Q1 2020 Earnings Call
Tricon capital first quarter 2020 analyst call.
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Thank you Jesse good morning, everyone and thank him for joining us to discuss truck Oems results for three months ended March 31st 2020, which were shared in the news release distributed yesterday.
I'd like to remind you that our remarks and answers your questions may contain forward looking statements and information.
Misinformation subject to risks and uncertainties that may cause actual events or results to differ materially.
For more information please refer to our most recent management's discussion and analysis.
<unk> annual information form which are available on SEDAR and our company website.
Remarks also include references to non-GAAP financial measures, which are explained and reconciled in our Indiana.
I'd also like to remind everyone that all figures are being quoted in U.S. dollars unless otherwise stated.
No that is called available by webcast that truck on capital Dotcom and a replay will be accessible they're falling nickel.
Finally, please note that during this call will be referring to a supplementary conference call presentation posted on our website.
You have an already access that there will be a useful tool to help you follow along during the call you can find the presentation and investor information section of truck on capital Dot Com.
Under events and presentations.
I thought I will turn the call over to Gary Barlow, Vice President and CEO of trial.
Thank you avoid tech and good morning, everyone I hope you're all healthy instinct seen during these crazy times, we find ourselves and let's jump right into the presentation on slide two.
It's been a very busy first quarter for our team as we complete or transformation to a rental housing company with a complete revamping of our financial disclosure, including the adoption of consolidated accounting a realignment of our operating structure and a new name for a company trike on residential which I will speak to in a minute.
For a headline results, we reported core AFFO per share of 13 cents were 18 cents in Canadian dollars, which increased 160% from the prior year I speaks to the growth in our rental income streams from an IRS perspective, we reported a loss of 21 cents per share compared to income a 16 cents last year, which was largely driven by an.
80 million fair value write down of our for sale housing investments as you know this business has been underperforming compared to our expectations and given the added uncertainty of covert 19, we thought it was put into right. These assets down to an achievable value in the current environment. It's been our goal to de emphasize this legacy business and it now represents less than 3%.
Her assets.
More importantly, our core rental business has performed very well this quarter was single family rental posting six same home and why growth of 5.5% and the U.S. multifamily business focused on expanding occupancy which reached 94.4% in the quarter.
And our first Canadian multifamily asset the Saudi is now 88% occupied and is approaching full stabilization.
Well Sammy Kevin will provide you with more insights into our results, but before we go there I wanted to share with you some of the back whenever transformation for rental housing company, which has been in the making for the better part of a decade.
Slide three is a walk down memory Wayne for many of us over the years, we organized for a company on are numerous invest in investment verticals are all part of our journey to building a leading rental housing platform. While the strategy was simple it became complicated with the use of investment any counting as well as naming conventions burberry familiar to tricon, but.
Yes, so to external parties.
We knew this needed to change and over the past two years ever find a residential strategy to focus purely on single family in multifamily rental with an integrated technology enabled operating platform unifying. These two businesses. The culmination of references the launch of a new brand in the company name trike on residential.
Let's move to slide four and begin with who we are today.
Try kind of rental housing company focused on the middle market demographic, it's really that sample and now with our move to consolidated accounting and revamped disclosure, which is more in line with our peers try kind of looks very much like attritional real estate company or a rate.
Like our new name or new logo reflects both our heritage and our vision for the future. The addition of residential illustrates our singular focus and our understanding that our residents are the foundation of everything we do.
The three bars of our logo correspond with a three pillars of our brand culture community and connectivity. They also represent our three priorities our employees our residents and our partners in that order, we believe that by prioritizing our team members. They in turn will be inspired and empowered to take ever residents.
And make a positive impact on local communities. When our residents are satisfied they rent with us Mark they are more likely the treater properties is around and they're more willing to refer new customers. We've realized that the best way to drive returns for investors and shareholders is to ensure our team and residents are fulfilled.
In keeping with our unified brand, we've realigned our corporate structure with a leadership team that spans across Canada in the United States and across our business segments I'm delighted to announce employment and Sean Allen Swipe, Kevin Baldrige, and Sherry Suski to the trike on C suite and wanted to congratulate under well deserved promotions.
As part of our rebranding we wanted to share with you our new purpose statement and guiding principles.
First our purpose statement on slide five.
I imagine a world where housing unlock slice potential imagine a world where housing unlock slice potential.
This is our why statement.
Why tricon employees wake up every morning to come to work why are we proud to say we work to try caught.
This Stephen is intended to be aspirational, it's a moving target is something we may never achieve any can mean different things to different different people. For example, it could mean imagine a world where we can simplify that lives for residents imagine a world where we can give time back for a residents. So they can focus on what's truly import.
A matching the possibilities if we can create a platform to do good and imagine for example, if we can invest in modular housing and make housing more affordable and safeguard workers.
Let me give you more literal example, I imagine your home sitting in your pajamas I know at least one person on this call is probably in their prominence.
We're sitting in your pajamas than you want to run a home you go to our website and you're interested in 123 Elm Street and Atlanta.
To activate ourselves showing out you provide us with your credit card information your driver's license and then the next day, you're going see the property you take a selfie of yourself when you get to the door that matches the drivers license the door automatically opens Nokia no touch Denny peering side.
And what do you see you see freshly counted coated walls sparkling floors in appliances, you don't have to worry about a mortgage you don't need to find a down payment you walk around the home Everything's pristine you know you don't need to go to home depot to fix anything.
You don't have to get your hand on your hands it needs to scrub it.
