Q3 2019 Earnings Call

Please be advised that today's conference is being recorded if you acquire any further assistance. Please press star zero I would now like to turn the call over to our speaker today.

Vortex Snowpack Sir please go ahead.

Thank you better good morning, everyone and thank you for joining us to discuss try cons results for the three and nine months ended September Thirtyth 2019, which were sharing of the news release distributed yesterday I'd like to remind you that our remarks and answers to your questions may contain forward looking statements and information.

This information is subject to risks and uncertainties that may cause actual events or results to differ materially.

More information please refer to our most recent management discussion and analysis and annual information form which are available on SEDAR and on our company website <unk>.

Our remarks also include references to non-GAAP financial measures, which are explained and reconciled in our mdna.

I would also like to remind everyone that all figures are being quoted in U.S. dollars unless otherwise stated. These note that this call's available by webcast that Tricon capital Dot com and a replay will be accessible they're following the call.

Lastly, please note that during this call we will be referring to a supplementary conference call presentation posted on our website.

If you haven't already access that it will be a useful tool to help you follow along during the call you can find the presentation in the Investor information section of Tricon capital Dot Com.

Under events and presentations with that I will turn the call over to San Francisco, VP and CFO of truck on capital.

Thank you for taking good morning, everyone.

Q3 was another solid quarter for Tricon, driven by strong operating metrics in our core rental businesses.

As long as significant growth in Apple per share in third party or you want.

Let's begin with the business highlights on slide two.

And our truck in American home single family rental business and a wide grew by 32% and a full grew by 66% year over year.

As the portfolio grew in size.

Achieve strong rent growth and continued to deliver operating efficiencies.

On a similar note and why for the same home portfolio also grew by 10% year over year, mainly as a result of ongoing rent growth and margin improvements.

While achieving these strong operating results th maintain a very active pace of acquisitions, adding 918 homes during the quarter for the th joint venture.

Based on the current acquisition pace. The joint venture is expected to be fully invested in early 2021 tracking as per our business plan.

And our multifamily rental business the newly acquired U.S. multifamily portfolio delivered 6.8 same property NOI growth.

As we focus on increasing occupancy and are now within our target range of 95%.

Meanwhile, in Canada, our first multifamily development project in Toronto the Selby.

Achieved 73% Lisa.

And our development pipeline increased 3600 units with the new acquisition of blocked and the planned expansion of west on lens community.

And finally contractual fees increased by 46% year over year.

While third party are you on grew by 28% driven by a $450 million joint venture formed this quarter with a new institutional investor the Arizona State retirement system.

This exciting new venture will focus on developing single family built around communities and Masterplan communities in the U.S. Sunbelt.

Our financial performance. This quarter is reflected in our strong growth in AFFO per share a key metric, we introduced last quarter and have now formalizing our mdna disclosure.

As you can see on slide three strike on generated total assets, both 24 million in Q3.

More than double the prior year as result of 11 million.

The increase was largely driven by first.

Higher single family rental core AFFO of 19 million compared to 13 million in the first period last year as the portfolio grew in size.

And delivered high rental income and continuing expansion of the NOI margin.

Second incremental contribution of 7 million of core up a full from the us multifamily portfolio in its first full quarter under truck Oems ownership.

Third lower investment income from residential developments of 3 million this quarter compared to 5 million in the same period last year as the result of increased development costs and timing delays in our Tricon housing partners for sale business.

Fourth.

Higher contractual fees of 10 million compared to 7 million in the prior year, mainly from higher performance fees in our legacy for sale housing investment as well as strong development fees from Johnson.

And fifth and measured increase in corporate overhead to 10 million compared to 9 million in prior year to accommodate our growing staffing needs.

Overall, our AFFO per share this quarter was 11 cents, which translates to 15 cents in Canadian dollar.

And represents a growth of 67% compared to last year.

We will continue to focus on AFFO per share as a key metric of our performance going forward.

On slide four we summarize our reported I have for us and non IRS results.

You can see that track on generated high for us diluted earnings per share of 15 cents this quarter as compared to 24 cents in the same period last year. These results closely track, our adjusted EPS Usseventeen cents for the quarter and 27 cents for the prior year.

The main difference between the high for us on the adjusted figures relate to the transaction costs and nonrecurring items derivative valuation changes and unrealized foreign exchange fluctuations.

They are going deeper in the year over year variance, our adjusted EBITDA for the quarter was 83 million compared to 75 million in the same period last year accounting for 10% increase.

In addition to the drivers already discussed on slide three.

I would highlight that adjusted EBITDA included fair value gain of 18.7 million this quarter compared to $42 million in Q3, 2018, a change of $24 million.

Without this item adjusted EBITDA would have increased by 96% year over year.

I'll also note that this quarter's EBITDA does not include any fair value gains on the recently purchased U.S. multifamily portfolio as we remain holding at a cost for now.

Below the EBITDA line.

We saw higher adjusted interest expense related to our growing asset base included in the U.S. multifamily portfolio.

As long as higher deferred tax expense arising from the fair value gains on noncore assets.

These factors led the overall lower adjusted net income and earnings per share year over year.

In short the negative bearing center EPS was largely driven by changes in fair value gains, which mask the solid operating performance reflected in our AFFO per share results.

With that ill turn the call over to Gary to talk about the highlights of our business verticals and our priorities going forward.

Thank you Sam let's turn to page five and talk about operational highlights for our single family rental business, which we call trike on American homes. If you look at this is these metrics you can see that this business is clearly firing on all cylinders and notwithstanding record low resale volumes in many of our markets are proprietary acquisition.

Tool triad is allowing us to consistently hit our acquisition targets in volumes, we bought 918 homes in the quarter one by one offer the joint venture.

