知识问答
READY CAPITAL MORTGAGE INVESTMENT TRUST, DECEMBER 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
READY CAPITAL MORTGAGE
INVESTMENT TRUST
CONSOLIDATED
FINANCIAL STATEMENTS DECEMBER
31, 2022
INDEX Page
Independent Auditor's Report 1 - 3 Consolidated
Statement of Financial Position 4 Consolidated Statement of Comprehensive Income 5 Consolidated Statement of Changes in Net Assets Attributable to Holders of Redeemable Units 6 Consolidated
Statement of Cash Flows 7 Notes to the Consolidated Financial Statements 8 - 24
INDEPENDENT AUDITOR'S
REPORT
To the Trustees of Ready Capital Mortgage
Investment Trust Opinion We have audited the consolidated financial
statements of Ready Capital Mortgage Investment Trust (the "Trust"), which comprise the consolidated statement
of financial position
as at December 31, 2022 and the consolidated
statement of comprehensive income, the consolidated statement of changes in net
assets attributable to holders
of redeemable units and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the
accompanying consolidated financial statements present fairly, in all material
respects, the financial position
of the Trust as at December 31, 2022, and its financial
performance and its cash flows for the year then ended in accordance with International Financial
Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those standards are further
described in the Auditor's
Responsibilities for the Audit of the Consolidated
Financial Statements section on our report. We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We
believe that the audit evidence
we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Responsibilities of Management and Those Charged
with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, management
is responsible for assessing the Trust's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless management either
intends to liquidate the Trust or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust's financial
reporting process.
Independent Auditor's Report Page 2
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements
Our objectives are to obtain reasonable
assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditor's
report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit
conducted in accordance with Canadian
generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with
Canadian generally accepted auditing standards, we exercise professional judgement and maintain
professional skepticism throughout the audit. We also:
·
Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting
a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
·
Obtain an understanding of internal control
relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Trust’s internal control.
·
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
·
Conclude on the appropriateness of
management’s use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt
on the Trust’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor's
report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Trust to
cease to continue as a going concern.
·
Evaluate the overall presentation, structure
and content of the consolidated financial statements, including the disclosures, and whether the consolidated
financial statements represent the underlying
transactions and events
in a manner that achieves fair presentation
Independent Auditor's Report Page 3
We communicate with those charged with
governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
Chartered Professional Accountants Licensed Public Accountants
Toronto,
Ontario March 31, 2023
CONSOLIDATED
STATEMENT OF FINANCIAL
POSITION AS AT DECEMBER 31, 2022
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2022
2022 2021
Comprehensive
income attributable to holders of redeemable units
READY CAPITAL MORTGAGE
INVESTMENT TRUST
CONSOLIDATED
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS
FOR THE YEAR ENDED DECEMBER 31, 2022
See accompanying notes to the consolidated financial
statements 6.
CONSOLIDATED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER
31, 2022
2022 2021
Cash flows from operating activities Comprehensive income for the year $ 4,551,813 $ 2,735,848 Adjustments for: Provision for uncollectable amounts
753,000 -
See accompanying notes to the consolidated financial
statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
1.
THE TRUST
Ready Capital Mortgage Investment Trust (the
"Trust") was settled as an unincorporated open-ended investment trust under the laws of the
Province of Ontario pursuant to a Declaration of Trust dated January 24, 2019. The investment goal of the Trust is to finance
prudent conventional mortgages
secured by real property
situated in Canada. The Trust is the sole limited partner in Ready Capital
Mortgage Limited Partnership (the "Partnership"). The Trust aims to provide
its unitholders with stable and secure returns while preserving its investable
capital. The term of the Trust is indefinite, subject to certain conditions. The Trust is not a reporting
issuer in any province or territory of Canada. The Trust is not a trust company and does not carry on
business as a trust company, and therefore, is not registered under applicable legislation as a trust company
in any jurisdiction.
