Atrium Mortgage Investment Corp

TSX:AI

Earnings Call Transcript 2022-Q4

[Operator]

Welcome to the Atrium Mortgage Investment Corporation's Fourth Quarter Conference Call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, February 15, 2023.

Certain statements will be made during this phone call that may be forward-looking statements. Although Atrium believes that such statements are based upon reasonable assumptions, actual results may differ materially.

Forward-looking statements are based on the beliefs, estimates, and opinions of Atrium's management on the date the statements are made. Atrium undertakes no obligation to update these forward-looking statements in the event that management's beliefs, estimates, or opinions or other factors change.

I now would like to turn the conference over to your host, Mr. Goodall, President. Please go ahead.

[Robert Goodall, President, CEO and Founder]

Thank you and thanks for calling in today. Our CFO, John Ahmad, will start by talking about our financial results and then I will speak about our performance from an operational and portfolio perspective. John?

[John Ahmad, CFO]

Thank you, Rob. Atrium delivered very strong Q4 financial results to cap off or was a record working year on many fronts. Our gross mortgage portfolio ended the year at $866 million, which is the highest balance ever in the company's history.

Overall, the portfolio grew $99 million or 13% from the beginning of the year. Despite a slowdown in real estate market activity, the portfolio still managed to grow $9.4 million over the fourth quarter.

Over the course of the year, we advanced $518 million of principal and had $430 million of repayments. However, both advances and repayments decreased meaningfully in the second half of the year due to a slowdown in real estate markets, driven in large part by rising interest rates.

Having both advances and repayments decreased in tandem during periods of slow activity does help maintain our portfolio balance as fewer underwriting opportunities are offset with less turnover.

During Q4, new loans advance of $63 million -- were $63 million, but this was mitigated by lower repayments of $56 million, primarily due to lack of refinancing opportunities for borrowers.

Benchmark interest rates were up 100 bps in the quarter and 400 bps over the year. This resulted in a record weighted average interest rate on our portfolio of 10.77% at year-end. This is up from 10.04% in Q3 and 8.26% from the beginning of the year. Over 75% of our portfolio is now priced off versus just 60% in the prior year. So, a large portion of market rate increases are passed on to borrowers.

On the flip side, outside of equity, our funding structure is comprised of convertible debentures and credit and our credit facility. Our convertible debentures are essentially fixed at favorable rates that don't reset until at least mid-2024 at the earliest. And the majority don't reset until 2025 to 2029.

And our credit facility, which does move with prime represents just 26% of our total sources of funding. The rate on our credit facility did increase to 6.25% in the quarter and was 4.57% for the year versus 2.6% in the prior year.

During the quarter, we recorded $1.2 million of provision expenses to increase our allowance to $10.7 million or 124 bps of the gross mortgage portfolio. This is up from 111 bps at Q3.

We did not have any Stage 3 or impaired loans at year-end. So, the allowance is strictly for performing loans. In the prior year-end, the total allowance on performing loans with exclusive impairment was 99 bps. This higher level is warranted due to a weaker macroeconomic outlook, which we believe results in higher credit risk for all lenders.

We did have a slightly higher proportion of loans classified in Stage 2 relative to Q3 at year-end. These are loans that we've assessed as higher credit risk but are not impaired. But mind you, these loans just represent just 3% of our total portfolio is actually down from 6% in the prior year.

In addition, only three of six of these loans are in technical default for our leaders [ph] that's out of a total of 260 total loans at year-end. So, overall, our portfolio at year-end is holding up quite well in these market conditions. Outside of the provision, all other expenses were relatively consistent with prior quarters and in line with expectations averaging around 1.1% of total allowances.

So, pulling it all together, in 2022, we achieved a record high portfolio balance, record weighted average interest rate on that portfolio and remain disciplined reset our operating expense base. This translated into record net income of $46.3 million or $1.08 per share compared to $41.8 million or $0.98 per share in the prior year.

Our Q4 EPS of $0.31, which is up from $0.25 in the prior year was also a record for Atrium since going public. As a result of our strong year, we are very pleased to announce a record special dividend of $0.23 that will be paid to shareholders on record at December 30, 2022.