That's what we mean by imagining a world where housing unlocks life's potential now you can focus on what's truly important and we find by doing so we can give you back time.
If our purpose statement as or why that are guiding principles are the how let's move on to slide six.
Guiding principles you see on this slide serves a core set of values. The guide our daily judgment and overtime. They become our key success factors. Our goal was to come up with a set of values. The guys. How we conduct ourselves and which are also related to everyone at the firm from our maintenance tax to our investment team.
The reason we are sharing this with you is because we believe alignment and culture have a significant impact on operational performance. When our team has inspired empowered to take care of a residents are resonance will be happier and when our residents are fulfilled we believe it translates into better results for our shareholders investors.
Questions embraced problems and thrive on the process of innovation in interviews, we conducted with approximately 40 senior leaders across the firm to determine our key traits everyone spoke about the importance of curiosity and innovation and how is the tech enabled real estate company were capitalized.
As people and technology all exist under one roof, we have a distinct competitive advantage that needs to be sustained.
Now, let's turn to slide seven.
Earlier I mentioned, the middle market is a key aspect of our strategy.
The middle market relates to both are single family and multifamily offerings and we believe it is a winning strategy, especially in today's environment, where governments are asking people to sell shelter across the U.S. sunbelt, we're providing essential shelter for the workforce, we defined the middle markets households, running between 60, and 100000 per year paying rents of a thousand to.
100 per month. This means our residents have a rent to income ratio of about 20%, an average giving them ample cushion to weather economic hardship.
For our shareholders, we offer exposure to a relatively affordable part of the rental spectrum as compared to other U.S. publicly traded peers, which generally cater to renters at a premium price points.
We believe our business models defensive and is designed to perform well in good times and in more challenging times like today.
Before I move on to slide eight can I. Please ask everyone to put their phones on mute I'm getting some interference. Please put your phone on mute.
On slide eight we wanted to point out how their workforce is being supported by record levels of government stimulus, the onetime or lease payments and unemployment insurance top ups provided under the U.S. care Zack equates to over 4000 per month per household per month. During the four month period of the stimulus package. This is not only a much higher amount than.
Our typical monthly rent of 1200, a 1500, but in some cases the stimulus exceeds what someone would earn if they were employed.
I've talked about how our business is inherently defensive and well positioned to withstand the current downturn, but let's talk briefly about what we're doing internally to weather the storm on slide nine.
The first thing we always do is focused on our team.
By mid March we were able to transition almost all of our employees to work from home, including our call Center and we haven't skipped a beat we've worked diligently in very quickly to come up with policies and procedures, the take care of or residents and sure that they're living in a safe environment. We also wanted to limit physical contact to key people safe and obviously our investments in technology such as.
Virtual showings and sell tours have proven to be prescient.
For a residence much like our peers, we have temporarily halted evictions and Weve late April may we're all also offering flexible payment plans.
Mr Presidents experiencing financial hardship.
In terms of our investments we have policy acquisition, a single family rental homes to preserve cash, but also for practical reasons as it is difficult to conduct inspections and other closing and renovation activities and the current environment. We've also positive value add Capex program in a U.S. multifamily portfolio for similar reasons and are trying to developments life continues more.
Or license normal construction is progressing at a three sites and is largely being funded by construction loans.
With that I will pass the call over to with San Francisco, Our CFO will discuss our financial results and again I would ask everybody on the call all the speakers to please make sure your phones on me. Thank you.
Thank you Gary and good morning, everyone. Let me start with slide 10, and reiterate the five key priorities. We've introduced list last year.
These include going our core FFO per share out of compounded annual rate of 10% over a three year period.
Raising approximately 1 billion a third party capital.
Growing book value per share by reinvesting, our free cash flow into accretive growth opportunities.
Reducing our leverage and improving our financial reporting.
You can see these priorities represented in the graphical dashboard on slide 11, similar to prior quarters.
Again, our AFFO and fundraising growth targets are over a three year time horizon and we remain focused on hitting these targets notwithstanding the current economic challenges presented by Cobot 19.
Our goal of reducing leverage to 50% to 55% desktop subs also remains intact, but we'll take a little longer given the current situation. We intend to achieve this through third party asset sales, including the ultimate syndication of our us multifamily portfolio.
Our last priority was to improve reporting.
I think that is well on track with the launch of our new rebound MDM financials, accompanied by our move to consolidated accounting.
This leaves me to slide 12 were provide more details on try conns rebound this closure, where I'm very excited to share with you.
Our transition from an investment companies on ordering and operator of rental housing results in our need to transition from investment entity accounting to consolidated accounting.
Section three of our new Mdna focuses on these consolidated results.
We will continue to show the detailed performance for our business units under section four of them DNA.
However, the focus is on try cost proportionate share of operating metrics to help you understand our share of those results.
Additional new features that we would like to highlight.
Including the introduction of fell in Capex disclosure.
Enhanced detailed regarding our debt maturities profile.
Detailed market level metrics overhead efficiency analysis and comprehensive details regarding our development projects.
On behalf of the company's board of directors and the rest of our senior management team I would also like to thank our accounting teams both in Toronto in Orange County for the Amazing work and sacrifices made to complete this exceptional task and delivering this enhanced disclosure.
At the bottom of the slide I'd like to draw your attention to some of our key metrics for the quarter and highlight a few thanks.
First.
My transition to our rental housing company has allowed us to achieve tremendous growth in operating metrics that are highly relevant to real estate investors such as core FFO and AFFO per share.