Ready Capital Mortgage
Limited Partnership (the "Partnership") is a limited partnership
established under the laws of
the Province of Ontario pursuant to the filing of a declaration of limited
partnership on January 25, 2019. Ready Capital Mortgage
Holdings Ltd., a corporation incorporated under the laws of the Province of Ontario, is the General
Partner (the "General Partner") of the Partnership. Falcon
Ridge Mgmt Ltd. is the mortgage administrator (the "Mortgage
Administrator") of the Partnership. Rite Alliance Management Inc. is the mortgage manager
(the "Mortgage Manager") and Moneybroker Canada
Inc. is the mortgage originator (the "Mortgage Originator"). The Partnership intends
to carry on its business
to invest in mortgages and
to manage and administer the mortgage portfolio in accordance with the investment policies pursuant to the limited
partnership agreement dated
January 25, 2019.
The Limited
Partnership is a non-bank provider of mortgage loans and will make monthly cash distributions to the Trust and its trust unitholders from income of the Partnership. In the ordinary
course of business the Trust
will distribute all of the distributable cash calculated in accordance with its distribution
policy. The principal place of
business of the Trust is located at 4491 Highway 7, Unionville, Ontario L3R 1M1.
Christine Xu, Martin Reid and Ronald Cuadra
are the trustees of the Trust. Rite
Alliance Management Inc., (a company controlled by the trustees) is the Trust Manager of the
Trust.
2.
SIGNIFICANT
ACCOUNTING POLICIES
Statement of Compliance with International Financial Reporting Standards
These consolidated financial
statements have prepared
using accounting policies
consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standard Board ("IASB").
These consolidated financial statements were
authorized to issue by the Trust Manager on March 31, 2023.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
2. SIGNIFICANT ACCOUNTING POLICIES (Continued...)
Basis of preparation
These consolidated financial statements have been prepared on a historical cost basis except
for financial instruments that have been measured at
fair value. In addition, these
consolidated financial statements have been prepared using
the accrual basis of accounting, except for cash flow information.
These consolidated financial statements have
been prepared on the basis of IFRS standards that are published at the time of preparation and that are effective as
at December 31, 2022, the Trust 's annual reporting date.
These consolidated financial statements are
presented in the functional currency of the Trust, Canadian dollars.
Principles of consolidation
These consolidated financial statements
include the accounts of the Trust and Ready Capital Mortgage Limited
Partnership (the
"Partnership"). The Trust
owns 100% of the Class A LP units of the Partnership. The minority interest reflected in these
consolidated financial statements represents the interest of the General Partner in the Limited Partnership. In accordance with the Limited Partnership agreement the General Partner is entitled
to 0.001% of the Limited Partnership earnings.
All inter- company accounts
and transactions have been eliminated on consolidation.
Financial instruments
IFRS 9, Financial Instruments – Classification and Measurement (“IFRS
9”) requires financial
assets to be classified as amortized cost, fair
value through profit or loss (“FVTPL”), or fair value through other comprehensive income (“FVOCI”) based on
the entity’s business model for managing financial assets and the contractual cash flow characteristics of these assets. Assessment of the business
model approach in use is an accounting judgment. Fair value changes for financial
liabilities at FVTPL, which are attributable to changes in the entity's
own credit risk, are to be presented
in other comprehensive income unless they
affect amounts recorded in income. Financial
assets and liabilities are recognized in the
consolidated financial statements when the Trust becomes a party to the
contractual provisions of the instruments. The Trust Manager has designated its cash as financial assets at FVTPL, which is measured at fair value.
The Trust only measures debt instruments at amortized cost if both of the following conditions are met:
•
The financial asset is held within a business
model with the objective to hold financial assets in order to collect
contractual cash flows. •
The contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments
of principal and interest (“SPPI”)
on the principal amount outstanding.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued...)
