What is a mortgage investment corporation (MIC)?
A mortgage investment corporation is an investment and lending company that lets people pool their money to be lent out as mortgages, primarily in the residential sector. It allows people to invest in a portfolio of mortgage investments under professional management on a scale not generally available to individual investors. Since MICs act as “flow through” entities, distributing all of their taxable income to shareholders, they do not pay corporate income tax. The dividends paid by MICs are taxed as interest in the hands of shareholders.
Mortgage investment corporations are subject to both provincial licensing and regulation relating to mortgage lending, and to securities regulation relating to raising capital. Given their strict audit and reporting requirements, public MICs are a streamlined, transparent and effective way for individuals to invest in mortgages.
Why would a builder come to Builders Capital for a mortgage rather than a bank or other conventional financial institution?
Unlike most conventional financial institutions, which prefer to fund finished projects for longer terms, we specialize in providing short-term course of construction financing that is secured by development stage residential real property. Large financial institutions often lack the unique skill-set required to manage construction mortgages. We take a responsive and flexible approach, which appeals to our builder clients, and as a result can operate effectively in a profitable niche market. We have developed a tailor made delivery system for residential builders based on a strong understanding of what generates profits for our clients.
Why should I invest in Builders Capital?
Through the operation of our current and predecessor businesses, our management team has established a strong track record of successfully and profitably serving our niche market and has demonstrated an ability to mitigate the risks inherent in our business. We have a long-term proven business concept and the capacity to provide stable, attractive returns to shareholders while remaining focused on capital preservation. Our operating policies and our unique share structure contribute substantially to lowering investor risks and enable us to provide what we believe to be an outstanding risk-weighted return.
How long has Builders Capital operated?
Builders Capital commenced active operations in December 2013 on the closing of our initial public offering and the acquisition of a portfolio of mortgages from two predecessor companies. Both predecessor companies had been successfully operating for more than 10 years providing a total of 16 years of continuous operation.
What is Builders Capital’s investment strategy?
In order to deliver above average risk weighted returns, our strategy is to invest primarily in short-term construction mortgages that are secured by development stage residential real property. In order to reduce overall risk and increase potential investment returns, we focus on residential, wood-frame construction projects in typically more liquid and less volatile urban markets.
What is Builders Capital’s lending criteria?
We only loan on projects that satisfy a rigorous underwriting review and that we have the capability to complete and sell if necessary. All projects must fit within our Asset Allocation Model, which dictates the allocation of the aggregate funded and committed assets based on geographical, economic sector, term, borrower and loan-to-value criteria.
Does Builders Capital have general security agreements and personal guarantees from its borrowers?
Yes, we usually have general security agreements and personal guarantees from our borrowers. However, we are an asset-based lender and typically rely on the value proposition inherent in the project and on our ability to foreclose to a much greater extent than we rely on guarantees and covenants.
In what geographic markets does Builders Capital operate?
Our focus is Western Canada. Currently we operate in Alberta, British Columbia and Saskatchewan.
How large is Builders Capital’s mortgage portfolio?
Our current total committed mortgage principle is approximately $50 million.
What is the management fee paid by Builders Capital?
Our manager, Builders Capital Management Corp., receives a management fee of 1% per year of share capital.
Where are shares of Builders Capital traded?
Our shares trade on the TSX Venture Exchange under the symbol BCF.
How are Builders Capital’s shares structured?
Builder’s Capital has two primary classes of shares, Class A Non-Voting Shares and Class B Non-Voting Shares. The Class A shares hold a priority over the Class B shares with respect to both distributions of income and any distribution of capital. To the extent that sufficient income is available, the Class A shareholders will always receive an 8% per annum dividend before the Class B shareholders receive any distributions. To the extent that sufficient income is available, the Class A shareholders will always receive an 8% per annum dividend before the Class B shareholders receive any distributions. The Class A shareholders also would have the first claim on all assets of the company up to the full original issue cost of their shares. This structure ensures that the Class B shareholders bear a substantial portion of the portfolio risk inherent in the business and that the Class A shareholders are afforded a substantial risk reduction.