Which acts as a proxy for free cash flow.
Second the move to consolidate accounting provides us more transparency.
And that allows the reader to understand the extensiveness of our balance sheet with 6.5 billion of assets or 9.2 billion of Canadian dollars.
Third our AFFO of 10 cents per share, which translates to 13 cents Canadian.
Provides us with ample cushion to support our quarterly dividend of seven cents Canadian per share. This equates to an AFFO payout ratio of 47%.
Lastly, and most importantly, if you're to annualize our I thought for AFFO per share in Canadian dollars. You can appreciate how attractive talks looks at its current share price.
Our financial performance this quarter as highlighted by 160% year over year growth in core AFFO.
Pershare.
Let's move on to slide 13, which highlights the drivers that contributed to this growth first.
Our single family rental business delivered 15% growth and then one driven by a larger portfolio on strong rent growth.
Second.
Our us multifamily portfolio, which was acquired in June of 2019 was a key contributor as owned added almost doubled our overall all FFO per share.
For the year.
Third residential developments contributed higher ethical this year as a result of significant milestones being achieved at our Canadian multifamily business, especially at the west dollars.
And finally corporate overhead decreased by 1.3 million compared to last year benefiting from lower crude.
LTIP expense.
In addition, the also speaks to our focus on controlling costs as we continue to pursue topline growth with relatively smaller growth and corporate expenses.
Turning to slide 14, when we say tricon as the rental housing company. This is exactly what we mean.
Our consolidated balance sheet is dominated by rental housing with approximately 96% of total asset generating recurring rent income with a defensive middle market profile.
The remaining 4% represents our development exposure, which is expected to create meaningful value for shareholders overtime.
Our for sale housing business, which makes up less than 3% of total assets generated 51 million of cash in Q1.
And our projected to generate approximately 340 million of cash to track on over the long term.
In addition, our can either multifamily developments, which makes up 1.5% of our total assets are projected to generate $20 million event, a wife or try caught up on stabilization.
If you were still apply a cap rate of 4% to this figure and assume 50% debt you would arrive at a value of two to three times, our current book value for these assets.
Turning toward debt profile on slide 15, you can see that our balance sheet is well positioned to other near term uncertainty in the debt markets.
As of March 31st our liquidity position consist of 500 million dollar credit facility maturing in July 20 to 22 with approximately 174 million of Undrawn capacity.
We also had 53 million of unrestricted cash on hand, bringing total availability to 227 million.
Our near term debt maturities includes three debt instruments in the single family rental business totaling 426 million.
Which have initial maturity of 2020, but our extendable up to two years of Triphone adoption.
Beyond that we have one credit facility of 114 million maturing in December related to our us multifamily portfolio and provided by a major Canadian financial institution.
We are already in active discussions to extend this facility for another year.
Lastly, it looks like the ABS market is starting to increase as we saw two single family securitization deals move towards marketing of pricing in the past week, which bodes very well for our plan to complete a securitization later this year.
And now making his formal debut on our conference call as a speaker weighing in from the left coast, Kevin Baldrige, Our new Chief operating officer to discuss the operational highlights.
So let coast, but the right corn, thank you Sam.
Hello, everyone.
I'm going to focus on the operational performance of our rental businesses, starting with single family rental on slide 16.
In Q1, we saw exceptional demand trends, which are continuing into the current quarter.
Looking at our same home in a wide performance, which captures over 15000 homes. You can see that we were able to deliver strong same home in a lie growth of 5.5%.
The last year, let me break this down.
On a same home revenues grew 5.4% driven by an occupancy increased 40 basis points as well as average blended rent growth of 6.1%.
This rent growth consisted of 7.9% growth on new leases and 5.4% growth and renewals.
On the expense side, we reported 5% increase in same home expenses, largely driven by a 5.6% increase in property taxes as our homes appreciated in value.
We also saw a 3.6% decrease repair maintenance and turnover costs driven by elevated storm activity.
Storm activity resulted in more repairs sceptic and landscaping jobs.
And our same home portfolio, we completed a total of over 16000 more quarters. This past quarter as compared to about 15000 work orders in the prior year, it's for a 7% increase.
The offsetting factor was lower turnover, we reported an annualized turnover rate of 20.9% in Q1 2020, a 170 basis point increase from Q1 29.
This is a truly remarkable metric.
Record low for us.
Seasonality often plays a role and keeping turnover lower in Q1, but as the coldest endemic unfolded into March became clear that the government mandate of self sheltering was benefiting us as residents were looking for the safety of single family homes.
As we resumed out over a longer time horizon, our turnover has generally been trending down which really points and success of our middle market strategy, our ability to screen residents better and our focus on customer service.
Moving on to our us multifamily rental business on slide 17 will you will recall that since we acquired portfolio in Q2 last year, our focus has been on driving occupancy.
Q1 occupancy increased by 130 basis points compared to last year to 94.4%.
Led to a revenue increase of 2.1%.
We were able to drive occupancy by giving up a little bit on rent growth and as you can see while our renewals increased by 3.4% rent growth on new leases was down by 1.7%.
Heading into March we were also proactive and dropping effective rents as the market softened. Our March results were also impacted by a higher bad debt provision, we decided to incur in response to cope with 19.
The higher bad debt expense represented about $300000 revenue in Hawaii.
On the expense side, we saw an increase of 5% year over year with insurance expense being a more.
Significant item.
As we've previously mentioned, we have been impacted by materially higher insurance premiums market wide.
Their property insurance costs rising by 20, some percent year over year.
