Q4 2020 Tricon Residential Inc Earnings Call
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[music] group.
Ladies and gentlemen, thank you for standby and welcome to the tune of Congress.
In terms of actual fourth quarter.
For the call.
All participants are in a listen only mode.
For the presentation, there will be a question and answer session.
I'll ask a question during the session you won't get the press Star then one on your telephone.
The advice for today's conference is being recorded if you would.
<unk> further assistance. Please press Star then zero.
The conference over to your speaker today.
The energy of director of capital markets. Thank you.
Thank you Jay and good morning, everyone and thank you for joining us to discuss the results for three months of the year ended December 31 2020.
I appreciate it and the ease of release distributed yesterday.
I'd like to remind you that of our remarks of the answers to your questions may contain forward looking statements and information.
<unk> is subject to risks uncertainties and it makes us the actual events or results to differ materially.
For more information please refer to our most recent management discussion and analysis and annual information for which are available on Peter and of our company website.
Also include non-GAAP.
The financial measures, which are explained and reconciled in the MD&A.
I'd also like to remind everyone that all figures are being quoted in U S dollars unless otherwise stated please.
Thanks for hosting this call is available by webcast on residential dot com and.
The replay will be accessible there following the call.
Lastly, please note that during this call we will be referring to the supplementary conference call presentation posted on our website. If you haven't already accessed it it won't be of useful tool to help you from all of them. During the call you can find us presentation in the investors section of track on the residential dotcom underneath of events with that I will turn the call over to Gary Berman President.
And for your subscribers.
Thank you for.
And good morning, everyone I hope everybody listening is doing well and us help people.
Wanted to start the call today, recognizing the truly incredible efforts of our frontline employees and their unwavering commitment to go above and beyond for our residents throughout the pandemic and most recently during the extreme cold weather and power outages that affect the taxes Nashville, Indianapolis, our thoughts for with our colleagues as well as our residents and our.
Families who've been affected are.
Our frontline team is working tirelessly to ensure our residents are well taken care of and we've been fortunate constant for any mature to the dash to our property.
During these challenging times of our data.
It has been at all for our guiding principle of such as going above and beyond to enrich the lives of others and doing what's right not look easy I'm extremely proud of how our team has worked together through adversity, while consistently delivering strong operating metrics.
We have our heroes in Santa Ana and are on the ground employees to thank for that.
Let's start on slide two and talking about the key takeaways, we want to emphasize for you and recapping the fourth quarter of 2020.
First our results this quarter demonstrate how our sunbelt focused investment strategy and middle market resident profile of our winning formula in today's environment, allowing us the benefit from exceptional demand trends, which have only accelerated throughout the COVID-19 pandemic.
Second the recently announced syndication of our U S. Multifamily portfolio is the significant step towards our previously announced fundraising and deleveraging goals and we anticipate more third party fundraising in 'twenty, one to accelerate our growth plans.
From an operational perspective, our single family rental business is performing incredibly well and we expect for the strong performance.
Lastly, we believe the operating metrics and our U S multifamily portfolio of trough in Q3, and we are encouraged by the steady improvement we saw in Q4 and each of the first couple of months of 'twenty one.
Now, let's turn to slide three for summary of our results we reported core <unk> per share of 16th of this quarter, an increase of 60% compared to last year.
As we break this down our net operating income grew an impressive 14% year over year and by keeping corporate costs under control and obviously benefiting from the lower interest rate environment. We find ourselves in we heard of called the turn of meaningfully higher NOI into off the charts growth when measured on a per share basis in our single family rental business we can.
To see very strong growth from new and existing assets and the <unk> proportionate share of NOI increased by 11% and seeing them I don't want it grew five 1% compared to last year.
Also achieved from record simple NOI margin of 66, 8%, while maintaining high occupancy of 97, 3% achieving record low turnover of 22, 2% and generating strong blended rent growth of five 6%.
Thank God for next summer.
Non renewals.
Can you give us multifamily rental where per.
Current recruiting results of NOI up three 3% sequentially in Q4 and operating metric strengthening further into 'twenty one it.
It is also worth noting that even though our U S. Multifamily NOI was down 6% in 2020 of our full year basis core <unk> increased slightly year over year on account of the interest savings.
And lastly for sales and was a real bright spot this quarter distributing $14 4 billion with the passage of icon as it benefited from broad based strength across the housing market.
Our business is performing exceptionally well.
Turning to slide four where we discussed the three key pillars that are driving try kind of success deemed near of people and culture, our operational excellence and our growth.
<unk> recovered extensively in our analyst Investor Day, which we hosted on shop January 27.
If you didn't have the chance to listen then we'd encourage you to watch the replay to get a sense of <unk> purpose driven approach of doing business. The depth of our senior leadership team and the way, we embrace technology and innovation to provide us reference with better customer service with over 120 members of the investment community joining us virtually.
The huge success.
Resorts for new and existing investors seeking to better understand the company.
Let me add the tri kinds of invested in U S residential real estate, which represents a 26 trillion dollar industry. This industry is not only the asked but also the highly fragmented and presents for icon with an extraordinary opportunity to continue to grow with both public and private capital. We're incredibly excited about our growth prospects and our.