As a Mortgage Investment Corporation, it is our intention to distribute all of our taxable income earned to shareholders this year, including our annual dividend of $0.90 that is paid at a rate of $0.075 monthly, we are paying total dividends of $1.13 to shareholders. This is a few cents higher than our EPS of $1.08, largely due to an atypical -- I'd call atypical impairment charge taken on one of our investment properties in Q1 that is recorded for IFRS accounting purposes, but not recognized for tax purposes until the property is sold. So, there is a timing difference between accounting and tax rules that we expect will reverse over time.

So, stepping back, 2022 was nothing short of an incredible year for Atrium and its shareholders. The business continued to grow adapted to changing market conditions and delivered consistent and increasing returns quarter-over-quarter.

Most importantly, the business is well-positioned for challenging real estate market conditions that will likely persist in the coming quarters. Our LTVs and loan quality remains strong, our leverage of 45% to 46% remains modest, and we have funding capacity in place to grow should the right opportunity arise.

This concludes my comments. Rob, I'll pass it back to you.

[Robert Goodall, President, CEO and Founder]

Okay. Thanks. What a great year. As John said, Atrium generated earnings per share in Q4 of $0.31 for an annual total of $1.08 per share. These earnings blew away our previous records and it was the first time that we surpassed earnings of $1 per share in our 10-year history as a public company. The previous quarterly earnings record was $0.27 per share in Q3 of 2022, so just last quarter and the previous annual earnings record was $0.98 a share.

The mortgage portfolio increased by almost $100 million in calendar 2022 and finished at $866 million, up 12.9% from the previous year. In Q4, we had loan advances of $63 million, which reflects a slowdown in the real estate activity in the market. For the quarter, 77% of the new funded loans were in Ontario and 23% from BC.

We're seeing a number of lending opportunities because the major banks have tightened their credit standards, and the private lenders are having much more difficulty fundraising.

The other good news is that our floating rate pricing is much closer to bank pricing than it was in the past. So, we can compete more effectively against the institutional banks.

For example, when prime was 2.45%, our lowest rate was about 7.5%, equivalent to prime plus 5%. But with prime currently at 6.7% and we can price at a much finer rate over prime. This will allow us to source high-quality loans, which is particularly critical as a consideration at this point in the economic cycle.

It's also a good time to be a publicly traded mix as we don't face the dilemma that many private lenders are facing, that is a lack of liquidity to make new loans because fundraising is very difficult and may not offset redemption requests from investors.

In Q4, loan repayments also reduced to $56 million, similar to the $57million that was repaid in Q3. I've noted in the past that the slowdown in both new loans and repayments is a normal feature of softer market conditions. We expect the lower level of repayments and originations will continue over the next several quarters.

The loan quality of Atrium's portfolio, as John mentioned, remained high in Q4. The total number of high ratio loans, that is loans greater than 75% loan-to-value was $26.3million, equal to just 3.04% of the portfolio.

There are two high ratio loans in the commercial and multi-residential portfolio, neither of which are in default. The first, I think we've mentioned before, which is a $7.4million second mortgage with a major developer in Toronto, which was underwritten and funded at a 78.9%loan-to-value. We think that the developer bought very well and the guarantee is very strong, so we continue to like this loan.

The other is a $14.7 million first mortgage in BC, where the asset was recently reappraised and the loan-to-value increased to 79% of appraised value. We hold collateral security in the form of a newly leased apartment, which is listed for sale and in the process of being sold and will pay down our loan-to-value to 65%.

In Q4, the average loan-to-value for the portfolio as a whole decreased from 61.4% last quarter to 59.4% at year-end and continues to remain well below our target of 65% loan to value.

Turning to our operations. The geographic composition of the portfolio is now 73.5% in Ontario, 25.5% in BECAUSE, and 1% in Alberta. We remain comfortable with this geographic allocation.

By sector, 72% of the new loans funded in Q4 were residential or multi-residential loans with the balance being commercial loans. In Q4, the average rate in Atrium's mortgage portfolio jumped again to 10.77% from 10.04% last quarter. This rate increase was due to the fact that prime increased twice in Q4 by a total of 1%, first on October 26th and a further basis points -- 50 basis points on December 7th.

Over the course of the year, we repositioned the portfolio to benefit rising short-term rates. And by year-end, over 75% of the portfolio at prime-based pricing compared to only 60% at the start of the year. I think it's unlikely that Atrium's average interest rate will rise though from this point forward.