All in all in July has remained flat compared to last year.
With much of the drag coming in March as a result of higher concessions in bad debt provisions.
If we isolate January and February trends or rent growth would've been closer to 2% and NOI growth would have been.
We've been seeing these 3% year over year increase.
Oh.
Let's now turn to slide 18 to discuss more recent trends.
To start I wanted to highlight some common trends across single family and multifamily rental we collected approximately 98% of April rents across both portfolios, which equates to 99%.
Normally at collected pre coated.
Collections and they are tracking ahead of aprils at this point in time as we continue to be proactive with collections and as government stimulus kicks in.
Rent referral plans have remained below 1% in single family rental and around 3% in multifamily rental consistent with our update in April.
As you look at this slide it's very interesting to see how similar the collection trends have been for these two businesses. Both are focused on providing essential shelter to the middle market demographic and attractive sunbelt markets and both are showing very defensive characteristics and the current environment.
So, let's turn to slide 19, when we talk about recent trends in a single family rental business.
April and ended May we continue to see very healthy tension between demand and supply.
The demand side, there's been a tremendous level of actively activity in all of our call Center and web site.
The total number of leads from people looking around our homes has increased by 20% year over year, while our lease production is up 17% year over year.
The challenge we face is on the supply side, we simply don't have enough vacant and leased homes. In fact, the last time, we had so few vacant homes available once in 2017.
Portfolio is about a quarter smaller than it is today.
We now have only 547 vacant homes a quarter abridged were just recently acquired.
The demand, we're seeing is stronger than we ever could have imagined coupled with limited supply. This is resulting in fewer days on market for vacant homes and record same home occupancy and record stabilize total occupancy at 97.4% for both metrics as at the end of April.
We were also able to maintain same home effective rent growth at a very healthy level, 5% through April.
5.6% growth on new leases and 4.7% growth.
In our us multifamily rental business on slide 20.
I would characterize a recent performance is stable we've been able to maintain occupancy at 93.6% as of April 30.
Proactively adjusting rents and respond to the local market conditions. The average effective rent was down 6.7% on new leases in April partly driven by the use of concessions, which are averaging about two and a half weeks.
Yes, Thats about is that our annualized turnover rate is down 7.6% from March to April resulting in lower turnover costs.
We are also preserving cash by deferring our value add capital program, which amounted to almost $1 million in the first quarter.
We have been more aggressive with pricing in April and now that occupancy has elevated again and we have a little more visibility new leasing spreads are down by only 0.9% in may.
I also wanted to highlight how important it has been to internalize asset management, Yes management function for the us multifamily portfolio during the quarter.
Thanks to the hard work of our asset management team, we were able to respond to the code 19 situation quickly and keep our occupancy flat.
The asset manager as as asset manager, we were able to proactively adjust events and the buys deferred payment plans proactively control expenses.
Implement virtual towards across all our properties leveraging that technology know how from a single family rental business.
Latter point, we're looking at taking a step further and go from virtual tour is self guided.
Towards starting in May using our Escobar technology platform.
Cobot 19 pandemic has pushed us to implement these teachers quickly, but they will remain a permanent aspect of our operation at inconvenience and safety to our employees and residents.
That concludes our prepared remarks, but that I will pass the call back to the operator and take questions and Gary was sound and myself will also be joined by Jonathan owns like Andy Carmody, and Andrew joint or to answer questions. Thank you.
Thank you at this time I'd like to remind everyone Indoor Atossa question. Please press Star then one now your telephone keypad again that star one to Q first question, we'll pause briefly coupled acuity roster.
Your first question comes from Chaucer culture with TD Securities. Your line is open.
Thanks, Good morning.
Good morning, John.
First question just on.
I guess is a state some of the states are starting to open up you guys pause or the new home buying when do you think you'll start back up again.
We're going to take all acute Q2 off so we will not were causing acquisition through Q2, when I see that we did have some Q1 acquisitions that were delayed that will close in the Q twos or probably somewhere between 15 80 acquisitions from Q1 will trickle into Q2, but apart from that Sean we paused.
We expect a pause all the way through.
Through Q2, and then we're going to reevaluate whether we start buying in Q3 year Q core my expectation is we will start buying later in the year, but I can't provide anymore guidance in that.
What sort of sides would you be looking for.
Well in the past we've been looking for 800 800 homes per quarter in Q1, we're on pace to nearly PD close to 800.
You know going forward, it's no because it also depends obviously secondary home market.
We're seeing resale listings of I've come way down I mean, they're down probably anywhere from 25% to 40%. So an environment, where listings are that much lower and maybe tougher for us to hit the volumes. So again I can't give you any specific guidance, but I think this environment given the practical issues associated with renovations the fact that.
The resale market in a sense as much smaller you might be hard for us to get 800, but look as things open up we'll go right back to 800, and it's also possible that later in the year, there might be a little bit of opportunistic or distressed buying if delinquency rates tick up and we'll be able to take advantage of that as well and job and.
Last thing I would say is that there maybe opportunities outside of the existing home market to really buy from builders. We don't think we're going to see five distress from the from the from the big homebuilders, but they're certainly going to have a tougher time hitting their order volumes and they may want to supplement that by selling some of their homes one at a time to.
Two single family rental landlords like ourselves so that might be another way to supplement or buying program.
Okay, and then just switching to liquidity I guess, you expect you're still expecting north of 300 million from the for sale Jose.
How much of that you see coming in to next sort of.
12 to 18 months.
