreek believes it doesn't need to
take undue risk.
Arguing that Canada lacks a sufficient diversity of lending institutions,
Timbercreek believes it fills a void in the market, offering mortgages to
borrowers with attractive real-estate assets that can be used for collateral but
who don't meet the long-term traditional lending criteria of the country's big
banks.
The existence of an under-serviced banking sector means people "are willing to
pay more for the opportunity to borrow with the features that they are looking
for," says Blair Tamblyn, chief executive of Timbercreek Asset Management,
manager of Timbercreek Mortgage Investment Corp.
Generally, borrowers will pay up to 800-900 basis points over the government
of Canada two-year bond for customized mortgages that are 70% of the value of
the property, can be put in place quickly, offer a flexible repayment schedule
or allow the borrower to only pay the interest for a set period of time, Timbercreek says.
For example, in one transaction Timbercreek was able to fund a loan in 10 days
to help ensure a building owner secured the occupancy of a "high-quality U.S.
brand-name tenant," said Andrew Jones, Timbercreek Asset's chief credit officer.
But this process wasn't accomplished at the expense of cutting corners.
"We get every single type of due-diligence report that any bank would get; we
use the same appraisers, same environmental engineers, same structural engineers
to give us the exact same reports...," Jones said.
Timbercreek Mortgage funds mortgages from proceeds it raises by periodically
selling shares in the public markets. Investors have certainly shown an interest
in the shares. In a recent financing, Timbercreek Mortgage raised C$28.8
million.
For many, real estate is considered a volatile investment. But it doesn't need
to be, depending on the type. Measured in terms of value, a big portion of
Timbercreek Mortgage Investment's mortgages are for multi-residential, apartment
buildings in good locations -- typically larger Canadian urban centers -- with a
track record of generating predictable, low volatile cash flow, Tamblyn said.
Apartment buildings are generate steady income because rent represents a cost
of living. In addition, apartment buildings generate income even if occupancy
isn't 100%. The same isn't true for an industrial building with one tenant.
Further, "we are not lending to developers; we are not doing construction
financing and we are not lending to those who are inventoring land," Tamblyn
said as further evidence of Timbercreek's effort to limit risk.
|