Atrium's percentage of first mortgages continued to be high at 92.5%, Ontario and BC each had more than 90% of their respective loan portfolios in first mortgages. It's worth noting that the percentage of construction loans remains low at only 6.5% of the portfolio and our average loan-to-value on construction loans dropped almost 5% to 61.7%.

Given the difficulty in controlling construction costs, we feel a conservative level of exposure to construction loans is appropriate at this time. Perhaps the best -- perhaps the risk metric, which best exemplifies our conservative lending philosophy, is that 97% of the portfolio is less than or equal to 75% loan-to-value. which reflects a very defensively positioned portfolio.

Turning to defaults. There were only two commercial loans in default, representing just 1.4% of the total portfolio. Defaults in the single-family mortgage portfolio consisted of only one loan totaling just over $700,000.

Of the two commercial loans in default, the first commercial loan has a balance of approximately $7.5 million and has been in and out of default over the last couple of years due to the excess amount of debt subordinate to Atrium, which is in first position and also because of an uncooperative and unscrupulous borrower.

The loan has an estimated loan-to-value of 64%, and we do not foresee a loss. Atrium's remaining collateral consist of Phases 2 to 4, which has draft plan approval for 138 building lots as well as a six-acre school site in a small commercial block.

The good news is that Phase 2 and Phase 4 were just registered a couple of days ago and are expected to result in a pay down of $6 million in March 2023. We expect the other two phases to be serviced in late spring or early summer and registration to occur in Q3, at which time the loan should be repaid in full.

The other loan is a first mortgage -- the other commercial loan that's in default is the first mortgage in Calgary with a loan amount of only $1.43 million. The loan had remained current throughout the difficult economic downturn in Alberta over the last several years.

Unfortunately, the two business partners have now got into a disagreement despite the market being in a much stronger condition and have stopped making monthly payments as a result of the disagreement. An appraisal has just been finalized, and we can now begin the selection of a realtor to list the property.

Overall, we're pleased with the resiliency of the portfolio. We analyze and risk rate each loan every quarter to stay close on any emerging risks.

Turning to the loan loss provision. Atrium's loan loss provision increased in Q4 by a material amount, $1.23 million to reflect the increased risk in real estate markets and the economy overall. The loan loss reserve is now equal to 124 basis points on the overall portfolio, up from 111 basis points on September 30th and 102 basis points on June 30th.

Turning to foreclosures. We continue to have two foreclosed properties, A fourplex in Leduc and the second is a 90-unit rental project in Regina. The news on these two foreclosed assets is very positive. We believe that the $1.1 million carrying cost for Leduc continues to be appropriate as it is consistently 100% leased and generates a 4% to 4.5% yield.

The carrying cost of the Regina apartment is $13.2 million, which we believe is also representative of the current value. We had noticed and remarked in earlier quarters that the Regina market -- rental market had tightened remarkably quickly over the last nine months. In fact, the occupancy rate in our project has increased from 79% at the beginning of the year, so in January 2022 to 97.8% at year-end.

In addition, we've eliminated offering any free rent, and we recently raised our rental rates by 4.1% for the first time since we foreclosed on the asset. The 2002 market rental survey for Regina, which was just recently released, confirmed that there was a dramatic improvement in market conditions in the city. They reported an overall vacancy rate in Regina of just 3.2%, down from 7.1% last year and 7.5% in 2020.

My economic commentary is as follows; the economic news in Q4 showed a continual gradual slowdown in the economy. GDP edged up 0.1% in November and the estimate for December is the GDP will be unchanged. These results suggest that GDP growth in Q4 will be half the rate from the previous three quarters of 2022.

Many economists are still expecting a recession in the first half of 2023, although job growth continues to surprise the upside and the unemployment rate of 5% remains in record low territory.

The Bank of Canada has raised its overnight rate to 4.5% in the last nine months with the latest 0.25% increase occurring in January 2023. But the bank recently indicated that it is pausing additional rate increases until it can assess the impact that its rate increases have had on the Canadian economy.

Inflation in Q4 dropped to 6.3% in December from 6.8% a month early -- quarter earlier. Although the improvement in inflation numbers has been slow, this reduction is a continued trend from the peak inflation rate of 8.1% in the summer of 2022. The latest three-month change in core inflation, excluding food and energy expressed as an annual rate reduced to just 3.7%.

As a result, some economists believe that inflation in Canada will be as low as 3% to 4% by midyear and potentially lower by year-end. The Bank of Canada itself expects inflation to fall to 2.6% by year-end and 2% in 2024.