We also have a nominal number of Voting Shares, which are held by the company’s principal shareholders.
What is Builders Capital’s dividend policy?
Dividends are declared quarterly. Class A Non-Voting shareholders are entitled to receive annual dividends of 8% in preference to all other shareholder distributions, based on the initial $10.00 price. Once these dividends have been paid, Class B Non-Voting shareholders are entitled to receive total annual dividends of up to 16%. Any remaining income available for distribution at our fiscal year-end will be allocated pro-rata between the classes of shares, including the Voting Shares. Due to our status as a Mortgage Investment Corporation, dividends paid are taxed as bond interest in the hands of the recipients.
Does Builders Capital pay out all of its net income as dividends to shareholders?
Builders Capital will pay all of its net taxable income as dividends to shareholders. The company’s taxable income will vary somewhat from the net income shown in the financial statements due primarily to the differing treatment of share issue costs for accounting and tax purposes.
How do I invest in Builders Capital?
Builders Capital trades on the TSX Venture exchange and shares are generally available there for purchase. As well, we will from time-to-time continue to raise new capital. If you are interested in a future private or public placement, feel free to contact us and we will keep you notified of upcoming share issues.
What rate of return can I reasonably expect over time?
We are committed to paying $0.80 per share on the Class A Non-Voting shares prior to making any distributions to the Class B shareholders. We are confident that, given the priority assigned to this 8% dividend over the payment of any other dividends, we will be able to continue to pay this level of dividend for the foreseeable future.
Is my investment liquid? Are there any resale restrictions?
There are no resale restrictions on Class A Non-Voting shares and they can be put up for sale on the TSX-V at any time.
Does Builders Capital have a dividend reinvestment plan (DRIP)?
Yes. The plan provides eligible holders of Class A Non-Voting Shares with the advantage of accumulating additional shares at potentially lower prices by automatically reinvesting their cash dividends without paying any commissions, service charges or brokerage fees. For an overview of our DRIP, click here. For more information or to enroll in the plan, please contact your investment advisor.
Are Builders Capital’s shares RRSP, RRIF and TFSA eligible?
Under the Canadian Income Tax Act, our shares are qualified investments for RRSPs, RRIFs and TSFAs as well as RDSPs and RESPs.
What are the risks associated with investing in Builders Capital?
There are two primary areas of risk for us as a lender. The first is the risk that borrowers will fail to meet their obligations and repay mortgages as they come due. Secondly, there is a risk is that sufficient quality investment opportunities will not be available to keep our capital fully deployed. As our primary goal is the preservation of our investors’ capital, even at the expense of potential returns, we consider the risk of borrower default to be our primary concern and we manage our business accordingly.
How does Builders Capital mitigate these investment risks?
For downside protection, we restrict our loan amounts to 75% of what we consider the fair market value of the security. The 25% equity component is a requirement for our borrowers and we believe it provides us with a sufficient margin for error in the event of a drop in property values. The short-term nature of our loans also gives us the flexibility to convert our entire portfolio of mortgages to cash within a 12-month period, if economic conditions warrant. In addition, we maintain sufficient construction expertise to allow us to economically complete any project on which we’ve loaned funds.
The distribution priority granted to Class A Non-Voting Shareholders further mitigates risk for this class of owner.
How can I monitor the performance of my investment?
Information about Builders Capital’s financial performance and PDF copies of our financial reports are available on this website in the Investor’s section. You can also access copies of all of our public filings on SEDAR by following this link.
How can I obtain printed copies of Builders Capital’s financial reports?
For speed of delivery, you can download the printable PDF files in the Investors section on this website. If you wish to receive printed copies of our financial reports by mail, please email email@example.com or call 403-685-9888.
Who do I contact if I have any questions about my investment or about Builders Capital?
Where is Builders Capital based?
Our head office is located at 405 – 1210 8th Street SW, Calgary, AB, T2R 1L3.