What is the purpose of the Tri City Monthly Income Mortgage Trust (“TCGMIMT” or “Trust”)?

The purpose of the Trust is to allow individuals to collectively invest in a diversified portfolio of moderated risk mortgages across Canada.  Currently the focus for lending is in urban/suburban markets in British Columbia, where we perceive the markets to be growing (leading to more stability). 

Why invest in pooled capital mortgage entities (i.e. mortgage trust or mortgage investment corp. “MIC”)? 

The objective of pooled capital is to enable an individual to achieve the benefit of economies of scale – deploying capital on a larger scale across more products.  The purpose behind the larger deployment is to generate higher returns while distributing risk across more products – this is particularly relevant for mortgage trusts/MICs.  Most individuals cannot achieve these goals on their own, because many mortgages are in B.C. are simply too large for individual investors to take on (which would also concentrate their risk into one product).  Size and scale are important in this industry.  High volume/quality mortgage brokers are the source of most mortgage deals, and like to rely on lenders with consistently available capital.  Mortgage brokers will usually not bring quality mortgage opportunities to lenders who have unreliable capital availability.

What are Mortgages and how are they different from Shares in Public Companies (“Stocks”)?   

Mortgages are registered charges against real estate in Canada.  These registered charges appear on titles, which are maintained and administered by provincial government authorities (in B.C. the entity is called the Land Title and Survey Authority of BC aka “Land Titles”).  The registered charge (in this case, a mortgage) will describe in detail, a description of the property and the characteristics of the loan agreed to by the Borrower and Lender (i.e. – loan size, interest rate, maturity, terms/conditions, etc).  Once a charge is accepted by the authorities onto a title (registered), the law ensures that those charges on title become virtually indefeasible until discharged by all the relevant parties.  While this is no guarantee that the debt can be repaid, it does provide some assurances that there is an underlying asset being used to secure the loan (i.e. – the mortgage charge on title).  Mortgage laws are quite mature and well understood in Canada.  When investors purchase units in TCGMIMT, they are acquiring equity in a fund whose sole assets are mortgages (with registered charges on real properties).  Because real estate markets generally do not move rapidly and TCGMIMT units are not exposed to derivative markets, the unit values themselves may not vary greatly (unless there are swings in the underlying assets).

A “Stock” in a public (or private) company, generally, is something quite different.  The public (or private) company could have assets of varying degrees in quality and those very assets may also be completely encumbered by other parties who may have a priority claim on them.  Those company assets themselves (if they are not clearly defined by law) may also be challenged by competitors/counterparties.  An example of assets that could be challenged include mining rights in foreign countries and intellectual properties not protected by patents.  Shares in public companies may also be quite volatile because they are exposed to significant leverage and derivatives instruments in the public markets (i.e. – see Gamestop).

We believe that the maturity of the underlying title laws in Canada, the “sticky” nature of real estate markets, and the lack of exposure to public derivatives instruments provides mortgage trusts with a potentially less volatile and more stabilized environment for generating returns.

What is the difference between a mortgage trust and a MIC?

Unlike MICs, mortgage trusts with more than 150 unitholders, can hold real estate assets long term.  MICs are generally prohibited from holding real estate long term.  It is for this reason we have selected a mortgage trust vehicle in which to hold the mortgage assets on behalf of the investors. 

Does the investment qualify for registered plans such as RRSPs, LIRAs, RRIFs, RESPs and TFSAs?

Yes.  TCGMIMT units can be purchased via the above registered accounts at Olympia Trust Company or via Computershare Trust Company

Which units are being offered?

Series A-3
Series P: inquire)

What is the difference between Series A and Series P Trust Units? 

Series P Unitholders receive a preferred fixed return that is reset annually at the 2-year Government of Canada Bond yield, plus up 480 basis points** (note = premium basis points may be lower for other types of P series units).  Series P units do not share in the balance of any Net Profits.  For 2021 the highest return for P units would be the P-1 at 5.00%*.  This return is paid to Series P Unitholders in priority to Series A Unitholders.

Series A Unitholders, however, receive distributions that are based on the net income generated by the Trust.  These “targeted” returns have different base rates for each type of series A unit (target rates also act like a “hurdle rate” over which any excess net income would be shared between the Series A Unitholder and the Manager).  The A-1 units (no longer offered) have a projected rate of 8.00%*, while the A-3 units (currently offered) have a projected rate of 8.00%*.  Should there be any excess net profits available after the targeted rates have been delivered, they would be shared 70.0% for Series A unit holders and 30.0% for the Manager.

In a liquidation event, Series P Unitholders will be entitled to be paid in priority over any distribution or payment to Series A Unitholders and Tri City Capital Corp’s subordinated units.

What is the minimum purchase and the price per unit?

$10,000 which is the equivalent of 10 units of a series

What will be the maximum loan-to-value ratio of any one loan in the Trust? 