Restart total homes managed after some minor dispositions to 19962 homes, that's up 19% year over year 15500 homes are in our wholly owned and the rest are in the joint venture and subsequent to quarter end, we achieved very exciting milestone for US we purchased our 20000 tone in Atlanta.

And now we're setting our sights on a new goal of reaching 30000 homes and we'd like to do that within three years to organic buying.

If you look at the occupancy it's down 50 basis points year over year. This is just because we ramped up acquisition volume in Q3 2019 versus last year blended rent growth at 6.1% for the quarter extremely strong and reflects the well. We think is in seasonal insatiable demand for our middle market product is only down year over year because.

We're self-governing on renewals as or intend to really capture rent increases over longer period of time, rather than to maximize in any given quarter. All in all revenue up a very strong 26% year over year on a stronger higher lease portfolio 18414 homes and service versus 15472 homes last year.

And also a couple of as you said was strong rank growth in relatively stable occupancy and then any expense side. These are up 15%, but obviously not nearly as much as revenues. This is because of our continued internalization effort of repairs and maintenance, which I'll talk more about in the same store portfolio, but all in all in Hawaii growth of 32% year over year 49.7 million.

And our annual NOI margin at 64.7% up over 3% our year over year. This is a record for us in the quarter and which is typically.

Tougher period because of elevated each HVAC compares let's move onto slide six.

Talking about the single family rental seem home portfolio, which gives us a better indication of year over year performance I'd remind you. We've got 14446 homes in the same home portfolio, it's roughly 72% of our total portfolio occupancy here relatively stable blended rent growth very strong again at 6.4% the.

The reason for the slight reduction year over year again is because we're self governing on renewals all in total rental revenue of 5%.

We're using our revenue maximize Asian tools to basically find the right combination between occupancy and rent growth.

You will probably noticed or occupancy dip in down slightly over the last year, but we're trying to really maximize maximize revenue. So thats up 5% year over year ancillary fees. Our income is up 26% and this is something we'd like to spend more time talking to you about an investor day in January when it really early innings of dry.

Driving ancillary income the increase here is from increasing early lease termination fees doing a better job of collecting pan fees and mandating renters insurance, but we believe that we can rollout a whole number services or products, which will improve the living experience for residents and allow us to capture more income total.

Revenues all in with higher ancillary fees are up 6% year over year on the same store portfolio.

Onto expenses property taxes are up year over year, 6% year to date.

We're up about 7.5% they continued to be a drag on our margin.

But really the big story on the expense side continues to be our ability to save on repairs and maintenance and turnover and there were several factors driving this first we're performing more work orders in house and increasingly using our maintenance team to attend to HPC repairs. Tony York orders performed in house are up 15% year over year, each HVAC work.

Quarters performed internally are now up to 45% from a negligible amount last year second we become much better refining our scope of work we define the standard product across the portfolio set monthly budgets and our managing to those budgets.

Third our try ops operating technology is ensuring less leakage between budget and actuals for instance, all national pricing is tied into try off so that our teams can non spend more than the predefine prices and can only use approved suppliers and vendors with extended warranties also all scope line items now roll into a 13 Costco.

Category, which shows a cost per square foot. This enables our managers and directors to make educated approval decisions, which is integrated with Phs delegation of authority.

Fourth reusing our increased scale to drive procurement and the team competitive pricing and warranties on larger items and finally, our more diligent resin underwriting process results in higher quality residents, which in turn trains translates into less trashed homes on move out.

You can see all this together has resulted in a significant reduction in Arnhem and turnover, 19% year over year on so when you take it in tune with revenue up 6% total operating expenses down 2% that translates to seem home and why growth of 10%, which is an industry, leading metric and the same home and why margin again, a record for us in this quarter.

256 basis points. If you look at same home and why growth over a full year, it's been anywhere from about 9% to 12% again, we're seeing insatiable demand for our middle market Sunbelt product and we're continuing to be able to container costs.

Let's move onto slide seven and talking about the us multifamily portfolio.

Q3, 2019 represents the first period, where we've had a full quarter results. We acquired this portfolio in June of this year to remind everyone. On this is a high quality garden style portfolio Sunbelt, our recent vintage properties very complementary to our single family rental business in terms of geographic overlap.

The story for US here is being able to drive occupancy.

It's up a 120 basis points year over year touching very close to our targeted 95% we're doing that in some ways by sacrificing new lease growth.

So overall blended growth is a blended rent growth is lower than where we'd like it is at 1.6%, but we see this is a big opportunity once we get past, 95% are consistently hit 95% and through the transition service agreement, we seen opportunity heading into 2020 to really drive rent growth.

On the expense side, we have seen some good savings, we're benefiting from star lights asset management initiatives, which have allowed us to successfully renegotiate contracts.

At favorable favorable rates, including for valley trash and revenue management software and we've also seen some property tax recoveries as we successfully appeal assessments. So expenses all in all down 4%, which translates to very strong NOI growth of 6.8% year over year and our margins out.

250 basis points to roughly 59%.

Let's move on to slide eight and talk about our Canadian built the core multifamily development business and we'll start with the Selby, which is in lease up very strong period for US. We recorded about 110 leases Selby lease up is now up to 73% at the ended the quarter, 70% occupied if you recall, we underwrote rent of $2 and.

90 cents per foot per month, while we now have in place rent of $3.75 and Thats moving up as we leased the upper floors and now that our expenses are costs are fixed and weve a very good idea revenue. We believe that this project will generate a 6% development yield and we just locked in 10 years Simi chief financing.