If such an improvement were to actually occur, we could expect short-term rates -- short-term industry rates to start dropping towards the end of the year and certainly by early 2024.

Turning to the real estate markets and first, looking at the commercial market, commercial markets. Cap rates in commercial real estate rose an average of 49 basis points in 2022 according to CBRE. Despite continued strong demand, industrial cap rates are up 65 basis points to an average of 5.46% across the country.

Multi-family, not surprisingly, was the most resilient with average yields only growing by 20 basis points. The weakest sector was the office sector where cap rates have risen 90 to 100 basis points in calendar 2022 and which is not surprising given that the office vacancy rate nationally is around 17%. REIT prices, which dropped over 20% in 2022, and started to recover in early 2023 and were up 11%in January.

Turning to the housing market. Across Canada, housing sales and prices in 2022 and were not surprisingly down substantially from the record year in 2021. First, looking at the resale market. In January 2023, resales were down 44.6% year-over-year in the GTA and 55.3% in Metro Vancouver. The total number of homes listed for sale also continued to creep up or remained at acceptable levels.

On a benchmark price basis, Toronto resale prices are down approximately 14.2% year-over-year, while Vancouver prices have dropped 6.6%. The only good news is that the benchmark price over the last month was flat in the GTA and down only 0.3% in Metro Vancouver. It's difficult to say whether this suggests that prices have bottomed or not.

In the new home market, new home sales in the GTA dropped 36% in calendar 2022, both the number of high-rise sales and low-rise sales saw a decline. The benchmark price for high-rise and low-rise product fell by2.8% and 4.2%, respectively, on a year-over-year basis.

The supply of unsold high-rise inventory in the GTA is still reasonable and 57% of that number is in the presales stage so those buildings may never get built. 93% of the units, which are currently under construction are presold, and there are only 531 units sustaining inventory.

Similarly, the inventory of unsold low-rise homes is modest at 1,730 units. In Vancouver, new home sales in Q3 were down 72% on a year-over-year basis. Fourth quarter information is not yet available.

Absorption rates for project launches in Q3, for concrete, wood frame, and townhouse projects were 24%, 44%, and 33%, respectively. Standing inventory of completed move-in ready units at the end of Q3 and was acceptable at 679 units.

So, it's safe to say there's not a lack of demand for housing today, but rather that the problem is affordability and more specifically, the cost of debt caused by the sudden escalation of industry rates over the last nine months.

The key to a housing and commercial real estate recovery is a reduction in inflation in interest rates. Fortunately, five and 10-year bond yields have reduced somewhat to 3.28% and 3.11%, respectively, would suggest that the bond market believes that inflation will drop.

Once interest rates do drop, the GTA and Vancouver market should recover quickly for the following three reasons; number one, the structural housing shortage in both cities, which can't be remedied anytime soon, number two, immigrations at record levels and the federal government intends to increase the immigration target to 500,000 people annually in 2025.Ontario and BC, by the way, attract 44% and 15% of all new immigrants to the country. And the third point is that apartment and condominium rental markets continue to be exceptionally strong in the GTA and the GBA.

So, to summarize, Q4 was an incredible and record-breaking year for Atrium. The large special dividend of $0.23 is almost three times our previous largest special dividend.

The arrears level is still low with only two commercial loans and one small single-family loan in default. The portfolio is showing resiliency in the face of weak market conditions. Our foreclosed assets are performing at their best levels ever, and I expect that they will continue to perform well through soft economic conditions.

We will probably look at selling these assets sometime over the next couple of years. Having said that, I continue to think the 2023 will be a challenging year for the real-estate industry as a whole. Today's high interest rates will continue to put pressure on real estate values and strained borrowers' abilities to service their debt.

In my opinion, a drop in inflation and interest rates is the most important change needed to stabilize the market. Until investors and developers feel assured that industry rates are beginning to decline, many will choose or be forced to stay on the sidelines.

As such, in 2023, we will be actively managing our existing portfolio to identify weaknesses early and deal with them expeditiously. We are fortunate to have five managing partners with more than 18 years of lending experience and three of us with more than 30 years of lending experience. So, we will have -- so we have the necessary experience in dealing with economic slowdowns.

However, we also intend to play some offense, while actively sourcing high-quality loan business. We're one of three publicly-traded mix in Canada that have permanent capital to deploy and it would be a waste not to take advantage of that situation.