Not much I mean weve, that's the whole that's one of the reasons. We took a significant write down is that we really pushed out the cash flows the better part of a year.
So I mean look in this environment and a lot of a lot of what we do you remember is land development. We're really the back of the boss builders have to sell homes first and only when they sold their homes are they going to need more locks. So it's certainly impacts or cash flow. So we don't we don't anticipate a lot of cash flow there'll be a little bit that you'll be dribs and drabs over the next 12 in 18 months, but.
We expect the majority of that 350 million cash why with you over kind of years two to seven.
And that's and that's what our Mdna disclosure shows you as well.
But I think having said that I mean, we often to this point, we've done really well we syndicated Trinity Falls. We've also sold on our Master plan I called Fulcher farms, which is going to generate some cash for us in Q2.
But I think apart from that we're going to be expecting cash flow is probably closer to 18 months from two years, rather than the shorter interim period John.
Okay. Thanks, I'll I'll turn it back.
Your next question comes from Mt. Logan with RBC capital markets. Your line is open.
Thank you and good morning.
Good morning.
Gary could you talk a little bit about your organizational realignments and what impact do you think you'll have wondered gateway business.
Sure I'd be happy to look I mean, we were doing great up until this point, but I'll tell Ya I'd be Canada, I mean to run a company with investment any counting and then different organizational.
Entities, which was not easy I mean, we had a corporate parent.
And then we had all different types of subsidiaries off some of them had their own policies and procedures are you made a very difficult to talk with one voice internally and externally.
You know some people describe the company's being complex on all of that had to do with the.
The corporate parent subsidiary operating model and accounting that went along with it and now that's gone. It all goes away. So now I'm going forward over the course of this year, everyone becomes tricon residential all all of our.
All of our businesses are operating business, our property management became strike on residential so there's really only going to be one brand one website.
It makes everything dot much easier and it also allows for I think some meaningful efficiencies right.
You know it in terms of everything from procurement from I.T. everything can be done on one platform rather than multiple platforms and so it's going to be much easier to communicate everyone's going to feel like they're working for the same team on and it's going to be much much easier to communicate internally and externally. So we're incredibly.
Delighted about this change and again every thinking about everything instead of having four websites or five websites. We have one website and you can see how the efficiencies trickle through.
And when do you think we'll see the rebranding take effect this year.
So as of today as of today, you tighten trike on residential that would be our new corporate web site there'd be a new logo in some new buyers.
But apart from that everything stays the same until we re launch or web site.
And we're intending to relaunch the web site at the end of the year trike on residential dot com it will be consumer facing web site right now we've got an investment oriented website and then we've got consumer facing websites. This will think about it like Apple will be one consumer facing website.
And and when we flip the switch and launched at the end of the year everything else changes so everyone at that point, we get new email addresses new business cards, new uniforms, new van wraps new signs I'm all the way crew. So we flip a switch tonight, we expect to happen I would probably say December Matt.
Looking forward to that and maybe just changing gears.
We think about your U.S. multifamily platform.
How does depend damaged change your views on the timeline for rolling Smart home technology, and the internalization of property management.
On the U.S. side of it really it really doesn't like I mean, we're looking through it our operating results in both businesses have been have been really good our ability to react to this more difficult situation I think has been excellent and so our plans to internalize, we're really in the beach.
Start starting really in 21.
And that's what we plan to do.
We look at where it's going to be tougher for us to maximize.
Performance and operations, given we're relying on six different property managers, many of them with different policies and procedures.
So it will make it a little tougher this year, if I were looking forward internalizing next year.
And then Kevin answer the question on Smart home technology, or John maybe John you want to talk about that and then.
Sure Gary.
Regarding smart home the pandemic has helped us accelerate our plans to leverage at some of our technology for things like self showing.
So what we've been able to do during this time is beginning to add smart locks to our model fleets in select multifamily units. So resident now go in and do a smart a smart on self showing similar to what we havent single family rental some of our multifamily properties and we really see that as a way for the future.
Our plans once we internalized property management, but given the pandemic tied to accelerate that plan, we've seen strong demand and a lot of success in the properties, where we have implemented that so we expect to accelerate that over the course this year.
And in terms of the outlook for the multifamily business over the next few quarters, where do you see the overall portfolio and maybe some commentary on markets like Houston Orlando.
John do you want to continue.
Sure.
Say it as you can see from our results that we publish related April and May I would describe the portfolio is stable and consistent right. We've been able to really stabilized occupancy and keep it flat right around 94% Ami we did take a dip in rent growth in April but Thats began we got to tick up in and we're also seeing lower turnover. So I would accept expect.
It could be down one of the from Q1, but really stable over the remainder of this year on in terms of select markets you will see from a year over year basis places like Houston in Orlando were down in Q1 2020 versus Q1 2019. After those market that was really driven by property taxes, which is really unrelated to the current situation. So Hughes.
Property taxes were up 8% year over year, Orlando was up by 10% year over year really as a result of increased asset values.
And also saw higher insurance.
Which went from about 1.5%.
Revenue to the 2.5% of revenue over the remainder of this year I'm looking at where we are from a delinquency in a rent growth perspective to your point I would expect Houston, Orlando and Las Vegas.
Lag a little bit as a result of exposure to oil for for Houston and hospitality for the other switches, which it was comes as no surprise those industries have obviously been hard hit by the endemic in maybe a little bit slower to recover.