At 2.4%, so thats, a 360 basis point spread we believe that's going to translate into a 10 year IR of about 20% and a margin on cost in excess of 50%. This is a home from home run for us and it bodes well for the rest of the portfolio, let's talk about that on slide nine.

So let's go through the thumbnails here, we've talked about the Selby number two is the Taylor, which is a king in spin dyna.

In the Entertainment district in Toronto and here. We've also made a lot of progress. We've now tendered 75% of construction conch construction contracts are the form work is above grade costs are largely locked in based on where rents are we think the development yield here is going to be at or above the shelby.

At the genes, which is our Scribner square project in very exclusive Rosedale Summer Hill area of Toronto, We made significant progress subsequent to quarter end, we received zoning approval from El Paso, which is the land planning Appeals tribunal. It took us roughly three years to get this down a little longer than what we'd like but if.

You go back to previous developers and actually to 25 years to zone. The site. The counsellor in the area referred this site is a graveyard for developers we now have the zoned.

We have incredibly compelling products.

And we're expecting to start demolition and construction early next year.

Our Gluster project on young between Blower and Wellesley has just started construction so thats an exciting milestone for us.

The Labatt project in core town South region Park.

Still in the development design process, we're getting ready to submit for site plan application and I think last definitely not but definitely not lease we made a lot of progress in the west on lands, we entered into an agreement with our joint venture partners Kilmer and dream to develop block 10. This is a three acre block in between blocks report.

Seven eight in each 20, if you're familiar with strong this is where the old can near rebuilding sits.

Used to be greasy spoon and were where they used to fill movies, but this is now going to be developed into a 300 unit apartment on a 130 year ground lease. The site is owned by the Ashwin Navin levels and so we're really excited about taking this forward increases our overall portfolio in the west Onlines to 1800 units and the total Canadian.

Multifamily development portfolio to 3600 units and also within the west on lands.

We we and we locked in our financing on from the federal government through the Rcs Fi program. This is the largest loan ever made by the federal government for a project. This type of 357 million and it's going to allow us to start construction eminently to a lot of progress over the quarter in our Canadian multifamily development business.

Let's move on to slide 10 in and talked about our private funds and advisory business. Obviously, the big news in the quarter was the closing of the Air Stone, Arizona State joint venture on this has allowed us to grow our third party AUM by 33% to 2.3 billion for the quarter, but I think more importantly, it allows us to achieve.

Key strategic priorities.

On the first one with the venture set up we're now well positioned to syndicate or sell our wholly own master plan communities to the venture which allows us to repatriate cash and use that to pay down leverage and continued to transform CHP off balance sheet second and in a way more importantly, and allows us to become a leader.

In the build to rent business, and an essentially transformed CHP and to build to rent business, which is in keeping with our rental housing strategy and it allows us to take full advantage over platform. We can use land provision from Johnson for these communities, we can use or private equity expertise to form relationships with best in class local builders and obviously, we can manage the.

Portfolio through th.

And on the right side of this page you can see that we've had a very impressive quarter in terms of year over year growth in contractual fees up 46% on this is driven by our performance fees on our legacy Th PE funds and Johnson also had a very good quarter lot sales up 33% year over year and lot prices.

Up 7%, we settled long term goal of wanting our contractual fees to cover our corporate overhead will actually we achieved that and then some in this quarter alone, but I will note that both performance fees and Johnson revenues are higher than what we consider to be run rate.

Let's move onto slide 11.

So now that we've transformed tricon into rental housing company and really a cash flow story, we want to focus on African per share as our key performance metric as Sam mentioned earlier, you can see on the left hand side, we're targeting a three year.

Growth rate of 10% per annum for FFO per share the target for 2019 is 37 to 40 cents in Canadian dollars. That's 40 to 52 cents or 50 cent midpoint, that's our target for the year and from there we want to grow our FFO per share by 10% per annum with a 22 target.

Yet a 50 to 55 cents or 66 to 72 cents in Canadian dollars. We wanted to give you some more insight into how we think we achieved that obviously.

These are impressive numbers compared to where most real estate companies right in terms of FFO per share growth. So we wanted to eliminate that im starting with number. One. These are the main driver so with single family rental the we we've determined this is weve annualized our Q3 AFFO.

And that $76 million and going forward over three years, we're assuming seem home and NOI growth of 4.5%.

We think thats readily achievable in this environment, we're obviously doing a lot better. We're obviously not taking into account any unforeseen circumstances or recession soon as soon as a stable economic environment, but obviously in this environment, we feel very confident about doing 4.5% that adds 24 million of EFO and we're also going to continue to invest the th joint venture.

Sure roughly 800 homes a quarter all the way through Q1, Q2, 21, we're going to assume 65% debt there at 4% taker, one third share that adds another 8 million.

And he gets us to about $108 million total FFO per ads 15 cents per share assuming 215 million diluted weighted shares.

Next key driver is us multifamily portfolio here, assuming 3% same property NOI growth that $6 million and gets us to 33 million or incremental three cents FFO per share and on contractual fees. We're assuming that we're going to raise another billion dollars of fee bearing capital and assuming 1% so that adds 10 million.

Dollars of fees, we're not taking into account any ancillary fees, such as development fees or property management fees and we're not assuming any performance fees. So we feel that that is readily achievable. If you add all of that up that's 23 cents in US dollars 30 cents in Canadian dollars. If you add that to our 2019 target actually exceeds the 20.

To target.

But we are building in some cushion offer contingency and maybe some incremental overhead.

So, let's turn to page 12, and get a sense what that looks like in terms of our targeted asset mix.

And before we do that lets just talk about the key drivers that are going to impact asset mix as we talked about we intend to complete the teach joint venture by Q1 Q2 of 21.