With CMCC's large underwriting team, now totaling 13 people, we will have the capacity to be an active lender in 2023. We currently have $80 million of funding capacity available on our line of credit, and we've also worked really hard over the last six months to identify new sources of capital, both institutional and private and on a senior per pursue and subordinate basis to share loans with Atrium.

Thank you, and we'd be pleased to take any questions from the listeners.

[Operator]

Thank you sir. [Operator Instructions] And your first question will be from Sid Rajeev at Fundamental Research Corp. Please go ahead.

[Sid Rajeev, Fundamental Research Corp.]

Gentlemen, congrats on another record quarter. My first question is 75% of mortgages are tied to floating rates. What would your weighted average rate be if the remaining 25% is repriced?

[Robert Goodall, President, CEO and Founder]

Good question. I don't know the answer off hand, but what I can tell you is that our lowest yielding loans are single-family mortgages, which totaled about $100 million, and those are fixed. And so every time that they are repriced, they will go up because, for instance, a year ago, they were at 6.99%, those would be repriced at 9.24% today. John, do you know these.

[John Ahmad, CFO]

So, yes, so that would comprise about 12%, 13% of our portfolio and that would reprice not 1:1 with prime increases, but they're usually one year terms. So, we'll see a lot of turnover in that portfolio every year. So that would be price, but at a slower rate.

[Sid Rajeev, Fundamental Research Corp.]

Great. Got it. I think that's what I was trying to find out, prime increased 4% and your rates increased by 3%, 3.5%-ish, is that fair to say?

[Robert Goodall, President, CEO and Founder]

Yes. I mean, if you're going up on loan quality, as I mentioned in my presentation, you'll probably go a lower amount over prime maybe than the loan that is maturing because say you did a loan a year ago at prime plus 5, that rate is incredibly expensive right now. It's 11.7%, right?

So, when you do a renewal, if a loan is a good quality loan, you actually may have to reduce your interest rate a little bit. So, that's why I said there's going to be to-ing and froing a little bit from renewals in the portfolio. But I don't think that our rates are going to go up. They're pretty high right now. I don't think they're plump, they're going to plump it. The single-family will move up. Some of the commercial will move down. And particularly if we're going for high-quality loans for new business, it's not going to be a prime plus 5%, that's for sure.

[Sid Rajeev, Fundamental Research Corp.]

And your rates are -- how attractive are your rates versus other alternative lenders?

[Robert Goodall, President, CEO and Founder]

We've always tended to be a little bit on the low end because you don't get to a 59% loan-to-value by being in the high end. So, we'd rather play it safe and not have a whole lot of remedies to work through.

[Sid Rajeev, Fundamental Research Corp.]

Talking about loan to value, property prices are down about 20% from their peak, at least in Toronto and Vancouver peaks last year. How should we look at your LTV of 59% should we increase it by 20%? Or how should someone look at this?

[Robert Goodall, President, CEO and Founder]

I mean it's a good question because nobody goes and reappraises their portfolio. It doesn't matter whether you're a bank, a trust company, a credit union, or a non-bank lender. Nobody goes and reappraises their entire portfolio at any one point in time. You tend to reappraise it at the time of renewal.

So, 20% might be a pretty stiff way of looking at it. I think it would be. But the 59%, if you were to reappraise it all today, would be higher than 59%. It might be 70%, something like that. It might be 65%. it's hard to know because some assets progress through the loan.

The whole point of the loan is that the asset is creating value, right? Say you're lending on a mall, and it's also being rezoned for mixed use. Once it gets that rezoning, it's gone up in value. It hasn't gone down in value, if you know what I mean.

So, it's not an easy answer to question to answer. It's not an easy question to answer, and I'm not trying to be evasive, but if I was taking best guess, I'd say we're probably somewhere between 65% and 70%, if you were to reappraise everything today, but that's a bit of a wild guess.

What I can tell you is we review every single commercial loan and, to a lesser extent, every single-family loan every quarter, and I go through every single one of those as does our Board, and we feel pretty good about our loan quality right now.

[Sid Rajeev, Fundamental Research Corp.]

What I was trying to get at is so property prices have to decline another 30% for your mortgages to start going maybe underwater. So, it's again a lot of room. Ontario 74% significant increase in exposure in Ontario. We have started seeing more vendors moving to Quebec. Is that something that you're also looking into? It seems like it's an untapped market for alternate--

[Robert Goodall, President, CEO and Founder]

Sorry, going to what?