Financial instruments (Continued...) Business model assessment: The Trust determines its business model
at the level that best reflects how it manages
groups of financial assets to achieve its business objective. The business model
is not assessed on an instrument-by- instrument basis, but at a higher level of aggregated
portfolios and is based on observable factors
such as:
•
How the performance of the business
model and the financial assets
held within that business model are evaluated and reported to the entity’s
key management personnel; •
The risks that affect the performance of the business
model (and the financial assets
held within that business
model) and, in particular, the way
those risks are managed; •
How managers of the business
are compensated (for example, whether
the compensation is based on the fair value of the assets managed or on the contractual cash flows collected); and •
The expected frequency, value and timing of sales.
The SPPI test:
As a second step of its classification
process, the Trust assesses the contractual terms of financial instruments to identify whether they meet the SPPI test.
“Principal” for the purpose of this test is
defined as the fair value of the financial asset at initial recognition and may change over the life
of the financial asset (for example, if there are repayments of principal or amortization of the premium/discount).
In contrast, contractual terms that introduce
more than a minimal exposure to risks or volatility in the contractual cash flows that are unrelated
to a basic lending arrangement do not give rise to contractual cash flows that are SPPI on the principal
amount outstanding. In such cases, the financial
asset is required
to be measured
at FVTPL.
Management has performed the business model
assessment and SPPI test and concluded that the mortgages are financial
assets carried at amortized cost.
IFRS 9 requires that an
entity recognizes an allowance for expected credit losses on financial assets
which are measured at amortized
costs or FVOCI. Financial assets held
by the Trust which are measured at FVTPL are not subject
to the impairment requirements.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued...) Financial instruments (Continued...) The SPPI test: (Continued...) The Trust applies an expected credit loss
(“ECL”) model, where credit losses that are expected to transpire in future years irrespective of whether a loss event
has occurred or not as at the statement of financial
position date, are provided for. The Trust assesses and segments its loan
portfolio into performing (Stage 1),
under-performing (Stage 2) and non-performing (Stage 3) categories as at each statement of financial position date. Loans are categorized as under-performing
if there has been a significant
increase in credit risk. The Trust utilizes internal risk rating changes,
delinquency and other identifiable risk factors to determine when there has been a significant increase
or decrease in the credit
risk of a loan. Indicators of
a significant increase in credit risk include a recent degradation in internal partnership risk rating based on the
Trust’s custom behaviour credit scoring model, non-sufficient fund (“NSF”) transactions, delinquency and
adjustments to the loan’s terms. Under-performing
loans are recategorized to performing only if there
is deemed to be a substantial decrease
in credit risk. Loans are categorized as non-performing if there is objective evidence
that such loans will
likely charge-off in the future which the Trust has determined to
be when loans are delinquent for greater than 30 days. For performing loans, the Trust
is required to record an allowance for loan losses equal to the expected
losses on that group of loans
over the ensuing twelve months. For
under-performing and non-performing loans,
the Trust is required to record an allowance for loan losses equal to the
expected losses on those groups of loans over their remaining
life. The Trust does not provide any additional credit
to borrowers who are delinquent. In order for additional credit
to be advanced to a borrower, they must be current on their pre-existing loan and meet the Trust’s
credit and underwriting requirements. In limited
situations, the Trust may amend the terms of a loan for customers
that are current or are in arrears as a means to ensure the customer remains
able to repay the loan. The key inputs in the measurement of ECL allowances
are as follows: •
The probability of default is an estimate of the likelihood of default over a given time horizon; •
The exposure at default is an estimate of the exposure at a future default
date; •
The loss given default is an estimate of the loss arising
in the case where a default occurs at a given time; and •
Forward-looking indicators (“FLIs”). Ultimately, the ECL is calculated based on the
probability weighted expected cash collected shortfall against the carrying value of the loan and considers reasonable
and supportable information about past events,
current conditions and forecasts of future events and economic conditions that
may impact the credit profile of the
loans. Forward-looking information is
considered when determining significant increase in credit risk and measuring expected
credit losses. Forward-looking
macroeconomic factors are incorporated
in the risk parameters as relevant. From an analysis of historical data,
General Partner has identified and
reflected in the Trust’s ECL allowance those relevant FLIs variables that
contribute to credit risk and losses
within the Partnership’s loan portfolio. Within
the Trust’s loan portfolio, the most highly
correlated variable is real estate prices.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
