C.A. Bancorp Canadian Realty Finance Corporation provides corporate update and the net asset value per Class A Share (TSX: RF.A) as at December 31, 2008
TORONTO: -- 02/04/09 -- C.A. Bancorp Canadian Realty Finance Corporation (“CRFC” or the “Corporation”) is pleased to provide investors with a corporate update and the net asset value (“NAV”) per Class A Share of $9.51 as at December 31, 2008. The NAV is calculated in accordance with the requirements of National Instrument 81-106.
The Corporation has approximately $68 million of tangible capital which is managed on behalf of investors to obtain exposure to the investment performance of mortgages and other secured loans (the “Mortgage Portfolio”) in the Canadian commercial real estate sector. The Corporation is managed by C.A. Bancorp Ltd. (the “Manager”), a whollyowned subsidiary of C.A. Bancorp Inc. (TSX: BKP) (“C.A. Bancorp”).
The Manager has scheduled a conference call for Thursday, February 5, 2009 at 4:15 pm EST to provide a market update and discuss current business activities. To participate in the call, please dial 416-695-7806 or 1-888-789-9572. A recording of the conference call will be available for replay until Thursday, February 19, 2009 by dialling 416-695-5800 or 1-800-408-3053, passcode: 3282275#.
MARKET UPDATE: The severe disruption and decline in liquidity which began to affect the global credit markets in the third quarter of 2007 and which continued throughout 2008 has now: (i) raised the cost of borrowing, (ii) reduced the availability of credit, and (iii) as seen in the depressed market values of publicly traded real estate investment trusts (REITs), reduced the overall value of Canadian real estate properties.
This “credit crunch” has had a positive effect on the Corporation as an increase in the demand for funding from non-bank lenders has provided the Manager with the opportunity to lend funds at higher interest rates. However, the Manager has taken a more conservative approach in light of current market conditions. Dating back to July 2008, the Manager has sought to reduce risk in the Mortgage Portfolio by lending on what it considers to be higher-quality assets. Such assets were previously unavailable given the target interest rate yield sought by the Manager on the Mortgage Portfolio on behalf of investors. The Manager believes that this is a prudent approach given the uncertainty in the marketplace and the possibility of further declines in asset values across the Canadian real estate market.
Since the beginning of 2009, actual real estate mortgage deal flow has declined along with the significant decrease in commercial real estate trades as a result of the spread between bid-and-offer terms on real estate properties. However, to offset any decline in new mortgages, it is expected that many current mortgages in the Mortgage Portfolio will be renewed at maturity as borrowers find refinancing opportunities to be limited.
THE MORTGAGE PORTFOLIO: As at December 31, 2008, the Mortgage Portfolio’s principal outstanding was approximately $54 million with an additional $9 million in committed but unfunded mortgage principal. The Mortgage Portfolio, at its current levels of funding, is expected to generate sufficient interest income (before consideration of loan losses) to cover distributions on the Preferred Shares, operating expenses as well as the payment of quarterly distributions on the Class A Shares.
All of the investments in the Mortgage Portfolio were current in terms of contractual payments owed as at December 31, 2008 and remain so as of the date of this release.
The Mortgage Portfolio consisted of the following investments as at December 31, 2008:
| By Mortgage Type | # |
Value |
Weighting |
| 1st Mortgages | 20 |
$ 43,108,053 |
79.5% |
| 2nd Mortgages | 8 |
10,570,000 |
19.5% |
| Other Secured Loans | 1 |
525,000 |
1.0% |
29 |
$ 54,203,053 |
100.0% |
| By Geography | # |
Value |
Weighting |
| Ontario | 17 |
$ 34,665,711 |
64.0% |
| Eastern Canada | 3 |
8,915,500 |
16.4% |
| Alberta | 9 |
10,621,843 |
19.6% |
29 |
$ 54,203,053 |
100.0% |
Calculation of the NAV per Class A Share: The NAV per Class A Share of $9.51 as at December 31, 2008 was impacted by accounting adjustments made for non-cash items including a fair value adjustment on the Mortgage Portfolio of $856,000 or approximately $0.24 per Class A Share (explained in greater detail below) and a fair value adjustment of $551,000 or approximately $0.15 per Class A Share on the warrants (TSX: RF.WT) issued by the Corporation to purchase Series 1 Preferred Shares (TSX: RF.PR.A) of the Corporation at $23.75 per share.
Excluding these items, the NAV of the Corporation increased by $324,000 or approximately $0.09 per Class A Share as a result of the “spread” earned on the Mortgage Portfolio and other investment income less the interest expense (distributions) on the Series 1 Preferred Shares and operating expenses of the Corporation. This increase in NAV was more than offset by a dividend declared but not yet paid on the Class A shares of $684,000 or $0.19 per Class A Share. The differential between operating income and distributions payable for the period ended December 31, 2008 was primarily caused by the fact that the Corporation did not have a sufficient amount of the capital raised from the September 2008 public offering exposed to the Mortgage Portfolio which resulted in a negative “spread”. Going forward, the Manager expects that the operating income of the Corporation will be sufficient to fund the distributions payable on the Class A Shares now that the capital has been substantially invested.