We are working with a broker to potentially syndicate of 50% interest in our us multifamily portfolio at portfolio of those terms makes sense.

That would be 2020 goal or target by 2022, we expect to have the majority of our Canadian multifamily development portfolio stabilized.

Our goal in Th PS continue to take this off balance sheet.

Our balance sheet value today's about 320 million, we'd like to cut that in half I within three years through asset sales and continued run off of the of the business.

And then last.

Our last development multifamily development Austin, Texas, the Maxwell is at 95% stabilized it's under contract and we expect to sell that by the end of the year. So so these drivers actually many of them are kind of one to two years not three years.

But we are taking them into account in our three year target and essentially all we're saying here is we're just going to complete what we started.

And that's how we're determining the asset mix you can see on FFO contribution development are ready is a very small component as we transform to rental housing company, but it's really de minimis by the time, we get to 22 at 5% on as you look at the breakdown between product types, 55% would be single family rental, 20% multifamily rental and 20%.

Structural fees again. This is a story of rental housing plus managing third party capital, which delivers very predictable income streams.

On the balance sheet on today were 81% core rental 19% development, our long term goals to reduce development as a percentage of our balance sheet to 10%, maybe even below that so.

So here you can see tenant 15% with these drivers by 2022 on AUM right now were 70% principal 30% third party again with these drivers that makes changes to 55% principal and 45% third party capital.

Let's move on to slide 13, and conclude with our performance dashboard. This compares.

Our actual performance in the.

Quarter compared to our goals and we're going to repeat this over and over again almost like a Broadway play so let's start with our first key priority growing AFFO per share by 10%. Obviously, we had a very very strong quarter, even if you strip out episodic performance fees, we easily be done target.

Again, you can see were up 67% year over year.

On third party UAN, we set a goal last quarter of raising an incremental 1.5 billion of fee bearing capital what with the closing of the Arizona State joint venture, we're now 27% through that target. So good progress in men in raising third party AUM book value per share. This is really a key metric that ties into IRS earnings our book value per share.

He is now up to $11.04 in Canadian dollars, and we've been able to grow that by 19% and at per annum since getting into single family rental in 2012.

On the leverage side no tangible progress in the quarter, but we did set ourselves off in many ways to achieve our longer term goal of reducing look through leverage to 50% to 55% obviously with the announcement of the Arizona State joint venture, we're positioning ourselves to syndicate, our wholly owned master planned communities and generate cash to pay down debt.

That we put the Maxwell under contract and expect to close at the end of the year and we also hired a broker to consider selling a 50% interest in our U.S multifamily portfolio and if we can achieve all of those things. We believe we can lower the look through leverage to two closer to 55% within about a year.

And last but not least on the reporting side. Our goal is to continue to improve reporting may tricon simpler and easier to understand.

We formerly adopted FFO per share this quarter, we're going to check that box in Q1, we're hoping to rollout MOCON comprehensive SG roadmap and implementation plan, we think Thats a key initiative to be more in investor friendly and last but not least we continue to review our financial disclosure and determine whether we can.

Come up with other policies or disclosure that makes us look more and more like our peers. As an example, we are exploring consolidated accounting.

And this is something that our auditors in our board are reviewing and we'll probably determine whether we adopt this sometime next year. So that concludes.

The presentation all in all a very good quarter, we made significant progress to achieving our key financial priorities. None of this would have been possible without the hard work and commitment of our team I want to thank them offer everything that they do and now I will turn the call back to Betty and take questions and will be joined by other members of our senior.

Our management team, including Sean Allen Slide any car me, Andrew Joiner and Kevin Baldrige.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question pressed upon key please stand by one we compiled the Kuni last year.

Your first question comes from the line of James Please.

Thank you Betty good morning, everyone.

Good morning, we've always wanted to see with Samsung and Broadway show. So this should be good.

Yes.

Gary.

The.

I'll, let was handed over that on the.

The margin improvements within the multifamily.

If you net out the.

Sure the property taxes that you got back from the prior period adjustments.

And I know it's early days.

You've started to see some synergies there do you think you can get the same kind of margin expansion that you've got out of the single family rental business or do you think structurally this probably tops out somewhere in that 60% range.

Yes, no I don't think we're going to get what we saw in single family rental I mean single family Remember remember we went from 58% when we acquired silver Bay up to about 65% today and part of that is just kind of learning the business and getting better at an institutionalizing at.

So we had to kind of start from scratch their multifamily is obviously and garden style is much more established structurally.

I, just don't think thats possible, but I do think we can drive the margin over time, particularly when we get through the transition services agreement and ultimately I think when we take over.

Takeover property management, we probably love to do that within a couple of years. So when we do that I think we have a better chance of driving margin, but I think it's fair to assume that even though we have gotten would feel that can some onetime events.

We do as we said look forward feel that we can grow the same store.

And why by 3% per annum.

And depending on the composition of that we should we should be able to incrementally drive the drive margin.

Makes sense.

Then as Sam mentioned, there's there were no fair value gains in that segment now obviously you've just.

It's been a quarter since you closed on them.

At what point would you start looking at fair value in that portfolio and what would the process be or would it just track sort of the H.B. I index similar to how you doing it with a single family.

Yes, I could take that Didnt will also moved to a cap rate method.

Like what it looked like for Anthony.

Any right, but the interim we're going to focus on going through and wrapping up the transition services agreement.

Potentially consider partnering up with third party investors at the time.

Want to be conservative and book and all any fair value gains for now before we syndicated and then would recommend not modeling any gains in the time being until we get to that stage in determining whether we are going to syndicated or not so.

So more like the latter part of 2020.

Yes, latter part of 2020 off to up like I said after we go above the syndication of route and if theres potentially interest and then will that will determine what the real fair value should be okay. That's good.