2. SIGNIFICANT ACCOUNTING POLICIES (Continued...)
Financial instruments (Continued...) The SPPI test: (Continued...) With respect to consolidated financial
statements items classified as loans and receivable, the Trust considers both historical analysis and forward looking information in determining expected credit losses. As at the year end date, all loans and
receivables are due to be settled within the short term. The Trust considers
the probability of default and the capacity of counterparties to meet their contractual obligation in the near term.
Financial liabilities
Financial liabilities are classified as
measured at amortized cost or fair value through profit or loss ("FVTPL"). A financial liability is classified as at
FVTPL if it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are
measured at fair value and net gains and losses, including any interest expense,
are recognized in profit or loss. Other
financial liabilities are subsequently measured
at amortized cost using the effective interest method. Interest expense is recognized in profit or loss. Any gain or loss
on derecognition is also
recognized in profit
or loss.
The Trust classified accounts payable and
accrued liabilities, prepaid interest and other holdbacks, subscriptions in advances, distribution payable and redemptions payable as measured at amortized
cost.
Derecognition
of financial instruments
A financial asset is derecognized when the rights to receive cash flows from the asset
have expired or the Company has transferred substantially
all of the risk and rewards of the asset. The
Trust assesses each reporting date whether there
is any objective evidence that a financial
asset is impaired, the impairment provision is based upon the expected
loss.
The Trust derecognizes a
financial liability when its contractual obligations are discharged or
cancelled or expire.
Cash
Cash consists of cash on deposit.
Amounts are carried at fair value.
Offsetting of financial
instruments
Financial assets and financial liabilities are
offset and the net amount reported in the statement of financial position
if there is currently enforceable legal right to offset the recognized amounts
and there is an
intention to settle on a net basis, or to realize the asset and settle the
liability simultaneously. Quantitative information on the impact on the Trust's statement of financial position
if all amounts were set off is required.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
2. SIGNIFICANT ACCOUNTING POLICIES (Continued...)
Revenue recognition
Revenue is recognized to the extent that it is
probable that the economic benefits will flow to the Trust and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received,
excluding discounts, rebates
and other sales tax or duty.
Mortgage loan interest and interest rate
reduction fees are recognized in the period in which they are earned.
Lender's fees are earned at
the inception of the mortgage loan. Such fees are accounted for on the accrual basis.
Discharge fees are earned when the mortgagees
repay the mortgage before the due date. Such fees are recorded on the
discharge date.
Redemption charges are earned when unitholders redeem their units prior to the minimum holding period as specified in the Trust Offering Memorandum. Such fees are accounted for on the date of redemption.
Provisions
The Trust recognizes a provision, if as a
result of a prior event, the Trust has a current obligation requiring the outflow of resources to settle. Provisions are recorded at the Trust Manager's best estimates of the most probable outcome
of any future settlement.
Valuation of redeemable units
The units of the Trust may be surrendered for
redemption at any time but will be redeemed only on a Valuation Date and at no other time. Distributions to Unitholders may be paid by cheque
or by issuance of additional Units. The Trust’s units are therefore classified as financial liabilities. The Trust’s units do not
meet the criteria in IAS 32 for classification as equity. The net asset value per unit is determined
as of the close of business,
monthly. The determination is made by
dividing the net assets attributable to holders
of redeemable units (“Net Asset Value”) of the Trust at that date by the total
number of units outstanding.
Comprehensive
income attributable to holders of redeemable units per unit
Comprehensive
income attributable to holders of redeemable units per unit as disclosed
in the statement of comprehensive income is calculated by dividing the comprehensive income
attributable to holders
of redeemable units
by the average number of units outstanding during the year.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued...)
