RFA Financial (TSX:RFA) Q3 2026 Earnings Call

0:00 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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two on your telephone keypad. Thank you. Ms. Heather Nichol, you may begin the conference.

0:31 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, and earnings press release, are available on CDR Plus and on our website at rfafinancial.ca. Thank you. Thank you. 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 Artists' Annual Information Form for the year ended December 31, 2024, Risk Factors Relating to the Resulting Issuer in the Management Information Circular of Artists dated November 10, 2025, and Risks and Uncertainties in RFA's Q3 2026 MD&A, all of which can be accessed on CDAR Plus 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 under reliance on these statements.

1:56 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. Financial Inc. Financial Inc. Financial Inc. With me today is Ben Rodney, our President and Chief Executive Officer, Jacqueline Koenig, our Chief Financial Officer, and Melody Lowe, our Chief Operating Officer.

3:08 With that, I'll turn things over to Ben.

3:11 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 three- to five-year targets, we remain focused on disciplined execution. We are on track with dispositions, targeting approximately $1.3 to $1.5 billion of cumulative asset sales. We also continue to target $8 to $12 billion of lending assets. For RFA Bank, our objectives include achieving a low-to-mid-team return on equity and an income trigger of 40% to 50%. Lastly, in the coming three to five 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.

4:01 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 sheets 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 Jacqueline to review our third quarter financial performance.

4:33 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 30th, 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 rate Actual credit losses represented just 0.23% of average mortgage and loan assets on an annualized basis, also specific to RFA Bank.

5:31 That concludes our third quarter financial results. I will now turn the call over to Melody for an operational update.

5:37 Thanks, Jacqueline, and good afternoon, everyone. This quarter was another period of steady progress as we continue to advance the priorities established following the merger. As Jacqueline mentioned, during the third quarter, we signed a significant new tenant to a 20-year lease agreement tolling 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 commence in the quarter. Following recent dispositions, as of September 30th, 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.

6:24 Disposition activity has continued to build throughout the year, closing $60 million in Q1, $94 million in Q2, and $110.5 million in Q3. Third quarter sales concluded a 10-property industrial portfolio in Winnipeg that sold for $76.5 million and a retail property in Alberta that sold for $34 million. Step attention to quarter end, we closed on one industrial property for a sale 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 three- to five-year target we have established for the business.

7:15 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 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.

8:08 This momentum reinforces our confidence in achieving our growth objectives and is a testament to the dedication and effort of our team. Disciplines, underwriting, and high-quality borrowers continue to be central to our mortgage funding 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 arrears rate remained low at just 0.063%, approximately 78% below the national average of 0.30%, demonstrating the strength of a 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 of the portfolio and the effectiveness of our risk management framework.

8:59 I will now hand the call back to Ben for closing remarks.

9:02 Thank you, Melody. What gives us confidence is not necessarily a single milestone, but rather the steady ongoing progress being made across the organization. With a clear strategy, strong underlying fundamentals, and substantial opportunities ahead, we believe we are well positioned to create long-term value for our shareholders. I'd like to thank you all for your time today. I will now pass the call back to the operator for our Q&A session. Operator, we are now ready to take questions. Thank you. We will now begin the question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number two on your telephone keypad.

9:53 Again, for any questions, please press star one now. We have no questions at this time. I will pass the call back to Heather Nichols for final remarks.

10:07 Thank you, Operator. On behalf of the RFA team, I want to thank you again for joining us today. If you have any questions, please feel free to contact me at our Investor Relations email address that can be found on our website and in the press release announcing our Q3 results. With that, I'll turn the call back to the Operator. Ladies and gentlemen, this concludes today's call. Have a great day.