AP Capital MIC
AP Capital is a private capital firm and requires all Canadian investors to invest through an approved Investment Dealer (IIROC) or Exempt Market Dealer (EMD). Representatives from these firms assist in completing the subscription agreements and discuss the suitability of AP Capital for each investor’s overall portfolio.
AP Capital MIC accepts new investors monthly (12 share issuances per year). With Investment Dealer or EMD assistance, open investors complete the Subscription Agreement after reviewing the most recent Offering Memorandum. Registered investors have a few extra steps as funds must come via approved trustees.
FundSERV: QWE834 (Class F)
What is a MIC?
A Mortgage Investment Corporation (MIC) is a company created by virtue of the Canadian Income Tax Act which enables investors to invest in a pool of Canadian mortgages. Investing in mortgages has long been an investment vehicle primarily available to sophisticated and affluent investors. AP Capital allows investors at all levels to share in the returns generated by mortgages on Canadian real estate.
How does a MIC work?
Investors’ capital is pooled and used to fund mortgages – mortgages secured by Canadian real estate. By their nature, mortgages generate a yield through interest rates and fees charged to borrowers. As opposed to many other real estate investments, MICs generate monthly cash flow through interest payment made by borrowers. The Income Tax Act requires that 100% of a MIC’s annual net income be distributed to its shareholders in the form of a dividend.
I thought mortgages were provided by major Canadian lending institutions?
Full-term (e.g. 25 year term) conventional mortgages are most often provided by the large Canadian lending institutions. Specialty mortgage lenders like AP Capital offer short-term (1 year term) mortgages that Canadian banks often do not offer. These are desired by some Canadians when the borrower requires funds for a minimal amount of time. Canada’s major financial institutions do not commonly provide these short-term mortgages.
What about the liquidity of my investment?
By their nature, non publicly traded MICs are not considered liquid investments when compared to equities traded on open exchanges (TSX, NYSE etc.). Understanding AP Capital’s business helps investors appreciate the liquidity of their investment. Investor capital is pooled and placed in short-term mortgages. In order to achieve the target rate of return, the company works to place investor capital in mortgages; rather than holding funds in the fund’s cash account. The company also plans for monthly dividend payments as well as redemption requests from its investors. AP Capital aims to fulfill investor redemption requests within 30-90 days. If investors can plan ahead for their retraction of shares, the corporation would prefer capital requests made 60 days prior to the company’s year-end (December 31). Further details are found in AP Capital MIC’s Offering Memorandum (OM).
Are there restrictions on how a MIC operates?
Yes, The Canadian Income Tax Act (Section 130.1) clearly outlines rules that all MICs must follow. They include:
- A MIC must have at least 20 shareholders
- No shareholder may hold more than 25% of total capital
- At least 50% of a MIC’s assets must be comprised of Canadian residential mortgages, and/or cash and insured deposits at Canada Deposit Insurance Corporation member financial institutions
- A MIC may invest up to 25% of its assets directly in real estate, but may not develop land or engage in construction. This ceiling on real estate holdings does not include real estate acquired as a result of mortgage default
- A MIC is a flow-through investment vehicle, and distributes 100% of its net income to its shareholders
- All MIC investments must be in Canada.
- A MIC’s annual financial statements must be audited
|Effective Date||December 31, 2019|
|Lendable Funds||$122.82 MM|
|Shareholders choosing 7% monthly cash distribution||52.01%|
|Shareholders choosing share re-investment (DRIP)||47.99%|
|Shareholders with open/cash investment||57.84%|
|Shareholders with registered funds (RRSP, TFSA, etc)||42.16%|
|Number of mortgages||264|
|% of mortgage funds in BC||91.98%|
|% of mortgage funds in AB||7.95%|
|% of mortgage funds in ON||0.07%|
|Mortgage funds in 1st position||69.36%|
|Mortgage funds in 2nd position||30.64%|
|Mortgage funds in 3rd position||0.0%|
|Current Loan to Value (LTV) of fund||58.78%|
|Mortgages in foreclosure||9|
|% of portfolio in foreclosure||8.08%|
|Average LTV on foreclosures||67.49%|
Quarterly Report Winter 2016