Critical judgements and estimates
The preparation of
consolidated financial statements in conformity with International Financial
Reporting Standards,
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. The following
discusses the most significant accounting judgments and estimates
that the Fund has made in preparing the consolidated financial
statements:
Allowance for credit losses
The determination of the allowance for credit losses on mortgage
loans receivable is the most significant estimate. The key inputs
in the measurement of ECL allowances, all of which are subject
to accounting judgments, estimates and assumptions are discussed in note 10.
Assessment as investment entity
The Trust Manager has concluded that the Trust
meets the characteristics and the definition of an investment entity, in that it has more than one investment and is managed
in accordance with the Trust's
investment guidelines; the investments are predominantly in the form of
mortgage loans. These conclusions will be reassessed on an annual
basis, if any of these
criteria or characteristics change.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
3.
MORTGAGE LOANS RECEIVABLE
2022 2021
Mortgage loans receivable $ 57,747,945 $ 38,818,690 Provision for uncollectable amounts
753,000 -
$ 56,994,945 $ 38,818,690
Summary of mortgages
by types is as
follows:
As at December 31, 2022
Gross principal Allowance for expected
credit losses Net principal
Stage 1 Stage 2 Stage 3 Residential
L
As at December 31, 2021
Gross principal Allowance for expected
credit losses Net principal
Stage 1 Stage 2 Stage 3 Residential 1st mortgage $ 5,415,750 $ - $ - $ - $ 5,415,750 2nd mortgage 16,690,940 - - - 16,690,940
Commercial
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
4.
TRUST UNITHOLDERS ENTITLEMENTS
The Trust unitholders' entitlements with respect to the net assets attributable to the holders of redeemable units and distribution of income are generally as follows:
a)
Ownership of assets The pro rata share of the net assets
attributable to holders of redeemable units of the Trust in the proportion that each Trust unitholders' capital
bears to the aggregate Trust's
capital.
b)
Allocation of net income or loss Net income of the Trust will be allocated on
an annual basis, in arrears, 99.999% to the Trust unitholders and 0.001% to the General Partner of Ready Capital
Mortgage Limited Partnership to a maximum
of $100 per annum. The Trust
Unitholders' share of the income and loss of the Trust is allocated to Trust unitholders in the
proportion to their ownership of redeemable units at the commencement of the period.
c)
Distributions of income On each distribution date, on or about the 10th day of each calendar month, distributable cash will be distributed
first, as to 99.999% to the Trust unitholders in proportion to the number of
units held by each Trust unitholder on the distribution record date immediately preceding date of such distribution; and second, as to 0.001%
to the General Partner of Ready Capital
Mortgage Limited Partnership to a maximum
of $100 per annum.
d)
Redemptions Trust unitholders may redeem the units by tendering to the Trust the redemption notice specifying the Trust unitholders wishes to have the units
redeemed by the Trust. Early redemption penalties may apply if the redemption notice is not delivered in the manner as
required in the Trust Offering Memorandum
Upon redemption, the Trust unitholders will
receive proceeds of redemption equal to aggregate fair value of the units, together with an amount equal to all
interest dividends declared thereon and remaining unpaid.
The Trustees have the right to require
a Trust unitholder to redeem some or all of the units owned by such Trust unitholder on a redemption
date designated by the Trustees at the fair value per unit thereof on such date, less all applicable
deductions and fees, by notice in writing to the Trust unitholder before
the date of redemption, which right may be exercised
by the Trustees in its absolute discretion.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
5.