Just turning to the.

Builds to rent structure.

Im assuming that that's going to be done sort of would that be in the existing Johnson master planned communities like Meridian and Cross Creek or are you looking at other places to to build those.

I mean, I'm going to hand, it over to Annie He can give an update on what we're thinking what bill to rent Hey, Andy.

Hi, Dean on building Great question, we were looking at it both ways we have several.

Ads in the Johnson Master plans that we are working on carving out.

To serve as build to run communities and we think theres some real potential in those sites given the quality of those locations and the sought after nature of those communities, but we also believe there's there's meaningful opportunity outside of those master plans, particularly in closer in and smaller in town locations, which are also valuable to our.

Residents and so we're planning to pursue kind of bolt in parallel.

That makes sense and then just in terms of of the actual vehicle itself is the joint venture for just a development side of it or what it does the the pension plan want to only assets on the backend sort of in conjunction with with Ta or is there an exit around that and those assets which is van.

In two to the.

Business.

Yes. So there is so the the joint venture ideas is just for development, we don't want to run any conflicts obviously within our existing th joint venture. So it's just for development of build to rank communities.

In Arizona States on long term intention is to hold these communities. They view this as long term recurring income almond they viewed as a long term hall, okay makes sense.

Last one for me with Sam that the 2.1 million dollar charge on the.

The amendment in restatement of the.

Terms facility is that number netted out in the adjusted.

EPS number or.

If I were to look at that sort of that on a comparable basis I should back that out.

Yes, we back it out because of the transaction cost typically you would amortize that over the life, but we just expense that a move just expense the whole thing.

In the quarter.

That's correct, Okay, perfect I will hand, it back thanks, guys.

Yes.

Your next question comes from the line of Mark Rothschild.

Thanks, Good morning, guys.

Hi, Mark I think Thats, a bunch of mine, but maybe required to the joint venture.

Th Pete for the assets that would be similar to stage fee.

So to what extent you expect to reduce your equity.

And the in that segment over the next year and going forward should we pretty much assume that you're not going to be investing substantial equity in projects like that to a more with joint ventures, where you just manage the assets.

Yes, Thats correct, we're essentially.

Deeper deemphasizing TGP, we've been very clear about that we're moving into an off balance sheet business.

I said in his prepared remarks in our longer term goal is to basically caught our balance sheet exposure to this business in half so worried about 320 million today, we'd like to cut that in half within three years.

We'll probably get to a point soon weren't it will probably not even be reported segment and our disclosure.

So we really in and in many ways or kind of wining. This business down in terms as a balance sheet vehicle as a core competency, but if we're going to invest in for sale housing and particularly master plan communities, we want to do it through the the easiest joint venture.

So the ace or joint venture won't really become our exclusive vehicle offer expanding Johnson.

Largely will be turn into a build to rent business and again, we're trying to transform on TGP into a build to rent business, which is in keeping with our core rental strategy.

Okay, Great and then as regards to development project in Toronto, Yes has some interesting site.

Have you given a target for how much you expect to spend over the next year or two on these projects.

We havent, we havent provided a target, but what I would say is that.

If you look at the Theres a slide in our presentations on slot, it's as page nine and a basically shows the total development cost.

For the active projects, what we spent to date and whats remaining.

And essentially the vast vast majority of the remaining costs are going to be funded by construction debt in other words, our equities essentially in the ground.

I think from what I recall, we're going to spend something like maybe 20 million Canadian next year.

Largely all the equities in the ground.

Understood, Okay, and just lastly in regards to Th you bought I think a little over 900 homes in the quarter on is that the type of run rate that you think is achievable are you seeing any portfolios and maybe just talk about the have how values have change of late and homes you buying in regards to cap rates also.

No. It's not I mean, I wouldn't assume it's run rate I mean, we've been pretty clear that we're trying to by 800 homes per quarter over the year, but it will ebb and flow will be more acquisitive in Q2 in Q3 and that will drop off in Q4, and Q1 winners less MLS less MLS listings. So you should assume.

From a lower pace of acquisition Onesie Twosies acquisitions.

In in Q4 Mark.

And yes, we continue.

To look at portfolios.

There are opportunities to buy homes from smaller players.

In some cases are larger peers are looking to kind of re shuffle their portfolio. So there is there maybe opportunities to buy from them.

So there are there are multiple ways for us to grow.

But we basically assume that we're just going to buy one home in a time in any portfolio acquisitions would be gravy.

Okay, great. Thank you.

Your next.

A question comes from the line of Jonathan Culture.

Thanks.

Good morning, Hi, John Good morning.

Just sticking with the acquisitions.

Are you seeing much flow on the on the multi rose side.

Well I realize before I answer that I realize it didnt I Didnt fully answer marks question before on cap rates. So let me start there.

And just say that we're buying to a very high 5% cap rate, it's a very prescribed by box.

Than our joint venture partners want us to hit.

And so we're buying everything basically to five nine our blended but what I would say is that the quality of homes were buying and a five nine keeps on keeps on getting better so thats, where I would answer marks previous question and then in terms of looking for.

Multifamily opportunities we're not actively.

In the market ran looking for those opportunities, we're really more focus right now and integrating.

The former star land portfolio.

And so really we'd like to do it really integrate that over the course of 2020 get through the transition service agreement and once we once we've done that and we'll turn our attention to being more acquisitive.

Okay and that transition service agreement that ends in January correct, Yes January 31.

Okay, and then on the the joint venture where there is a state when when would you expect to vending Trinity Falls.

We think.

It's a very high probability that happening in Q1.

Okay, and then what's the breakdown between 20 falls and price in the in the fair value.