Below is a summarized continuity of the NAV per Class A Share from September 11, 2008, the date of closing of the Class A Share public offering, to December 31, 2008:
Item NAV per Class A Share Opening NAV per Class A Share, September 11, 2008 $10.00 Fair value adjustment taken on the Mortgage Portfolio (0.24) Accrual for Class A Share dividend paid on January 15, 2009 (0.19) Fair value adjustment taken on the Warrants (0.15) Net results from operations 0.09 Closing NAV per Class A Share, December 31, 2008 $9.51
| Item | NAV per Class A Share |
| Opening NAV per Class A Share, September 11, 2008 | $10.00 |
| Fair value adjustment taken on the Mortgage Portfolio | (0.24) |
| Accrual for Class A Share dividend paid on January 15, 2009 | (0.19) |
| Fair value adjustment taken on the Warrants | (0.15) |
| Net results from operations | 0.09 |
| Closing NAV per Class A Share, December 31, 2008 | $9.51 |
Fair Value Adjustment on the Mortgage Portfolio: The fair value adjustment on the Mortgage Portfolio of $856,000 or $0.24 per Class A Share is non-cash in nature and was arrived at by discounting the expected cash flows from the Mortgage Portfolio at an average discount rate of 15%, which resulted in a estimated fair value on the Mortgage Portfolio of $53.0 million, compared to the pre-adjusted carrying value of the Mortgage Portfolio of $53.8 million ($54.2 million less $0.4 million in unamortized fees).
The Manager believes that a 15% discount rate is a fair indication of where market rates are on mortgages of similar quality and duration as at December 31, 2008. The Manager believes the adjustment made to the carrying value of the Mortgage Portfolio is prudent and conservative given the downward movement in real estate values over the past six months. The estimated fair value of the Mortgage Portfolio is based on assumptions relating to the Corporation’s underlying mortgages and overall market conditions and only the passage of time will determine the actual performance of the Mortgage Portfolio. The estimated fair value of the Mortgage Portfolio will continue to be reviewed by the Manager and, if appropriate, will be adjusted accordingly.
The Corporation: CRFC is a mutual fund corporation incorporated under the laws of the Province of Ontario. It was created to obtain exposure to the investment performance of an actively managed portfolio of mortgages and secured loans in the Canadian commercial real estate sector on a tax-efficient basis.
The Class A Shares: The Corporation's investment objectives with respect to the Class A Shares are to: i) Pay quarterly cash distributions, initially expected to be $0.19 per quarter per Class A Share or 7.6% per annum, based on the original issue price of $10.00; and ii) To preserve the NAV of the Class A Shares. The Class A Shares closed at a price of $6.74 on December 31, 2008 representing a 29.1% discount to NAV as at December 31, 2008 and most recently traded at a closing price of $5.00 on February 3, 2009 which represents a 47.4% discount to the NAV as at December 31, 2008.
The Series 1 Preferred Shares: The Corporation's investment objectives with respect to the Series 1 Preferred Shares are to: i) Pay fixed cumulative preferential quarterly cash distributions in the amount of $0.4219 per Series 1 Preferred Share representing a yield of 6.75% per annum on the original issue price of $25.00 per Series 1 Preferred Share; and ii) Return the original issue price of the Series 1 Preferred Shares ($25.00 per Share) on March 31, 2018. The Series 1 Preferred Shares closed at a price of $16.75 per Share on February 3, 2009 which represents a 33% discount to the maturity repayment value of $25.00 per Share.
The Warrants to purchase Series 1 Preferred Shares: Each Warrant will entitle the holder to purchase one Series 1 Preferred Share at a subscription price of $23.75 at any time on or before 4:00 p.m. (Toronto time) on September 30, 2011.
C.A. Bancorp Inc.: C.A. Bancorp is a publicly traded Canadian merchant bank and alternative asset manager that provides investors with access to a range of private equity and other alternative asset class investment opportunities. C.A. Bancorp is focused on investments in small- and middle-capitalization public and private companies, with emphasis on the industrials, real estate, infrastructure and financial services sectors.
More information: Michael Lovett, Managing Director – Real Estate Capital, or Paolo De Luca, Chief Financial Officer Tel: 1-866-388-5985 Fax: 416-861-8166 info@cabancorp.com www.cabancorp.com
All dollar figures in the news release are references to Canadian dollars. This news release contains forwardlooking statements. These statements relate to anticipated future events, results, circumstances, performance or expectations that are not historical facts but instead represent the Corporation or the Manager’s beliefs regarding future events. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "will", "expect", "intend", "plan", "estimate", "anticipate", "believe" or "continue", similar words or the negative thereof, or variations of such words and phrases that certain actions, events or anticipated outcomes "may", "would" or "might" be taken, occur or be achieved. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. The future business, operations and performance of the Corporation discussed herein could differ materially from those expressed or implied by such statements. Such forward-looking statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Forward-looking statements are based on a number of assumptions which may prove to be incorrect. Additional, important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, the currency of the Mortgage Portfolio, the quality of assets available as security for mortgage loans, the number of deal opportunities presented for investment, cash flow of the Corporation being sufficient to enable it to pay its distributions, risk of impairment of loans, competition, interest rates, tax-related matters. The Corporation cautions that risk factors discussed in applicable continuous disclosure filings required by law that the Corporation has made and filed on SEDAR should also be considered carefully and that undue reliance not be placed on forward-looking statements as events and results could differ materially from those expressed or implied by forward-looking statements made by the Corporation. The cautionary statements qualify all forward-looking statements attributable to the Corporation and persons acting on its behalf. Unless otherwise stated, all forward-looking statements speak only as of the date of this press release. The Corporation does not undertake, and specifically disclaims, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.