TORONTO, ONTARIO–(Marketwired – Oct. 19, 2016) – Eclipse Residential Mortgage Investment Corporation (“Eclipse” or the “Corporation“) (TSX:ERM) is pleased to announce that it is calling a special meeting of holders of Class A Shares (the “Shareholders“) to consider and vote upon an extraordinary resolution approving the transition of the Corporation from the Canadian securities regulatory regime for investment funds (the “Investment Funds Regime“) to the regulatory regime for reporting issuers that are not investment funds (the “Public Company Regime“), together with related changes to the Corporation’s articles and material agreements to reflect the change in regulatory regime (the “Proposed Transition“). The Proposed Transition includes, among other things, amending the articles of the Corporation to create a new class of voting common shares and exchanging all Class A Shares for such voting common shares (which will not have any redemption features), the elimination of the trailer fee, revising the Corporation’s investment restrictions, including removal of the majority of the Corporation’s investment restrictions, changing them to investment guidelines and making certain changes to those guidelines, and amending certain terms of the Corporation’s material contracts to reflect the change from the Investment Funds Regime, including amendments to the management agreement between the Corporation and Brompton Funds Limited, the manager of Eclipse.
The Corporation has had strong performance since its inception in June 2013. Despite this strong performance, the Corporation has a very limited ability to grow and its investment strategies are limited under the investment fund regulatory framework implemented by the Canadian Securities Administrators in September 2014. Without the ability to raise new equity under the Investment Funds Regime and with the other investment restrictions now imposed under the Investment Funds Regime, assets in the Corporation may decline from the annual redemption until the strategy is no longer viable or economic for long-term Shareholders that wish to benefit from this unique investment solution. Market liquidity may decrease and operating costs may become increasingly more difficult to bear by the remaining long-term Shareholders, unless the Corporation makes the necessary changes to allow for the opportunity for growth. Management believes the benefits of transitioning to the Public Company Regime include, but are not limited to, the ability to expand its investment opportunities by allowing new equity capital to be invested in uninsured mortgages, an expanded ability to raise new capital and the potential to adopt a measured increase in the use of leverage. Management believes that the Corporation has an attractive investment strategy and with the transition from the Investment Funds Regime to the Public Company Regime, along with other operational changes, the Corporation will be well positioned to grow earnings per share and dividends over time.
Since inception, the Corporation has increased its monthly dividend and increased its net asset value by investing in a diversified portfolio comprised primarily of interests in single family residential mortgages that seeks to preserve capital and generate sufficient income to permit the Corporation to pay monthly dividends on the Class A Shares. Management is proposing no changes to the investment objectives or investment strategies of the Corporation and believes that continuing with the existing investment objectives and investment strategies leverages the Corporation’s success over the last three and a half years.
Since its initial public offering, the Corporation has paid $1.98 per Class A Share in dividends. The Corporation’s current dividend rate is $0.65 per annum, payable monthly, which represents a current dividend yield of 6.9% based on the Corporation’s closing price per Class A Share on the Toronto Stock Exchange of $9.40 on October 17, 2016. The Corporation increased its dividend from $0.60 per annum to $0.65 per Class A Share per annum in April 2015. Since inception (to September 30, 2016), the Corporation has generated a 7.8% per annum return1 which outperformed its benchmark, the FTSE TMX Canada Short-Term Bond Index, by 5.2% per annum.
With other structural amendments to the Corporation, including the elimination of the trailer fee, as well as the strong performance of the mortgage portfolio, the Corporation believes that it can increase the dividend further following the completion of the Proposed Transition. If the Proposed Transition is approved by Shareholders, it is the intention of the board of directors of the Corporation (the “Board“) and management to increase the annual dividend by $0.10 (or 15.4%) to $0.75 per annum, increasing the dividend yield to approximately 8.0% based on the Corporation’s closing price per Class A Share on the Toronto Stock Exchange of $9.40 on October 17, 2016 (although the final amount of any dividend remains subject to declaration by the Board).
The Proposed Transition will not impact Shareholders’ 2016 annual redemption right. Shareholders will also be asked at the meeting to approve the extension of the redemption notice period to December 7, 2016 to permit Shareholders to consider the results of the Meeting prior to submitting any redemption notice.
Eclipse will hold the special meeting on or about November 30, 2016 to consider and vote on the Proposed Transition. Shareholders of record at the close of business on October 31, 2016 will be entitled to vote at the meeting. Details of the Proposed Transition will be further outlined in Eclipse’s notice of meeting and management information circular that will be prepared and delivered to Shareholders in connection with the special meeting and will be available on www.sedar.com on or about November 8, 2016.
About Brompton Funds
Brompton Funds, a division of Brompton Group which was founded in 2000, is an experienced investment fund manager with approximately $2.0 billion in assets under management. Brompton’s investment solutions include TSX listed closed-end funds, mutual funds, hedge funds and flow-through limited partnerships. For further information, please call Brompton’s investor relations line at 416-642-6000 (toll-free at 1-866-642-6001), email [email protected] or visit our website at www.bromptongroup.com.
About MCAP Financial Corporation
One of Canada’s largest mortgage financing companies, MCAP Financial Corporation originates and services all mortgages for Eclipse. MCAP has more than 20 years of experience underwriting and servicing Canadian Single Family Residential Mortgages, with over $50 billion in mortgage assets managed for banks, lifecos, credit unions and institutional investors.
1 Please see www.bromptongroup.com for returns for all periods.
You will usually pay brokerage fees to your dealer if you purchase or sell shares of the investment fund on the Toronto Stock Exchange or other alternative Canadian trading system (an “exchange”). If the shares are purchased or sold on an exchange, investors may pay more than the current net asset value when buying shares of the investment fund and may receive less than the current net asset value when selling them.
There are ongoing fees and expenses associated with owning shares of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about Eclipse in the public filings available at www.sedar.com. The indicated rates of return are the historical annual compounded total returns including changes in share value and reinvestment of all distributions and does not take into account certain fees such as redemption costs or income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
Certain statements contained in this news release constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to matters disclosed in this press release and to other matters identified in public filings relating to Eclipse, to the future outlook of Eclipse and anticipated events or results and may include statements regarding the future financial performance of the Fund and the expected amount of future dividends. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Investors should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances.