No loan will exceed 65% loan-to-value ratio, except in rare circumstance and unanimously approved by the Credit Committee.  In general, to exceed the 75% threshold, second or third properties are taken as additional security as well (called inter-alia).  This helps brings down the combined loan-to-value ratio to a reasonable amount.

Who may subscribe to Series A3 Units?

Residents of BC, AB or ON and:

o   Have received and read a copy of the Offering Memorandum (relying on the OM exemption) and are prepared to sign the risk acknowledgement form; or 

o   Met the qualifications to rely on the Eligible Investor or Accredited Investor Exceptions in those provinces; or

o   Are a close friend, family member, business associate or affiliate of a director, executive officer, founder or control person of the trustee, provided that no sales fee is paid to such person.

*Note that in some provinces, other than BC, these exemptions may restrict the amount of investment that can be made.

How do unitholders redeem their investment?

A notice seeking redemption must be delivered to the Trust no later than the 15th day of the month before the end of the quarter. Payment of redeemed units will be made 60 days after the end of the preceding quarter in which the redemption notice was received, except for December 31st where payment of redeemed units will be made 90 days after year end. 

What is the principal’s investment in the Trust?

Tri City Capital Corp, wholly owned and operated by, Michael Goodman, has invested $1 million to purchase 1,000 Series A units.  Since Tri City Capital Corp has invested in Series A Units, all “Preferred” Series P Unitholders will receive their distributions in priority to Tri City Capital Corp.  This presumes there is enough interest and fees revenue to pay the Preferred Unitholders.  In addition, the $1 million investment will also be subordinated to all unitholders in the event of a liquidation event where the Trust must be wound down.  In such an instance, Series P Unitholders will be paid first.  See the Offering Memorandum for details.

What is the Trust’s distribution policy?

Distributions will be paid up to the 21st day following the end of the following month. The December 31st distribution will be paid on the 60th day following the end of the last quarter.  Investors may choose to have distributions paid in cash or reinvested in additional units (compounded) every month.

How is the Manager remunerated?

Management fees are 1.25% of Total Assets.  This is one of the lowest management fees in the industry.  The Manager also receives 30% of any excess net profits above the target rate paid to Series A Unitholders as a performance incentive; the other 70.0% of any excess net profits is paid to the Series A Unitholders.  All annual return figures are always expressed as “net” of all management fees.

What is the redemption fee schedule?

Series A-3

Units may be redeemed at a 1.0% discount to the adjusted book value up to the end of the first year of investment.  After the first year of investment has expired, the discount will be extinguished, and investments may be redeemed at the full adjusted book value. 

What risks are involved?

A substantial and rapid drop in property values could affect investors’ equity.  Mortgages are illiquid investments; and redemptions may occur only on a quarterly basis.  If the Trust were to wind down, once expenses have been paid, Series P Unitholders would be redeemed first followed by Series A Unitholders who would receive the balance of the assets.  In an extreme downturn, the Trust might elect to reduce/suspend distributions and take over properties in a holding pattern, waiting for values to return.  We recognize that historically, this scenario has occurred, which is the primary reason why we lend the way we do.

How often do investors receive information on the Trust?

Investors can view their monthly statements, annual audits and other special news/messages through their online account at: www.tricitymortgagetrust.ca

Is there a referral fee for individuals or existing investors who refer new investors to the Trust?

Yes, a referral fee (and in some series units, an annual trailer) may be paid to those non-registered individuals who first sign a referral agreement with Harbour Park Capital Partners Ltd. and then introduce an investor to a licensed Dealing Representative (“DR”).  

These referral agents (i.e. non-registered parties) may not provide financial suitability advice nor recommend others to invest in the Trust.  Referral agents’ activities are restricted to making the introduction to the DR. 

(Note = frequent referral activities may also be governed by the BCSC’s “business of trading” regulations)

When do I start receiving monthly distributions?

Assuming all the paperwork has been completed and funds have fully cleared the Trust’s bank account, new investment accounts can generally be activated in 10 – 14 business days.  Activations occur twice a month.  Once accounts have been activated, they become eligible to receive distributions (pro-rated) on that date (note = all distributions are paid the following month by the 21st day)

How will distributions be taxed?

Distributions (whether paid in cash or as reinvested units) are all taxed as “Income” for tax purposes.

What if my investment is an RRSP?

Distributions paid into an RRSP are not taxed as income.  RRSP taxable events usually occur when funds are withdrawn from the RRSP “umbrella” or when the RRSP is converted to a RRIF and mandatory withdrawals are enacted.   

* E. & O. E.  Past performance is not indicative of future returns** Fixed and targeted returns will vary, depending on the series unit selected. 

The answers to these Frequently Asked Questions are not exhaustive and are provided as simple responses to what may be complex questions.  Those considering investing in the Trust should read the Offering Memorandum carefully and speak with their financial advisor.