M&A Momentum Among MICs Could Boost Yields and Attract Capital

Portfolio Summary

First mortgages in line with the sector, with smaller average loan sizes, and higher LTVs. Impaired mortgages declined significantly as a percentage of receivables in FY2026, but remain above the sector average. However, loan loss allowances remain in line with the sector average, suggesting management expects realized losses to be broadly in line with peers.

The table below compares AWM’s portfolio with other MICs (AUM $100M+) focused on already-built single-family residential units.

AWM’s portfolio and the average of other MICs (AUM $100M+) focused on already-built single-family residential units.Source: FRC / Various

M&A Activity Accelerating Across the MIC Sector

In 2025, Alta West Mortgage Capital Corporation (AWM’s manager) acquired Premiere Home Mortgage for an undisclosed amount. In addition to AWM, the manager currently operates Premiere ($138M in AUM), and First Place MIC ($26M in AUM), as of August 31, 2026.

The sector has also seen other material transactions. In October 2025, Neighbourhood Holdings acquired Fisgard Asset Management for an undisclosed amount, creating one of Canada’s largest alternative mortgage lenders, with over $750M in AUM across 1,550 mortgages.

Our discussions with MIC managers indicate that several are actively pursuing M&A to scale their platforms, capture synergies, and reduce costs across administration, operations, and staffing. We believe these efficiencies could support higher yields and attract additional capital to the sector.

Portfolio Details (YE – March 31st)

Mortgage receivables ↑25% YoY to a record-high $295M in FY2026, driven by robust originations.

Mortgage advances ↑70% YoY in FY2026, while payouts ↓17% YoY.

Average mortgage size ↑15% YoY to $287K in FY2026.

At the end of Q1-FY2027, 70% of mortgages were <$300K vs. 81% historically.

First-mortgage exposure ↑ to 74% vs. 64% historically, implying a lower-risk profile.

Focus remains on single-family, owner-occupied units.

Enhanced geographical diversification by lowering exposure to ON. Also, focus remains on urban areas.

LTV was down slightly.

Impaired mortgages ↓5.3 pp YoY, to 8.5% of total mortgages, but remain above the sector average of 6%. Loan loss allowances ↑6 bps YoY to 0.80%, vs. the sector average of 0.78%.

Loan loss allowances, actual/realized losses and impaired mortgages, 2021–2026.Source: Company / FRC

In summary, we believe the portfolio’s risk profile has declined, driven by lower impaired mortgages, and higher first-mortgage exposure.

AWM’s portfolio risk profile by parameter. Red (green) indicates an increase (decrease) in risk level.Source: FRC

Financials

Investors hold Class B shares, allowing them to request redemptions monthly without incurring fees, or facing a lock-up period. In contrast, it is noteworthy to mention that many MICs typically impose lock-up periods, and early redemption fees. That said, redemptions are not guaranteed.

Net income (before investor distributions) ↓5% YoY to $13M, 8% below our forecast, due to lower than expected lending rates, and higher loan loss provisions. However, yield ↓1 pp YoY to 8.36%, exactly in line with our estimate.

Source: FRC

Source: FRC

Note that the above figures may be slightly different from the figures reported by the MIC due to the difference in the method of calculation. We used the average of the opening balance, and year-end balance of mortgages outstanding, and invested capital, to arrive at the above figures.

Dividends are paid monthly.

$300M in mortgages at the end of Q1-FY2027, ↑27% since FY2025-end. Additionally, debt-to-capital ↑9 pp to 34%, within the typical 20–40% range for peers.

Source: Company / FRC

*MICs generally do not hold significant cash, and instead use excess cash to pay down debt. In our discussions with management, the high cash position at year-end was merely due to timing differences, as the MIC had to hold cash to fund mortgages.

FRC Rating

With rates peaking last year, we expect yields to decline in FY2027. Specifically, we are projecting a yield of 7.93% in FY2027 vs. 8.36% in FY2026.

Our FY2027 yield estimate varies between 6.84% and 8.58%, as loan loss provisions and lending rates vary.

FY2027E yield by loan loss provisions and YoY decline in the weighted average lending rate.Source: FRC

AWM continues to deliver strong portfolio growth, while its improving risk profile, and higher first-mortgage exposure provide greater resilience despite elevated impaired mortgages. With rates in 2027 expected to remain materially below recent highs, we expect improving mortgage origination activity, and lower default risk, supporting the portfolio’s overall credit quality.

Risks

We believe the MIC is exposed to the following key risks:

• Rapid sourcing and timely replacement are vital for short-term loans.
• Lower housing prices will result in higher LTVs.
• As with all MICs, there is no guarantee of shareholders’ principal.
• The MIC utilizes leverage, amplifying exposure to adverse events.
• Second mortgages carry higher risk.

APPENDIX

Even though the Manager has rights to 100% of lender fees, they have historically paid a portion of the fees to the fund, which we view positively from an investor perspective. We also understand that there is no guarantee that management will do so going forward.

Frequently asked questions

What is AWM Diversified MIC's yield outlook for FY2027?

We project a yield of 7.93% in FY2027, vs. 8.36% in FY2026. FY2026 yield declined 1 pp YoY to 8.36%, exactly in line with our forecast.

Why did FRC reiterate its overall rating of 2 for AWM Diversified MIC?

We believe the portfolio’s risk profile has declined, driven by lower impaired mortgages, and higher first-mortgage exposure. In FY2026 (ended March 2026), mortgage receivables increased 25% YoY to a record-high $295M vs. our forecast of $260M, driven by robust originations.

What M&A activity is happening in the MIC sector?

In 2025, AWM’s manager acquired Premiere Home Mortgage for an undisclosed amount. We are seeing increased M&A activity among private MICs, with managers pursuing acquisitions to scale platforms and realize cost synergies.

What are the biggest risks to AWM Diversified MIC?

Rapid sourcing and timely replacement are vital for short-term loans. Lower housing prices will result in higher LTVs. As with all MICs, there is no guarantee of shareholders’ principal. The MIC utilizes leverage, amplifying exposure to adverse events. Second mortgages carry higher risk.

About the analysts

Sid Rajeev, B.Tech, MBA, CFA — Head of Research, Fundamental Research Corp.

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Disclosures. Fees ranging between $10,000 and $20,000 have been paid to FRC by AWM Diversified MIC to commission this report, research coverage, and distribution of reports. This fee creates a potential conflict of interest which readers should consider. The analyst and Fundamental Research Corp. “FRC” do not own any shares of the subject company, do not make a market or offer shares for sale of the subject company, and do not have any investment banking business with the subject company. Rating – 2: Very Good Return to Risk Ratio. A “+” indicates the rating is in the top third of the category, A “-“ indicates the lower third and no “+” or “-“ indicates the middle third of the category. Fundamental Research Corp. Risk Rating Scale: 2 (Below Average Risk). ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST.