Equityline Mortgage Investment Corporation’s objective is to provide financing to borrowers that are not well serviced by the commercial banks for a short term. Borrowers use short-term mortgages to bridge a short-term financing period. These short-term “bridge” mortgages are typically repaid with traditional bank mortgages (lower cost and longer-term debt). The Company focuses primarily on lending against residential real estate properties.
The Company is and intends to continue to be, qualified as a mortgage investment corporation (“MIC”) as defined under Section 130.1(6) of the Income Tax Act (Canada) (“ITA”).
BASIS OF PRESENTATION
This MD&A has been prepared to provide information about the financial results of the Company for the three months and six month ended June 30, 2019. This MD&A should be read in conjunction with the unaudited interim financial statements for the three months and six months ended June 30, 2019, and 2018, which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
The functional and reporting currency of the Company is Canadian dollars.
RECENT DEVELOPMENTS AND OUTLOOK
During the First quarter of 2019, the Company has completed its second raise and increased its capital base to support the expansion of the investment portfolio, including the completion of a bought offering of Series A Preferred Shares for net proceeds of $6,199,133.
Using the newly available funds, the Corporation funded 31 residential
mortgages and 3 commercial mortgages. These new mortgages yield an average 11.28%
During Q2 2019, the Company funded 34 new mortgages investments totaling $7,923,748. Regulatory changes, including the B20 guidelines, have resulted in some residential–focused lenders shifting capital and exposure to commercial assets.
The portfolio is heavily weighted towards Canada’s largest provinces, 100% of the portfolio are invested in Ontario urban markets that generally experience better real estate liquidity in periods of uncertainty and thus offer a better risk profile.
Mortgage Average Return
Q2 2019, the Company earned $216,007 (Q1 2019- $80,664) of interest income on
net mortgage investments while the weighted average interest rate on net
mortgage investments for the six months ended June 30, 2019 was 11.28%.
Loan to Value of Portfolio
As the Company strengthens its balance sheet with the completion of the successful JSE public offering during the quarter, funds raised were put towards a high-quality mortgage portfolio. This portfolio of mortgages ending June 30, 2019 has an average loan-to-value of 69.46%.
The management fee is equal to 1% per annum of the gross net mortgage investments of the Company, calculated and paid monthly in arrears. Gross mortgage investments are defined as the total mortgage investments of the Company less unearned revenue. For the three months ended June 30, 2019 and year to date, the Company incurred management fees of $20,468, YTD – $31,378. The increase is directly related to the increase in the gross assets managed during the three-month ended June 30, 2019.
General and administrative
For the three months ended June 30, 2019, the Company incurred general and administrative expenses of $4,037 (Q1 2019 – $872). General and administrative expenses consist mainly of listing fees, fees paid on custodial services, and other operating costs and administration of the mortgage investments portfolio.
HIGHLIGHTS OF FINANCIAL PERFORMANCE
The Company ended its second quarter of 2019 with a net income of $61,299, ($23,015 – YTD); however, the number alone is not reflective of the Company’s result of operation for it includes various one-time expenses such as the initial listing fees, advertising fees and other administrative and general fees that relate to satisfying the strong demands for the Company’s public offering.
Without these one-time expenses, the Company would be operating at a YTD profit of $107,985. This proves that the Company endeavors to maximize income and dividends through efficient management of its mortgage investments.