Thank you told us that yes, yes, so it's pretty much all trainee false.

Bryson would be roughly 10 million and so obviously that the under 110 or whatever it is 100 is is trendy falls.

And we're also going to consider whether we.

We would sell 89% event or whether we sell last and retain so thats something were still reviewing internally.

Okay, and then just switching gears to.

Sure I caught American homes.

And looking at the Capex that you guys are putting in there if I if I back out.

What you say you're spending on the new homes, a 19000 per home.

And just divide the rest by the number of home set.

That amount seems to be trending up on a on a quarterly basis.

Is there any color you can can give on that.

Yes, I don't think you can take the number right into the Mdna because remember some of the homes that we acquired including Silver Bay. We are ready renovated. So if you look at that number I think that number right at the mdna would be distorted number but typically.

If we're looking at acquisitions today, we're buying homes for roughly 160 $570000 and then we're putting in 20 to $25000 of capex into those homes.

And that number I would say has probably grown by by inflation on John .

But really not much more than not.

And obviously, it's a blended number because every home is different and we're trying to bring each home to a common standard. So someone was we might only spend 10 grand another homes, we might spend 30 grant.

But on the whole it's about 20 to 25.

Okay. So if you think about the holds that you've owned for a bit.

That if you're going to do a full we're going to start to think about a AFFO.

What do you think a fair number is for maintenance capex.

Home on an annual basis.

While we're still I mean, we really do want to beef up our disclosure around capex that that's something we think is really important whether we actually adopt.

Before we are still reviewing our but at the very minimum we'd like to provide all the disclosure around capex you can figure that out.

But right now the way we view the business our cost to maintain which includes repairs and maintenance turnover and recurring capex.

It's about $3000 per unit per year.

And of that 3000, I would say.

1200, 1400 is Capex John is that is that correct, John Johnny 1200 1400.

Yes, correct.

Okay, Hi on on the higher end of that Gary more like 14, 14 or $15.

But.

Okay. That's a that's it for me thanks, I'll turn it back.

Your next question comes from the line of Mario Saric.

Thanks.

Hi, good morning.

Hi, Maria.

Hi, Good just wanted to focus on the asset management part of the business I think on the call. You mentioned that you expect to be fully deployed on th JV one by early 2021.

And on the numbers of armies I'm not quite sure what percentage of deployed.

Or by year end, but I will point.

Stuart having discussions about a successor fund and how are you thinking about us the structure of a successor funds in terms of exclusivity with your existing partners versus.

Perhaps opening it up.

Two other.

Potential partners going forward.

So we should be 50% of the Wade through.

The acquisitions or venture by the end of the year.

And so if you just kind of.

Fast forward at 800 homes at quarter, we should be fully fully deployed by Q2.

21, so thats essentially the timing.

And then based on deployment, we're in a position to talk about a successor fund probably middle of next year, I would guess or maybe back half of next year to be a bit more conservative.

Obviously that initial conversation will evolve wood.

We'll take place between our existing partners.

And then we would determine.

Whether it makes sense to open it up.

I will say I will see this.

This is a hard question to answer Mario.

I would say this our existing joint venture partners made the smallest possible investment they could make at 250 million each and I think that they would both field disappointed if they could and put a lot more money into the sector.

So so that's something worth noting I will also say.

That we ultimately decided not to look further at front yard on but we did have significant private capital lined up on to look at that opportunity and I would say in addition to that.

There is more and more institutions that are taking close look at the sector. Our existing investors. Our leaders are considered to be global leaders in real estate investment.

And once they go into new asset class like this it gets other people's attention and so I think if we wanted to open this up we could find.

Probably significant more capital, but it will really just come down to whether our existing partners want to take that opportunity or not.

Got it Okay, and then maybe just.

With that in mind, you are targeting 30000 homes within three years versus 20 today, so that increases fairly comparable.

There's a little bit lower than expected increase in the homes from the current JV, which I think was 12 to 13 million homes was of data. So that would your food. Two per question is does that would imply that any next series of funds.

Would be comparable in size to what you have today or perhaps maybe the timing is off.

The number of years.

But.

When you when you get the 30000 target.

Reflect in terms of successor funds.

Yes, it basically assumes status quo and I think that assumptions is probably conservative.

But as you know we prefer to tend to be more conservative when we're making those setting those goals or.

Broadcasting to the street, what we're planning to do but.

Look I think the existing joint venture is going extremely well our partners have told us that they're very happy.

And ultimately or hope as they're going to want to put a lot more capital into sector. So maybe there's a possibility for us to go faster, but we'll see.

Okay, and then just in terms of structures the.

If you have Arizona state the co investment was 11%.

The co invest in Euro so for fund is 33%.

Is there is or.

You will co invest.

That you think about going forward as those funds get bigger and.

The product offering expense.

Yes, well I mean, we debate this stuff internally all the time.

The way, we think about it is if it's recurring income generating alpha fall, we want to have a higher co investment.

And Thats why we were comfortable with a third for the single family rental joint venture, but if it's more episodic odd development.

We really want to take that off balance sheet. So we'd like to have a lower coinvestment and thats why the co investment for the eases ventures, only 11%. So thats really the way we think about it.

Okay that makes sense and then just maybe last question on the us measure front on.

Turning to slide 12.

Of your presentation and comparing current to 22 target.

The third party portion of the are you on is expected to increase nicely.

Over the next several years, but the full contribution from the contractual fees is expect come down 600 basis points with 20%. So I'm not sure. If the current has any kind of onetime ish type fees.

But can you kind of explain.

Yes, I think I think part of that is again, because we're just assuming kind of a pretty conservative fee structure right. So remember if you look at the page before we're assuming a 1% asset management fee, we're assuming no ancillary fees that could be development fees or construe.

