Investment strategy and restrictions

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. Lending on development property is limited, with mortgages generally provided only in circumstances where a borrower intends to complete the development and build on the land.

Investments in our portfolio are strategically concentrated on:

• First or subordinate mortgages on real estate with a target of up to 75% of property value;
• Mortgages on residential wood frame construction projects; and
• Mortgages on properties located in typically more liquid and less volatile urban markets and their surrounding areas, with a geographic focus primarily on Western Canada.

Investment Restrictions

Our share terms provide for a number of investment restrictions that can only be changed by a vote of all of the shareholders:

• Builders Capital will not make any investment or conduct any activity that would result in the Company failing to qualify as a “mortgage investment corporation” within the meaning of the Tax Act.
• We will not invest in asset-backed commercial paper or in securitized pools of mortgage loans, including securitized pools of sub-prime mortgages.
• We will not invest in securities other than first and subordinate mortgages secured by real property and, on a temporary basis only, interim investments consisting of cash and cash equivalents, the Government of Canada treasury bills and the Government of Canada bonds with a term to maturity of three years or less (although the Company shall not be precluded from owning securities of our subsidiaries or affiliates).
• Builders Capital will not engage in securities lending.
• The Company will not engage in derivative transactions for speculative purposes and will only take part in derivative transactions in order to hedge interest rate or exchange rate risk.