FEES AND EXPENSES
a)
Mortgage administration fees
The Trust pays to the Mortgage Administrator a fee of $1,350 per month.
b)
Mortgage management fees
The Trust pays the Mortgage Manager by payment
of a monthly fee equal to 1/12th (one twelfth) of 2.00% (plus H.S.T) of the amount of the mortgage
receivables of the Trust as of the last business
day of each calendar month (the “Mortgage Management Fees”). The fees
may be subject to waiver or adjustment in accordance with the terms of the Mortgage Management Agreement, including in order to meet the target distribution yield of the Trust of approximately 8.0% per annum,
net of fees.
c)
Performance fees
The Mortgage Manager
is also entitled to a performance fee paid by the Trust to the Mortgage Manager
payable in respect of a calendar year
in which the net return of the Partnership exceeds 8.0% for such year and is equal to 20% of the aggregate net return of the Partnership for such year which exceeds
the 8.0% “hurdle” rate of return.
d)
Mortgage Originator
fees
The Mortgage Originator
is entitled to all lender, broker, origination, commitment, renewal, extension, discharge participation, NSF and administration
fees (“Lender/Broker Fees”) generated on Mortgage Investments it arranges and presents to the Trust. Generally, such fees are in the range of
2–6% of the loan amount
although in certain
circumstances the amount
can be higher.
e)
Commission
The Trust will from time to time retain and engage registered agents, securities dealers
and brokers and other
eligible persons to sell the Units. Any commissions, finder's fees or referral fees or other compensation payable (including expense reimbursements) by the Trust Manager
in connection with the distribution and sale of the Units will
be payable by the Trust. The Trust may pay a commission in connection with the Unit Offering of up to
one percent (1%) of the value of the securities purchased in the Unit
Offering.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
5.
FEES AND EXPENSES
(Continued...)
f)
Operating fees
The Trust is responsible for the payment of all routine and customary fees and expenses
incurred relating to the administration and operation of the Trust including, but not limited
to: Trustee fees and expenses; management fees; custodian, and safekeeping fees and expenses;
registrar and transfer agency fees and expenses;
audit, legal and record-keeping fees and expenses; communication expenses;
printing and mailing expenses;
all costs and expenses associated with the qualification for sale and distribution of the Units
including securities filing fees (if any); investor servicing costs;
costs of providing information to Unitholders
(including proxy solicitation material, financial and other reports) and
convening and conducting meetings
of Unitholders; taxes, assessments or other governmental charges of all kinds levied against the Trust; interest expenses;
and all brokerage commissions and other fees associated with the purchase and sale of portfolio securities
and other assets of the Trust. In addition, the Trust will be responsible for the payment of all
expenses associated with ongoing investor relations and education relating to the Trust. The Trust Manager
will also be reimbursed for any expenses of any action, suit or other proceeding in which or in relation
to which the Trust Manager or the Trustee and/or any of their respective officers, directors, employees, consultants or agents (as applicable) is entitled to indemnity by the Trust.
6.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2022 2021
Accounts payable $ 617,458 $ 216,224 Accrued liabilities 50,000 123,107 $ 667,458 $ 339,331
7.
UNITS ISSUED AND OUTSTANDING
The authorized capital of the Trust consists
of an unlimited number of trust units, issuable in series designated in one or more classes of
units. Each issued and outstanding
unit represents an undivided interest in the net assets of the Trust.
The unit transactions for the year ended December 31, 2022 are as follows:
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
8.
RELATED
PARTY TRANSACTIONS $540,000 of mortgage loans
issued to one of the trustees was discharged during the year with a remaining mortgage loan balance of $Nil (2021 - $220,000). For the year ended December
31, 2022, interest income of $30,047
(2021 - $52,838) was earned from such mortgage
loans receivable. Included in interest receivable is the amount of $Nil (2021 - $3,000) due from Moneybroker Canada Inc., an entity subject
to common control
of the Trust. Included in accounts payable and accrued
liabilities is the amount of $147,284 (2021 - $99,206) due to Moneybroker Canada Inc., an entity
subject to common control of the Trust. During the year, the Trust incurred
Mortgage Origination fee of
$86,207 (2021 - $99,206). During the year ended December 31, 2022, fees paid to the Trust Manager were as follows:
consideration prescribed by the offering
documents of the Trust. When related
parties enter unitholder transactions with the Trust,
the consideration is the transactional NAV available to all other unitholders on the
trade date.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
9.
