RFA Financial Inc. (RFA) Earnings Call Transcript

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to RFA Financial's Third Quarter 2026 Results Conference Call. [Operator Instructions] Thank you. Ms. Heather Nikkel, you may begin your conference.

Thank you, operator, and good afternoon, everyone. Thank you for taking the time to join us today. For this call, we will walk you through an executive summary, discuss our Q3 financial results and provide an update on our operations. Our Q3 results, including our financial statements, management's discussion and analysis, earnings press release are available on SEDAR+ and on our website at rfafinancial.ca. The Q3 presentation can be seen in real time on the webcast version of this conference call and is also available on the RFA Financial website in the Investor Relations section. The transcript and a recording of the webcast will also be made available on the RFA website after this call. . Please note that today's call will include forward-looking statements and information. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated, including those described under the headings Risk Factors in Artis' annual information form for the year ended December 31, 2024, risk factors relating to the resulting issuer in the management information circular of Artis' dated November 10, 2025. And risks and uncertainties in RFA's Q3 2026 MD&A, all of which can be asked on SEDAR+ or RFA's website. Forward-looking statements reflect management's views only as of today's date. We do not undertake to revise them or reflect subsequent events or circumstances and participants should not place undue reliance on these statements. In addition, we will reference certain non-GAAP financial measures and ratios during this call, including, but not limited to, originations, average mortgage and loan assets, net interest margin and payout ratio. These do not have standardized meanings under GAAP may differ from those used by other issuers and should not be considered in isolation or as a substitute for the measures and ratios prepared in accordance with GAAP. They are intended to provide supplemental information regarding the performance of RFA. For further details on these, please see our Q3 2026 MD&A, press release and investor presentation deck for today's session. You should also be aware that certain statements presented today, including those related to credit scores and mortgage arrears rates are based on information obtained from reputable third-party sources. While RFA has not independently verified such information, we have no reason to believe it is inaccurate in any material respect. Unless otherwise noted, all dollar references on this call are in Canadian currency. Before we get into the results, I'd like to introduce the leadership team joining me today. With me today is Ben Rodney, our President and Chief Executive Officer; Jaclyn Koenig, our Chief Financial Officer; and Melody Lo, our Chief Operating Officer. With that, I'll turn things over to Ben.

Thanks, Heather, and thank you, everyone, for joining us today. Since completing the merger in February, we have made meaningful progress on our integration and strategic priorities. As we pursue our 3- to 5-year targets, we remain focused on disciplined execution. We are on track with dispositions, targeting approximately $1.3 billion to $1.5 billion of cumulative asset sales. We also continue to target $8 billion to $12 billion of lending assets. For RFA Bank, our objectives include achieving a low to mid-teen return on equity and a net income CAGR of 40% to 50%. Lastly, in the coming 3 to 5 years, we expect to achieve a payout ratio below 65%. While we remain in the early stages of our plan, the work completed thus far gives us confidence in our ability to unlock the full earnings potential of the platform. with approximately $530 million of closed unconditional and conditional property transactions to date and a strong CET1 ratio of 16.09% at RFA Bank. We've continued to strengthen our balance sheet and increase our financial flexibility. This positions us to deploy capital strategically, invest in growth opportunities and drive higher earnings and long-term shareholder value over time. With that, I will pass the call over to Jaclyn to review our third quarter financial performance.

Thank you, Ben, and hello, everyone. Highlights for the third quarter include closing on the sale of 11 properties for an aggregate sale price of $110.5 million. As of September 30, we have approximately $334 million of investment properties held for sale. Occupancy, including committed leases, was 84% at quarter end. Leasing activity was highlighted by the signing of a significant new tenant to a 20-year lease agreement, and we also reported an 11.2% increase in weighted average renewal rates during the quarter. . Financial services metrics reported include a net interest margin of 2.4%, excluding the impact of noncash purchase price adjustments and a CET1 ratio of 16.09% specific to RFA Bank. Actual credit losses represented just 0.23% of average mortgage and loan assets on an annualized basis, also specific to RFA Bank. That concludes our third quarter financial results. I will now turn the call over to Melody for an operational update.

Thanks, Jaclyn, and good afternoon, everyone. This quarter was another period of steady progress as we continue to advance the priorities established following the merger. As Jaclyn mentioned, during the third quarter, we signed a significant new tenant to a 20-year lease agreement totaling more than 120,000 square feet with a lease scheduled to begin in 2028. We also achieved a weighted average rental rate increase of 11.2% on nearly 117,000 square feet of lease renewals that commenced in the quarter. Following recent dispositions as of September 30, the portfolio consisted of 65 diversified commercial properties in Canada and the U.S., totaling approximately 7.9 million square feet, along with 395 multi-residential suites. Disposition activity has continued to build throughout the year, closing $60 million in Q1, a $94 million in Q2 and $110.5 million in Q3. Third quarter sales included a 10-property industrial portfolio in Winnipeg that sold for $76.5 million in a retail property in Alberta that sold for $34 million. Subsequent to quarter end, we closed on 1 industrial property for a sales price of $39 million, bringing total closed dispositions to $304 million across 27 properties and a parcel of development land. . Total disposition activity, including closed unconditional and conditional transactions reached $530 million year-to-date. This represents approximately 40% of the 3- to 5-year target we have established for the business. Equally important is the quality of the execution. We have continued to achieve pricing at or above IFRS values, providing further validation of our portfolio quality. Year-to-date, closed sales and unconditional contracts have achieved an average of 5.4% above IFRS values including 4.3% above IFRS values on closed sales and 8% above IFRS values on unconditional contracts. This disciplined approach to capital recycling positions us to reinvest in higher return growth opportunities for our shareholders. Looking at Q3 mortgage originations, we're seeing sustained growth with year-to-date total originations across both on and off balance sheet, increasing 31% compared to prior year. We are already close to surpassing our full prior year origination volume and remain well positioned to exceed that level by year-end. This momentum reinforces our confidence in achieving our growth objectives and is a testament to the dedication and effort of our teams. Disciplined underwriting and high-quality borrowers continue to be central to our mortgage lending operations. This ensures our growth is measured, sustainable and consistent with our commitment to long-term value creation. In the third quarter, RFA Mortgage Corporation's remains low at just 0.03% and approximately 78% below the national average of 0.30%, demonstrating the strength of our borrower base. These results are consistent across RFA bank, where realized losses were just 0.23% of average mortgage and loan assets annualized. Our loss performance continues to reflect the resilience portfolio and the effectiveness of our risk management framework. I will now hand the call back to Ben for closing remarks.