Next our acquisition of property management fees were also assuming no performance fees.

So so I think Thats why you look at the Pie chart it looks underweighted.

Okay. My last question, just shifting gears to th operations.

You noted that.

Lease termination fees rose.

Driver, 26% your growth in the year fees and other revenue category can you maybe expand on what the drivers behind the higher lease termination fees and how broad based on might be throughout the portfolio.

Kevin do you want to do you want to talk about that.

Right.

Sure Yes.

Good question, it's really.

The lease termination fees was one component now that we've we're also we have higher.

Kevin were the drivers and it's it's yes.

Can you hear me, let's turn can use yeah can you start over we we lost you for a few seconds of that answer.

Oh, Okay, yes sure the.

Termination fees like pet fees late fee income.

Really the biggest drivers was a just a refined.

Attention to this part of the business. So as Weve increased our systems are unbalanced our systems, we have better visibility. We have monthly reports that we're tracking and were able to to manage the process better. So it's not a change in behavior of our resident base. It just us getting.

Better at the business.

Got it okay.

Thank you.

Your next question comes from the line of Johannes Rodriguez.

Okay.

Hey, guys.

Yes.

We started off.

One of the kind of key.

Drivers.

Performance th versus.

Some of the peers over the past few quarters is the.

Hi.

Growth that you're getting on new move ins like that.

The renewal rates seem to be kind of on.

Roughly on par with invitation but.

Are you getting much better kind of you move and growth.

It gets behind that is that something you guys are doing or is it just a function of the.

Yes, it type the quality assets or.

I'm going to lead I can answer that question.

Okay.

Sure. So it's really.

We're still harnessing a little bit as the loss to lease from the silver Bay transaction people stay with US we have resins and stay with us for a year in some resin stay four to five years. So we still have turnover attributed to the properties that we bought from silver Bay and so we are harnessing that loss to lease.

We also as Gary mentioned, we self govern on our renewals and so those over time as people stay with us they they.

Build a little bit big or the loss to lease and so when they move out we harness said when we put a new resident.

In there and then our proprietary.

System that we've developed for.

Revenue management, it's pushing it's pushing rents to where we think we're comfortable.

And we've got a to where we're pricing every home every week now and we're making adjustments. We just put in some some automation, where we'll we'll if a home isn't moving fast enough we might adjusted again three days later, so we're just getting more refined and our pricing and then were harnessing alone.

Lastly.

And you on the only thing I would add to that is I think also our middle market strategy.

It's also is also driving some of that outperformance remember.

Our average size boxes 1600 square feet.

And in some of our larger peers, they might be closer to 2000 square feet. So so overall, it's a more affordable product and maybe on the margin that allows us to drive a little bit more rent growth.

Okay perfect.

Then switching to the built to right strategy you, maybe just talk about what you guys are underwriting for maybe a cost to build per home and then how the yields are I ours would compared to.

Arms that you're acquiring.

Sure I'm, Jim Im going to turn that over to John to answer that question.

Sure and Great question Johan So first on the cost side really it's going to depend on the geographic location you know the construction costs vary dramatically, depending upon the west coast or the southeast or the Midwest I would say you know we're looking at several opportunities in Texas right now and from a direct costs of the homebuilding cost that's Pennsylvania 50.

Five to $65 a foot range.

Which is very similar to market homebuilding costs, and then turning to development yield as Gary mentioned before in our joint venture or buying in the high fives on a blended basis and what we're looking at the development yields on new homes, it's really in similar markets. It's falling into the sixes. So we are seeing an opportunity to generate outsized.

Turns by building those homes versus buy.

Okay.

Great and then just on the Canadian.

Multifamily side.

You mentioned the yield for Taylor, you seem to be at or above Selby.

Maybe just fresh fresh so what the final yield.

Stabilized yield is expected to be on Selby and then.

So what.

What do you underwriting for costs per suite or cost per square foot to to build out the balance of the pipeline.

Okay. So.

The the first questions fairly easy.

We're we believe we're going to had a 6% development yield for the salvi.

You enter do you want to you want to talk about how we think about costs on a kind of go forward basis sure.

Generally answer that Johan that.

In terms of hard costs, we're trying to be inside of $300 a square foot, obviously that the markets move somewhat over the last two three years, but the combination of our in house construction team and ability to leverage relationship pricing and really get best execution, there as well.

As being very thoughtful about site selection, where we can minimize parking and transit oriented locations.

And construction considerations like that to build below sort of the headline figures that people throw around in terms of hard cost.

Okay perfect, Okay and last question.

Gary can you maybe.

Hey puts some figures behind with the largest drivers would be reducing leverage to that.

50, 50 to 55 level that you guys talking about.

Yes, I mean, it's just it's a combination of a number of things working together, which are really.

Predicated around asset sales, so think about it that way.

Potential syndication of Trinity Falls and Bryson.

The sale of Maxwell our loss development project in Texas, and the potential syndication of 50% interest.

In the U.S multifamily portfolio all of those working together have the ability.

To reduce our leveraged by about about by about 5% and then the only other thing I didn't mention as we continue to obviously receive.

Ongoing cash flow.

From or from our legacy TGP funds.

So for example, TGP one you asked is going to generate about a $75 million a cash over the next couple of years. So that obviously can be used to pay down leverage as well.

Okay Alright.

Thanks, I'll turn it back.

Okay.

Your next question comes from the line of Stephen Macleod.

Well. Thank you good morning, guys.

Good morning, Steve Good morning.

That's a great color so far in the queue and I Love My questions have been answered, but I just wanted to circle in a really quickly on the NOI margin that you've seen that th as you mentioned.