[Sid Rajeev, Fundamental Research Corp.]

Quebec?

[Robert Goodall, President, CEO and Founder]

The one loan we did in Saskatchewan was the worst loan I've done in 21 years. So, I tend to be as long as I'm running this company, I tend to want to stay where we really, really know the markets because you can think you know a market, but you really don't if you're just in there -- in that market periodically.

So, it's not -- it's deliberate that we're really large and an important lender in Ontario and in BC and really nowhere else. The only loan -- we have two loans in Alberta, one of the large loan is actually a BC developer who we think really, really highly of and has a fairly substantial operation in Alberta. So, that's the reason. That's the only new loan we did in Alberta in the last five or six years.

So, we tend to stay where we really understand the market. I know theoretically, Quebec is probably a really good market, but it is a different language. It is a different law. And sometimes, you can get yourself in trouble just being on the wrong side of the street on a development as opposed to the wrong district entirely.

So, we're pretty -- we'd rather grow slowly than go to somewhere we don't totally understand. If we did go to Quebec someday, we'd have to have somebody in place that we really thought highly of to help us run the operation there.

[Sid Rajeev, Fundamental Research Corp.]

Got it. Just one final question now. I totally understand you might not want to give guidance. I'm trying to see what the portfolio size might be by the end of this year. As you mentioned, it's going to be slow in terms of originations and repayments. Is it fair to say the best guess might be near -- I mean, the portfolio to remain flat by the end of the year? Would that be a good guess?

[Robert Goodall, President, CEO and Founder]

I think that's a pretty good guess because even if you're active, but the market is not active, you're not going to keep the lights out in terms of new volume. And if we do see a lot of activity, as I mentioned, we're going to be sharing those loans with a lot of partners that have lined up with us. It's amazing the players, including institutional who want to share loans with us right now. It's absolutely amazing.

It's very gratifying I can tell you after running AMIC for 20 years to hear institutional players wanting to partner with you because they think you're a really good underwriter.

But we also have wealthy developers who want to maybe take the back part of a loan that we do, and we have Uber wealthy families wanting to share loans parfait Atrium. So, we have a lot of nice auctions. So, if we do start to shoot the light out on new a ton of business. You may not see it in a massive increase in Atrium's portfolio. It will move up, but it will also be shared with others as well.

[Sid Rajeev, Fundamental Research Corp.]

All right. Thank you so much and congratulations Rob.

[Robert Goodall, President, CEO and Founder]

Thank you, Sid.

[Operator]

Thank you. Next question will be from Rasib Bhanji at TD Securities. Please go ahead.

[Rasib Bhanji, TD Securities]

Hey, thank you. If I could start on your portfolio -- and I know you touched upon this a bit in your prepared comments, but are there any areas in the market either by asset class or geography that you'll be more cautious towards right now? And are there any areas where you would be more comfortable into playing capital?

[Robert Goodall, President, CEO and Founder]

So, I'd say we're pretty careful in office right now, very careful in office right now. I still have memory of the early 1990s when office rates -- office vacancy rates were horrendous. And an 80% occupied office building doesn't generate much income because anyone who occupies office building knows it's downtown Toronto, anyway, it's probably $25 to $30 of tax in operating costs that a landlord has to pay on vacant space.

So, it's very expensive to have vacant space in an office building, which means as a lender that a half field office building has a real cash flow problem. Really like industrial, I think there's sort of becoming a new appreciation, again, for most types of retail.

Multi-family, obviously, is very strong. So, it's really office that we're nervous about maybe a couple of other sectors, but those are the big four that you usually think about when you're in -- when you're lending in commercial.

In the housing industry, I think you want to stay away from the high end. If you can get affordable type product, both for single-family mortgage loans and for developments, then that's probably your safest bet right now.

And we've always been sort of a 416 lender in the housing industry and occasionally 905, but we don't tend to go outside of those areas. Similarly, in Vancouver, we stay -- I think right now, 100% of our loans are in the Greater Vancouver area. We might have one outside of it, but that's it if we do.

So, we tend to stay in the most desirable areas and in the housing sort of avoid high end, which is going to come back the slowest.