MINORITY INTEREST The minority
interest represents the interest of the Trust owned by the General
Partner of Ready Capital Mortgage Limited
Partnership. During the year ended December 31, 2022, the Trust allocated
$48 (2021 - $36) of income to the minority
interest owner and as of December 31, 2022 it has capital
of $211 (2022 - $163) of the Trust.
10.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Fair value IFRS 7 requires that the Trust disclose
information about the fair value of its financial assets and liabilities. Fair value estimates are made at the statement of financial
position date based on relevant market information and information about the financial instrument. Financial assets and liabilities recorded at
fair value in the Trust's statement of financial position are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical
levels, defined by IFRS 7 and directly
related to the amount of subjectivity associated with inputs to fair valuation of these financial assets and liabilities, are as follows: •
Quoted prices (unadjusted) in active markets
for identical assets or liabilities (Level 1); •
Inputs other than quoted
prices included in Level 1 that are observable for the asset
or liability, either
directly (i.e., as prices) or indirectly (i.e., derived from prices) (Level
2); and •
Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). The Trust Manager has determined that cash
amounting to $4,447,287 (2021 - $4,370,580) is the only asset classified as level 1 financial assets at fair value through profit or loss. The Trust's financial
instruments consist of mortgage loans receivable, cash, interest receivable, distribution payable, accounts payable and accrued liabilities,
redemptions payable, subscriptions in advance,
and prepaid interest and other holdbacks. It is the Trust's opinion that due to
the short term nature of these
financial instruments, the Trust is not exposed to significant market price,
currency, interest rate, liquidity,
cash flow, credit, and portfolio concentration risks arising from these financial instruments except as described below. The fair value of these financial
instruments approximate their carrying values,
unless otherwise noted. i)
Currency risk The Trust may hold assets
and liabilities that are denominated in currencies other than the Canadian dollar - its functional currency. Consequently, the Trust
is exposed to risks that the exchange
rate of its currency relative to other currencies may change in a
manner that has an adverse effect on the value of the portion of the Trust's assets or
liabilities denominated in currencies other than Canadian dollars, absent any changes in market price or investment specific events. The Trust has no material exposure
to currency risk as at December 31, 2022.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
10. FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT (Continued...)
Fair value (Continued...)
ii)
Interest rate risk
The Trust may invest in fixed and floating rate securities. The income of the Trust may be affected by changes to interest rates relevant to
particular financial instruments or as a result of the Trust Manager
being unable to secure
similar returns on the expiry
of contracts or sale of securities. The value
of fixed interest financial instruments may be affected by interest rate
movements or the expectation of such movement
in the future. As at December 31, 2022, 93% (2021 - 94%) of the net assets are held in mortgage loans receivable and
7.3% (2021 - 10.5%) of net assets owned are held in cash. The remaining
portion of the Trust's net assets are substantially non-interest bearing financial instruments.
iii) Liquidity risk
Liquidity risk is the possibility that
investments of the Trust cannot be readily converted into cash when required. The Trust may be subject
to liquidity constraints because of insufficient volume in the markets for the securities of the
Trust or the securities may be subject to legal or contractual restrictions on their resale. In addition,
the Trust is exposed to monthly cash redemptions of redeemable units. The units of the Trust are redeemed on demand
at the current net assets per unit at the option of the unitholder. The Trust manages
liquidity risk by continuously monitoring actual and projected cash flows to ensure that it will
always have sufficient liquidity
to meet its liabilities when due, under normal and stressed conditions, without
incurring unacceptable losses or risking damage
to the Trust's reputation. The Trust aims to retain sufficient cash and cash
equivalent positions to maintain
liquidity; therefore, the liquidity risk for the Trust is considered minimal.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
10. FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT (Continued...) Fair value (Continued...) iii)
Liquidity risk (Continued...) As at December 31, 2022
iv)
Cash flow risk Cash flow risk is the risk that future cash flows associated with a monetary
financial instrument will
fluctuate in amount. In the case of a floating rate debt instrument, such fluctuations will result from a
change in the effective interest rate of the financial instrument, usually
without a corresponding change in its fair value.
v)
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge
an obligation and cause the other party to incur a financial
loss.