Yes, John if I could just to continue Matt. So I just look we're not we're not going to be able to drive from what we know today, we're not going to be able to drive an NOI growth in this business over the course of the year right. I mean, we've got 15% exposure to Orlando, 15% exposure Houston is in this portfolio. That's obviously a little bit tougher as result of the Pan Danny.
Our our bad that might be a 100 basis points higher than what it was it's obviously going to be ancillary revenue is going to be impacted were not collecting late fees.
We're having used a little bit more concessions to maintain occupancy. So when you when you look at all of that.
I think we'll be doing really well for analyze flat over the course of the year, but it might also be down a little bit.
And maybe rolling it up when we think about your three year, Apple AFFO growth target of 10%.
Yeah.
Could you tell us if there any changes to your outlook for the underlying businesses.
No changes in fact, if you take the if you take our Q1 App AFFO and you annualize that are we ready hit the low end of the three year target.
So like I mean, we feel great about where we're going to end up in 22.
We purposely set that CAGR over a three year period, we never said that we would get 10% each year, we said, we get 10% CAGR over three year period and the reason we said that is obviously, it's very hard to look out three years, but we figured that there'd be a recession nothing like this I mean, obviously, we couldn't predict coded.
But we figured there'd be some kind of downturn and so we took that into account in coming out, but those forecasts and we still hold to that we think we'll hit 50 to 57 cents and 22.
In order to hit those numbers, we were assuming single family rental NOI growth of 4.5% and multifamily NOI growth of 3%.
I mean, we're probably not hitting that this year, maybe media as possible in single family rental, but even that might be a little short, but then we think we look through this and by the time, we get into 21 22, we'll be back.
And we still feel very good about our ability to raise third party capital, so really not making any changes to the forecast just to say that 2020 will be a little bit of a tougher year and then we should make it back up in 21, and 22, particularly given how strong occupancy as we come into this in a really strong position the OCC.
Currency staying firm and that's going to give us pricing power as we get out of it.
That's great color appreciate the commentary ill turn it back.
Your next question comes from Jie Han 10-K with Stifel. Your line is open.
Hi, guys. Good morning, I'm, just wanted to drill into the.
On the wind numbers, particularly for single family, obviously really strong quarter, but I'm just wondering okay.
Given the stay at home measures and such that we have taken place.
Was there any impact on like lower repair and maintenance.
Sensors as well as maintenance Capex, where you know the the contractors were just not going home are not going out to do a work on the sites because of colder.
And if there's any potential bleed through into subsequent quarters to catch up or if there was any shortfall there.
Kevin can I turn it over to you.
Sure sure thing Gary Yeah, what we did during the quarter is weve met with all of our vendors and enter on people and we decided to take all the.
Maintenance work orders and bifurcate them into levels. So we have pushed up what we call level. One level to these are worked quarters that may be somebody's.
Closet door is in closing correctly, well that can wage and so we've taken a number of those and we've we've put those on holds and those those are helping us with our lowering our cost in our NIM.
Yes.
During the quarter and then we will start catching up we've actually started catching up on those but we continue to do we call emergency work orders level for work orders, we've done them with our own guys and we've done them with outside vendors. So while we havent stopped and certainly with the residents that need help inside.
Their homes, we've we've continued to do those all along but to your peer point, we have pushed off I'd say probably.
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30% of work orders that are not essential.
And we're going to start picking those up now.
Really in the next month, we've started picking up on them, but one is on hold.
As far as Capex, we have.
We've become.
We've limited kind of the scope. We've also compressed the delegation of authority to get much more refined on what we're going to do.
From like that we're not we're not spending as much on what we called value enhancing capex, we have really taken more they keep it clean functional safe approach. So we hope to on turn cost for instance, and even on some of the renovation costs really seemed like 20% on on a given turn.
Whether it's whether it's a capex on expense.
And those you know what's interesting is some of the refinements that we've made because of this we're going to keep in place in the long term pensions that delegation of authority the compression in that.
And refine scope levels.
So long as there is still the acid is viable and keep in mind term value of it.
Revenue generating portion, but we're going to keep it in place and just run the leadership.
Does that answer.
Yes, just continue to I just want to continue I think look I think we're going to USIS. This difficult period as an opportunity as Kevin said, we're going to continue to become more and more efficient in the way we manage.
Our capital expenditures and are in process, but one thing you should be aware of this is a seasonal business right. I think we've included some really terrific disclosure in our new Mdna on operating expenses and recurring Capex you should look at those schedules and you'll notice that for multifamily and single family. The numbers are low this call.
After.
That partly it does part speak to a little bit of deferral of work orders that will come into Q2, but it's also a lot of it as seasonal.
And as we get into Q2 in Q3, as we get into the warmer summer months. That's when we tend to have more HVAC repairs and so.
You should expect to see our recurring capex take off a little bit in Q2 in Q3 as the weather gets harder.
I appreciate the color there Gary.
And just switching gears through the through the for sale housing business, obviously had a a.
The distribution in syndication that came through for this quarter, what's the outlook on if any if you can speak to at all for future Syndications and earned what's the appetite for.
For new mandate wins in that.
Particular segment.
Well I mean right at the ended the quarter, we sold another one of our master plans called Hoelscher farms and not that's generating a little bit of cash for us. So that was another win.
We also had started a process to seller interest in some active adult projects.
That was essentially under contract and then when.
Co would hit our that went on pause. So I think that that would have generated more cash for us I think that's that's delayed I I can't say when that comes back.
Because that part of the market's definitely taken ahead and so that was that was missed opportunity apart from that we were were advancing wanting to do everything we are weird we were planning to do.