A record record for Q3.

Just wondering how do you expect that to move going forward I know you talked a lot about the RM costs and.

Goes down.

Can you just talk a little bit about any more wiggle room, you have on the NOI margin from what are already very impressive number very impressive levels.

Yes, sure I will I mean, I'm going to start by saying, we're not going to guide about 65%.

So why don't we when we look at the various components and I can give you some color on it. So so first of all in terms of revenues.

We're just seeing insatiable demand for our middle market Sunbelt product. So I think we are confident that we'll continue to be able to drive rent above.

Inflation and wage inflation for the foreseeable future. So maybe we're not going to drive rank growth at 6%.

But I think we feel pretty confident about being able to drive it at four or 5% and as Kevin talked about we're self governing on renewals were gearing ourselves room.

To push rent over time, so so that definitely gives us comfort on the expense side.

I would see the low hanging fruit in terms our NIM.

Savings and internalization has been picked off.

We have essentially caught up to a larger peers. If you look our nam as a percentage of revenue. So from now it's really kind of incremental process improvements are more economies of scale there we're going to drive.

Are they going to drive that line item I think we I think Kevin would agree we can continue to get better and better.

But I think a lot of the big savings have already been achieved and then I think the wildcard and this is really important.

His property tax write property tax is the largest.

Line item.

Our ever margin leverage in our expenses and it could be could range, depending on what market were in from 15% to 25%. So so it's a major driver and we've seen really high property tax increases now for years on this year looks like it's again, it's going to be we've guided to a range of 6% to 8% it looks like.

It's going to me in the top end of the range.

And next year, our property tax consultants also saying, it's going to be around six or 7%.

So so that's really hurting our margin I realize we'd be doing a lot better, but it's not that can't go on forever right. Because if you look at our home price appreciation annualized only 2.4% this quarter coming down.

I would view property taxes is really kind of a lagging indicator and at some point in time those property taxes are going to come down they're going to moderate and that in a sense, what really active as a tailwind for us as opposed to a headwind. So thats. The the unknown at this point, but off overtime, hopefully we get some relief.

Right Okay.

Okay. That's a that's helpful. As I said all my other questions have been answered so thank you.

Okay. Thank you thanks.

Your next question comes from the line of Gregory climb.

Hi, Jeff free I apologize Jeffrey Quanta, sorry about that.

All right just one question Jeff.

You talked about just in general about your strategy about de leveraging and increasing.

The asset management part of the business and also with your Th JV.

Up to 15000 homes that you guys have on your books like ballpark.

How much of that are or what might fit into that underwriting box that they're looking for and is that something.

As you think about maybe the next JV.

Vending in some of those houses.

Into a JV and like I said get the de leveraging pickup the management fee, so kind of killing two based upon stone.

Yes, so of the so we have 15500 homes are wholly owned.

And we Havent had any discussions with our JV partners about vending those homes into entered this vehicle or any successor vehicle.

But that gives us more flexibility on the concern. We have is if we if we then that portfolio to a JV part are the ones higher leverage. We don't you know we may not get the full benefit. So so I I think at this point, it's important that we control the the holding on portfolio.

Okay. Thank you.

[laughter].

And your next question comes from the light a follow up question from Mario Syrek.

Price or just two more really really quick ones on the original side for T.H. for me. The first one just on the the self regulation how much how much do thing or how much do you estimate that cost you in terms of rock growth this quarter I eat like how much how much mark to market or you banking within the portfolio as a result the policy.

Oh I, Kevin do you want to try to answer that.

Yeah sure Hi, <unk> you know we're really.

<unk>.

We're picking we were able to pick it up with a with a turnover that leases. So you know we we have consistently over gosh I think last six quarters outpaced I think all of our competitors and blended rent growth and it's really being able to maintain a and occupancy level, where we want it to be in a in.

Still get the rent growth. So you know at 6% blended round crowd for a number of quarters. You know, we think that were maximizing revenue as opposed to you know rent growth at all so we were able to keep people longer or you know our turnover year to date is 26.3% I think part of that is.

The way would pricing our our homes on what we're pricing renewals. We also you know believe that over time, we'll get it over time as opposed to all at one time and at the same time, you know even out our our our rents.

So and we think it's the right thing to do for residents I mean, it's a type of company that we're we're trying to be both from a customer service standpoint, and keeping people in our homes.

So you know as far as a market market, it's hard to tell because I'm not all the homes are the same that we're we're probably you know would probably running up.

4% lost at least four to five per cent lost at least but that's you know that's not really based on data just my sense.

Okay that would be across the overall portfolios an average.

That'd be across the same home portfolio, yeah, and and Mario another way to to look at it as if you look at are are are releasing spreads renewals over time, they they have moderated right because it because we're self governing and I believe they've come down from about six per cent of 5%.

Okay, and then just last week.

There's been a lot of regulatory discussion the U.S. on on the rental side.

That's a little while relative to what's kind of in the market or what's been in the market are there any region your portfolio, where it's going to flashing yellow in terms of increased.

Regulatory risk going forward.

I mean, it's short answer that is no in general the entire sunbelt, yeah continues to be very landlord friendly.

There there is we don't see any prospect of of rank control the only exception, obviously using California.

And there you know names that I I pretty high limit on on where you can raise ran so we're not we don't think we're impacted by not at all so we think you know intone, what's got no impact on her business.

Okay.

<unk>.

There is no further questions at this time and Miss Cimperman I'll turn the call back over to you.

Thank you Betty I would like to think Oh, you mean on the call for your participation. We look forward to speaking to you next year when we discuss for for your results for 2019.

[laughter].

Okay.

Yeah.