Financial assets which potentially expose the
Trust to credit risk consist principally of mortgage loans receivable. The Trust seeks to mitigate its exposure to credit risk by performing credit reviews on borrowers
on a regular basis and maintaining specific
loan to value metrics on secured properties.
As at December 31, 2022, the
Trust had $56,994,945 (2021- $38,818,690) representing 93% (2021 - 94%) of the Trust's net assets invested in mortgage loans receivable. The Trust
Manager has applied
the expected credit
loss model to assess the expected credit
losses in accordance with IFRS and has concluded that the mortgage
loans receivable in the principal amount of $53,293,945 (2021 - $37,058,690) are classified
as performing (stage 1) with no interest delinquency issues and principal and interest are due within 12 months. Five
mortgage loans receivable with a principal amount of $4,454,000 (2021 -
$1,760,000) are classified as non-performing (stage 3). The properties
associated with the mortgage loans receivable have been placed
in power of sale during
the year or subsequent to year
end or are in renegotiation. As a result of such events, a provision of
$753,000 as an expected credit losses has
been made for all mortgage loans receivable.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
10.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued...)
Fair value (Continued...)
v)
Credit risk (Continued...)
The following table shows the summary of mortgage
loans receivable by stages:
Stage 1 Stage 2 Stage 3 Total Residential
Commercial
vi)
Concentration risk
Concentration risk arises as a result of the
concentration of exposures within the same category, whether it is
product type, industry
sector or counterparty type. As at December 31, 2022, $56,994,945 (2021 - $38,818,690) representing
93% (2021 - 94%) of the Trust's net assets were invested in mortgage
loans receivable.
vii)
Market price risk
Market price risk is the risk that the fair
value or future cash flows of a financial instrument will fluctuate because of changes in market
prices (other than those arising from interest rate risk or currency risk), whether those changes are
caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market.
The Trust is not currently
exposed to market price risk as at December 31, 2022.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2022
11.
CAPITAL MANAGEMENT
The Trust Manager considers the Trust’s
capital to consist of the issued units and the net assets attributable to participating unitholders.
The Trust Manager manages
the capital of the Trust in accordance with the Trust’s investment objectives, policies and restrictions, as outlined in the
Trust’s offering documents, while maintaining sufficient liquidity to meet participating withholder
redemptions.
The Trust does not have any externally imposed capital requirements.
12.
COMMITMENTS
a)
The Trust is committed to pay the Mortgage Administrator a fee of $1,350 per month.
b)
The Trust is committed to pay the Mortgage
Manager a monthly fee equal to 1/12th of 2.0% (plus HST) of the amount of the mortgage loans
receivable. The mortgage
management fee may be subject
to waiver or adjustment in accordance with the terms of the mortgage management agreement.
The Trust
has also committed to pay a performance fee equal to 20% of the aggregate net
returns of the Trust in excess
of 8% for the calendar year.
c)
The Trust may pay a commission to securities dealers
in connection with the unit subscriptions of up to 1% of the value of the securities purchased
in the unit offering.
d)
The Trust may pay mortgage origination fees to
the mortgage originator up to 6% of the funded
mortgage.
13.
MATERIAL UNCERTAINTY
Certain impacts from
volatility of prime interest rate may have a significant negative impact on the
Trust’s operations and performance. These circumstances may continue for an extended
period of time, and may have
an adverse impact on economic and market conditions. The ultimate economic
fallout from the volatility of prime
interest rate, and the long-term impact on economies, markets, industries and individual companies, are not known. The
extent of the impact to the financial performance and the operations of the Trust will depend on
future developments, which are highly uncertain and cannot be predicted.
|