[Rasib Bhanji, TD Securities]

That's good color. Appreciate that answer. And I just had two more questions, both on the credit risk side. I might have missed this in your prepared comments, but the Stage 2 mortgage in Calgary, $1.43 million. Did you share an LTV for that mortgage?

[Robert Goodall, President, CEO and Founder]

Well, we're just updating the appraisal now, so I didn't share it. But it -- that loan will be relatively tight from the latest information that we're getting. To be honest, if you want the best -- this isn't a shot at appraisers, but we actually want the best estimate of value is when you actually go to the realtors and you say, here's the property.

Fortunately, that property is a really good area. And what -- and you go to three brokers, for instance, who are well qualified to sell that type of real estate and then find out what the true value is. And we're probably several weeks away from knowing that.

So, next quarter, we'll be able to tell you with much more accuracy where we are in that asset. It's such a small asset, to be honest. I don't want to diminish it, but it's such a small asset that we're not agonizing too much over it, and it is a pretty good asset.

[Rasib Bhanji, TD Securities]

Yes, that's fair. And just the last question on the provisioning rate. So is that two quarters of higher-than-average provisions now. Are you comfortable with the allowance rate right now? Or should we expect like more of a similar buildup over the next few quarters?

[Robert Goodall, President, CEO and Founder]

I mean I think we're pretty comfortable with it now, but I think we'll play it by year to see how Q1 looks and Q2 looks like. I don't think we'll make a judgment today as to what's going to be appropriate in the next few quarters.

[Rasib Bhanji, TD Securities]

Okay, understood. Thank you for your time.

[Robert Goodall, President, CEO and Founder]

Thanks.

[Operator]

[Operator Instructions] And your next question will be from Kenton Shultis at Shultis Wealth. Please go ahead.

[Kenton Shultis, Shultis Wealth]

Hi, congrats again on the remarkable quarter and year. Just one for me today. I'm just curious Follow-on from one of the earlier questions, determining how much the drop in real estate prices affecting the loan-to-value calculation. What I'm interested in is, is there a way to know what percentage of the existing loan portfolio was originated in calendar year 2021 or the first half of 2022?

[Robert Goodall, President, CEO and Founder]

That's a good question. We don't have the number off the top of our head. But our average duration on a loan would be to two years roughly. I think our portfolio turnover was at 42% for the year. So, that should give you some indication.

[Kenton Shultis, Shultis Wealth]

Okay. So, I guess most of the ones originated at the beginning of that time period would have been rolled over by now and the other ones are getting in the tail end of it.

[Robert Goodall, President, CEO and Founder]

Yes. Well, just think of it that maybe 60% of our portfolio is pre 2022 and 40% of our portfolio, is that right? Yes -- and I get that number, right. 40% of our portfolio would have been booked and funded in 2022 and 60%prior to that, roughly.

[Kenton Shultis, Shultis Wealth]

Okay. When you say that the average duration is, say, two years, how much variance is there around that?

[Robert Goodall, President, CEO and Founder]

We don't tend to go much -- we rarely tend to go beyond three years. And the reason is, first of all, our line of credit for margining purposes, it's not eligible if we go beyond three years. So, that's a good reason why we don't like to go beyond three years. If it's a sensational opportunity we will, but it's not a loan that we can use for margining purposes to access our line of credit. So that would -- that's a fairly significant negative factor of going longer than three years.

We've done -- we sometimes do deals that are six months. I mean if there's a great low-risk opportunity there, and we know that ultimately it's going to get -- the asset is going to get sold or it's going to get refinanced to an institution, but we have virtually no risk for the six months, and we'll do a six -month deal. It's a lot of work for the time that it's on the books, but it is what it is. That's our job. Yes. So six months to three years would be the norm. So, it's not that big a gap.

[Kenton Shultis, Shultis Wealth]

Six months to three years with an average around two.

[Robert Goodall, President, CEO and Founder]

Yes.

[Kenton Shultis, Shultis Wealth]

Okay. Thanks very much.

[Operator]

Thank you. And at this time, we have no other questions registered. Please proceed with your closing remarks.

[Robert Goodall, President, CEO and Founder]

Okay. I hope you're pleased with our results. I'm not sure we can do much better than we did this year. We're thrilled with our results, thrilled with the special dividend. And congrats to those of you, our shareholders, and thank you for joining on the call for those of you who are prospective shareholders. Have a good evening.

[Operator]

Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.