A lot of the other projects are just going to selling the ordinary course right as we sell homes as we sell locks on the projects naturally liquidate. So look I mean, we feel great about we've taken a write down we needed to do that.
We feel great about where things are now because for sale housings less than 3% of our assets.
It's it's where rental housing company now that we're focusing on.
And so we've really minimized it we strategically we achieved everything we wanted to do and the bonuses were still going to generate a lot of cash and performance fees right. So even after selling 50% attorney falls and taking the write down we still believe we're going to generate about 350 million of cash over the let's say the next five to sell.
One years, that's a substantial amount of money.
And so we're never in a really good position.
Thanks for that their dairy and then maybe just an update on the I'm with you guys had to talk about it previously, but just an update on the syndication process of the Canadian multifamily development program.
The Canadian or the or the U.S.
Sorry, the a the U.S. you added.
Yes sure.
We had made substantial progress pre Cove, Ed we had essentially agreed to terms with two of the largest institutional investors in the world.
October it hit and then everyone put pens down we did the same look we start making acquisitions, they they've stopped making acquisitions. That's what you would expect in this environment.
But I would say recently within last week or two these groups and all the private investors were talking to our starting to come back.
There are now saying lets re look at things lets re underwrite op. So we're still.
So we're still optimistic that we're going to be able to syndicate. The assets. Just a question at the price I think that the price in the terms would probably be a little bit different than what we had agreed to.
In this newer more difficult environment, but I will say that the demand for rental housing assets multifamily and single family probably never been stronger on the trends we saw a pre cobot are going to accelerate.
And the way. These investors are looking at things mean, where they're going to put their money.
Yes, I see no hospitality and retail are extremely top office is tougher.
And so the only thing Thats really left as beds and sheds and that was a trend we saw its going to continue and so they are telling US look the first thing we want to look at as your U.S. multifamily portfolio and so while we're still optimistic but we're only going to do it if it makes sense for us.
I appreciate the color there that's that's all my question. Thank you.
Okay.
Again, if you like US a question. Please press Star one. Your next question comes from Mario Saric with Scotiabank. Your line is open.
Hi, good morning.
Just a just two quick questions.
Personally as before.
Business one of the thesis correct.
Coming into the declines.
As the relatively new off to clients.
Given the history.
Lot of people were looking to see how we would perform during economic downturns prices from.
And we're here now.
Your next couple of data points for your support for your portfolio among others as well as pretty positive in terms of recollection.
How resilient.
How do you think about.
This crisis, perhaps accelerating appetite institutionally for.
So for our product going forward and then I guess based on your experience with the previous.
JV.
What do you think about climbing in terms of influx of capital coming into the Asa Clos and whether that's accelerated because it was for now.
So Mario look this is a blessing in disguise we don't.
Want to take advantage of a tip difficult situation. So I don't mean than any other way but.
We've always said that in order for this business to really get tested to re rated had to go through a downturn and were managed just a downturn right. So and you're seeing in this environment apart from technology companies, which are seeing.
Big demand online. This is one of the very few businesses, where you're seeing demand accelerate that's on affirmative in this environment for actual all or demand drivers Rob.
And I would tell you that probably the only asset class that comes out of this a winter in single family rental multifamily, we neutral industrials, probably neutral from where it was single family comes out as a winner and demand for this asset class is absolutely going to explode, it's going to explode.
We won't we'll have to Dr will be so much money coming out us we're ready getting inbounds all the time, even in the last two or three weeks people, who want to just give us money. So we're really good position.
This asset class made a ton of sense pre co bed noun environment, where people that much more concerned about health and safety along with the demographic trends as you know older millennials formed families and need more space and now obviously because of this significant downturn, it's going to be much tougher for people to buy homes and they're going to have to recap.
Analyzed all of those trends are huge positives offer single family rental along with probably the organization.
So this is the asset class of the future, it's what everybody wants and job our we're going to come out of is the big winner.
And I guess.
I've, you're going to quote unquote docking.
With all the capital of the country could come in your 60%.
Employed roughly in your existing fund.
How do you how do you think a boat.
Core leading perhaps some increased urgency by other institutions deployed capital into the consequence versus kind of completion.
Have a full deployment in your confirmed their chance that.
The demand maybe sooner than what's optimal for you know I, probably not because like I mean were good partners and we essentially have an exclusivity.
With Texas teachers, and Singapore on on one off one by one acquisition opportunities and I mean, the last thing we want to do given all the support they've shown us has to do anything that would compromise that so.
You know, it's part of our values that I just talked about you know well, we'll do what is right not not what is easy we'll never know.
Impact our long term reputation to do something the short term is profitable we just won't do that so yes, there's a lot of money coming at us, but it's got to be done. It's we've got to take those opportunities in a thoughtful way.
And without compromising existing relationships. So my hunch is we need to get through the existing joint venture and we're going to do that very profitably and as we do that we can then start thinking about creating other product lines and then bringing in bringing in different investors I think the one thing we've learned is that single family rental.
Isn't necessarily one product if you think about multifamily theres theres multiple.
Opportunities, there's there's opportunistic theres, obviously core core plus value add.
Built decor and single family rental has that as well and so we think theres an opportunity over time I to create these different buckets and attract capital based on those risk return parameters and therefore increase our ownership and management of homes, but not in the very very short term Mario because I think we've got to take care of existing joint venture first.
Got it and you kind of alluded to earlier on in terms of.
Being on pause for Q2, and then maybe restarted in Q3 Q4 in terms of buyout fund, which the general appetite for exceeding the 100 per home quarter.
