September 26, 2022
We recently communicated with you on how current economic conditions, including inflationary pressures, rapid central bank tightening, and the lingering effects of the pandemic, have impacted the Fund’s operations. We highlighted how these forces were causing dislocations in real estate and real estate credit markets and were delaying the Fund’s projected timetables for borrower loan repayments and monetizing underlying real estate collateral. We noted that the Fund has successfully navigated through similar past disruptions while preserving Unitholder capital, and, with no structural leverage, a diversified portfolio, and confidence in underlying property values, we are optimistic in our ability to do so again, given patience and continued tenacity.
Another significant ongoing challenge is a continued volume of Unitholder redemptions well above historical norms, and the resulting growth of the redemption “queue”. The ability to provide unitholders with liquidity must be balanced with the Trustees’ obligations to protect the interests of the Fund and remaining unitholders by maintaining sufficient resources to execute the Fund’s long-term strategy, comply with ongoing funding commitments and meet operational requirements. The Fund has honoured over $700 million of redemptions over the past 18 months, but with the above market dislocations causing delays in converting mortgage assets to cash, this level is simply not sustainable in the near term.
After considering available alternatives, the Trustees have chosen to invoke the Run-Off Pool provision contained in the Fund’s declaration of trust. We believe that this option provides those who still want to redeem with a certain level of liquidity over time, while giving the Fund some additional capacity to carry out its objectives for the benefit of remaining unitholders.
The Run-Off Pool is essentially a redemption-in-kind of Fund units. Investors who choose the Run-Off Pool option will have their regular units converted into units that represent their pro rata share of the Fund’s assets and liabilities as of September 30, 2022. The Run-Off Pool is not a separate fund with different investments. It is not administered or managed any differently. The key difference is that the Run-Off Pool will not own a percentage of any new investments made by the Fund. Rather, as assets are converted to cash, through loan repayments, realization proceedings or sales to third parties, Run-Off Pool unitholders will receive, as redemption proceeds, their percentage share of that cash (net of commitments, liabilities and reserves), on a quarterly basis. Also, if there is surplus capital, the Trustees may purchase assets in the Run-Off Pool at fair market value, and the net proceeds will be paid to Run-Off Pool unitholders as redemption proceeds. The Run-Off Pool unitholders will also continue to receive their percentage share of income from mortgage assets that remain in the Run-Off Pool. Run-Off Pool units have the same attributes, including voting rights, as regular Fund units. If the net asset value of the Run-Off Pool is less than $100 million, the Trustees can decide to redeem, in cash (after determining an appropriate discount, if any, of no more than 12%), all remaining Run-Off Pool units.
The formal Run-Off Pool Notice from the Trustees is attached. You are receiving this notification because you are on the redemption list. You need to decide how you would like your tendered units dealt with under the Run-Off Pool provision:
Romspen Mortgage Investment Fund
162 Cumberland Street, Suite 300
Toronto, ON M5R 3N5
A summary of the Run-Off Pool is attached as Schedule B to the Run-Off Pool Notice. If you have any questions or require assistance with completing the attached form, please contact your Romspen representative or your financial advisor.
We recognize and appreciate that no single course of action can perfectly address the needs of all unitholders, but we have tried to strike the right balance. We intend to work diligently to return capital to those unitholders who choose the Run-Off Pool, having regard to the overall best interests of Fund.
Yours very truly,
Sheldon Mark Arthur Wesley
Esbin Hilson Resnick Roitman
Trustees of the Fund