Romspen Mortgage Investment Fund – Distributes 7.5% in 2018 with a Portfolio of 90% First Mortgages

Key Highlights

• Romspen Mortgage Investment Fund (“RMIF”, “fund”) originated approximately $1.02 billion mortgages (up 30% YoY) in 2018. At the end of 2018, the fund had $2.67 billion in gross mortgage receivables and investments, up of 27% YoY.
• We believe the overall risk profile has increased with a reduction in term mortgages (income producing properties / 40% to 35%), and an increase in the average loan size ($12.61 million to $16.78 million).
• The U.S. (44%) and Ontario / (27%) continue to dominate the portfolio. Multi-family, industrial, and office space in Canada and the U.S. remain strong. We expect the weakness in Canadian housing prices, and sales, to impact originations targeting construction and residential development properties.
• The realized loss was 0.24% of net mortgages plus investment in subsidiaries in 2018, versus 0.11% in 2017. The loss has averaged 0.23% p.a. since 2006.
• Investors’ received 7.5% in 2018, versus 7.9% in 2017. The annual return for investors has averaged 8.5% since 2006. We expect returns to stay flat at approximately 7.5% in 2019.
• Debt to capital remains low at just 7%. Large lenders, we estimate, tend to use a higher debt to capital in the 20% to 40% range.
• In October 2018, New York based TIG Advisors, LLC acquired an undisclosed minority interest in the fund’s manager, Romspen Investment Corporation. TIG Advisors, formed in 1980, is an asset manager with approximately US$3 billion under management. We consider this a strong vote of confidence in Romspen’s management and its portfolio.

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