Guideline.
They will do it is there.
I don't.
Yes, I think we're going to continue to keep that pace because again.
Our joint venture partners have been very prescriptive in the way they wanted to underwrite desperate and management, both on pace and both in terms of cap rates and.
We probably just want to continue with those underwriting parameters and keep going so even though you know if we had more capital I think we could go a lot faster in a normal environment, we'll get through this and I think we'll reevaluate I did see earlier, though that it is obviously tougher today much tougher today potentially to hit 800, because you're resale market.
You know again, we're just getting the numbers now, but that resale market might get cut in half, it's going to be down certainly in many markets, 25% to 40% so.
So in that type of environment. When resales were impacted that margin is going to be tougher I can drive acquisition volume. So I think we have to go back more to normal where I think we can say yeah. We can do 1600, a quarter or otherwise 800 seems to be more of a limit in this environment.
Okay.
And regarding your single family rental portfolio. It's early days in terms of the crisis, but is there anything.
You can point to that you release Darko relative to internal expectations, both from your upside and downside.
In terms of surprises.
Operationally.
I'm going to turn it over to Kevin.
Hi, Mario.
Good morning, you know for US we just continue to be amazed at the amount of demand that we have even when we were looking at this daily.
We're looking at number of leads conversion rates leases.
Compared to prior month compared to the same time last year and even take our numbers are leads and leases per available home. We're still higher than we were this time last year and were higher than February by 30%, but that's something that could be a lot of that seasonality.
So even with our reduced.
Available number of homes, we still have these high levels of interest.
In the homes were also been pleasantly surprised by the collection rate.
As we mentioned we in April we collected 99% of what we normally collect I think were.
Well like 1.8% delinquent now for the money that we build in April so.
They just and what we've done as we've had we've taken a very a one on one approach with each one of our residents. We let them know that we're here to them, we we want them to feel safe in their homes.
Put them on a deferral plan, but these are not so were empathetic, but at the same time, we're not waiting any rent and we've found that people want to pay the rent and they they also don't want to get too far behind and we don't want to let them get too far behind because we've known in the past somebody gets behind by two months, it's really hard for them to make it up and so.
We've we've structured these plans so that.
The new rents you with including the catch if there is only up by 10% to 15% of what they were paying before and so we think we're going to keep all of those residents in place and we just we have been enthused to see how people really want to live up to their obligations.
So the portfolio perform extremely well we have weighed late fees.
And we waived demand in April in May and then and select cases, we've allowed people either leases I think it's like a quarter of a percent 51.
60 people there they said we just can't.
We can do this we need to move in with parents or other relatives and so we let them out and lease so weve ways. Some early lease terminations, we named agreement and they'd love to secure deposits with us so.
We've just really been surprised with the upside there hasn't been a downside.
As you mentioned, it's early days so.
With October brings.
Okay.
You have to guarantee sense right now in terms of how long we may have missed the.
During the cold but.
How long the renewal rent for you.
Maybe aren't.
So.
Right.
How long the renewal rent freeze is in place.
Yes.
Yes, so we.
From a rent trees.
We really just.
Did that one month and that was for the month June when when a renewals went out and the middle of April we did give people an option to have a zero percent rent increase but we're also mindful of the same time of our exploration schedules. So what we offered people for instance in for the month of June it's come.
If if people wanted to zero percent rent increase they could it would only be on leases like 13, 14 or 15 months because those are when we want it.
Leases expire.
So that a 12 month lease we offer to like a 1% to 3%. Many increase so still want to be sensitive to the time that were in but we're also protective of our explorations because of our occupancy right now.
97.5% average monthly average occupancy throughout the month same home.
For the July we've been.
We haven't provided zero percent rent increase at this point, where backups like 1% to 3%. So nowhere near with as you know, we so govern our increases to 6%. So we're not we're not proposing any of those because environment that we're in but we think it's fair to get one to 2% to 3% depending on the market.
So.
Rent freezes, we havent been mandated to do any rent freezes, we've done some of our own bullish and and we think that that so right.
For the for the month of June, but I think what you might be referring to are the eviction mandates.
And so those are starting to lift in some of the states and we're talking internally, but what do we do with that.
Start them backup do we not do we wait.
So that we're in discussions about that right now.
Okay.
Last question just on your disclosure book value per share right am I correct.
Understanding that it includes.
Some value for the asset manager franchise.
The the book value share of 11, yeah. The book value per share in Canadian dollars is 11 75.
Yeah, I suppose it does a little bit Mario because some of the fees that we earned in the single family rental joint venture for example, our consolidated within the asset far.
Business, so from that perspective perspective, there would be a little bit of up a little bit of value there, but otherwise that the majority of the fee streams outside of the are the balance sheet.
Okay. So on a on a quarter over quarter basis, Q1 versus Q4, it's a fairly apples to apples surely not yet the disclosures I mean this scores is different and it's going to take a bit of patients. So we submitted timing. We appreciate your patience because the disclosure has moved around I mean, the overall numbers are similar but the geography, where some of those numbers has moved.
Our best away with Sam explained said to me because I also to get get my head to head around it but.
It's not it's close but it's not apples to apples.
Okay.
Thank you.
Okay.
There are no further questions at this time.
Okay. Thank you Jesse I would like to thank all of you on the call for your participation and we look forward to speaking to you at our annual meeting in July and then you get an August when we discuss our Q2 results.
But.
Yes.
This concludes today's conference call you may now disconnect.
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