The only to us our expanding platform to do get and we enter 'twenty one expecting this year to be the most prolific period in our group.
The history.
Let's turn to slide five and talk about a major demographic social and technological shifts many of what should commence prior to March 'twenty, what's the accelerated as a result of the pandemic and which we believe will create strong operating cash wins over the coming decade.
The great migration trends of the U S Sunbelt, which has been <unk> for years as Americans move from North to South in search of chops, better weather and lower taxes is now accelerating further as people seek out the safety and serenity of lower density of moving in the suburbs. According to John Burns Real estate consulting the Sunbelt consists of 40% of the us.
Population, but will garner at least 60% of the population growth going forward.
Government mandated work from home has only reinforced the appeal of the US Sunbelt US one has afforded us the freedom to work anywhere why not move to the so called Smile States and take advantage of superior weather and housing affordability, while conventional office space remains necessary to foster culture and team building, we believe the advances in communications infrastructure.
Video conferencing of permanently changed the way we work and then on the margin more and more employers and employees will opt for more flexible work live arrangements, which in turn will increase demand for additional living space in general and single family homes in particular.
The Triton, we believe the demographics for destiny and that the millennial cohort will drive significant demand for single family housing as they enter the primary yours of family formation.
The millennial cohort is larger than the baby boomers and Theyre ready more Americans and the early thirties and any other age group.
Sales are not only in the prime areas of forming families. But also are showing a preference for flexible and maintenance free lifestyle. The best suits rent of living and the sharing of calling me they've grown accustomed to.
Meanwhile, at the other half of the spectrum older Baby Boomers are increasingly opting the agent place rather than moving to retirement of facilities. I think this trend will likely become even more pronounced given the prevalence of COVID-19 outbreaks in making your housing facilities in essence, both millennials and boomers are working in unison, albeit for different reasons to drive the <unk>.
The demand for suburban housing.
We'd like to think of the period after the great recession of the last decade for housing for the homebuilding industry was also slow to recover and supply of stagnated, especially look for more affordable starter homes and so now that we enter a boom period of housing demand spurred by the pandemic and historically low interest rates, we find ourselves in an environment of relative to the construct.
Supply at a time for demand is surging, we shouldnt be the significantly higher home prices and rents.
You can see this dynamic at play within our own portfolio on slide six well no sign of strong historical correlation between home prices and rents.
The value of our single family rental homes increased by 18% of over three years, while the mentioned the portfolio increased by 13%. These numbers are impacted by acquisitions and lower renewal rents over time and are therefore, non exactly apples to apples, but actually the prove the point Triton shareholders get a double whammy benefiting not only from.
Strong growth in rents of NOI, but also higher net asset value per share as their existing homes appreciated in value and with home prices and rents moving more or less of locks that we remember the didn't see any growth of Macquarie.
Homes and stable cap rates, while we get the ultra low financing.
Let's turn to slide seven.
Combination of strong fundamentals.
And our pollute the accident.
Operations relative to the keep proven operators is enabling us to manage significantly more of third party capital as.
As you can see on the slide we expect the raised $1 $2 billion third party equity capital across all of our rental businesses in 'twenty, one which would maintenance the most.
The great thing.
For your Pittsburgh.
We're very excited to have put a checkmark beside one of the key opportunities outlined here upcoming syndication of our investment.
For the portfolio of the two new institutional investors.
Before we discuss the transactions of our detail I'll remind everyone that we are performing there.
That's fair.
The third party strategically to allow us to add scale and getting them of a great efficiency taken it off the balance sheet.
For the capital of public market is closed.
Current equity verification of the fees.
You can see.
Summary, EBIT multifamily I'm not sure which was the expense of 130 pad debit share.
One of them.
We also welcome our new partnership the dispatcher.
With respect to close this month.
Institutional customers for the quarter combined the 8% interest generics simple.
The outlook.
While we've retained the 20% of interest you can see the managed portfolio the transaction value of Purple Covid 133 billion.
The current balance sheet valuation and upon closing of the Cherry.
Those proceeds the Tri Con.
<unk> thousand $425 million.
Interaction will the us accomplish two key equals the person has created a platform for growth.
Our goal has always been to perceive us multi family, which is the largest number.
Residential real estate alongside of third party investors.
The two partners and state of the strategy and are in discussions with the performance chocolate growth for into the joint venture for <unk>.
At the at scale et cetera, just the portfolio.
Second of all of us into more of leverage including reduced at the App.
For groups of 50 to 55 per cent for 'twenty.
We are pleased to answer the upon closing we expect the losses should be approximately 50%.
First of all year, we will succeed at reduced hearing at the asset.
100 basis points.
This accomplishment in the midst of the pandemic and worldwide recession, and one that I'm seeing the team should.
Should be commended for.
Shifting gears from slide nine I would like to give it an.
The initiatives.
Typically our ongoing commitment to the social causes.
All of our employees participated in the breakdowns of pay it forward program, which was inspired by try kind of desire to make a difference from the local communities that we serve.
The program works as follows we deposit of $100 into each of our employees bank accounts at the end of November with the only the stipulation that they paid for two of organization or individual other choice started to meet.
This program also inspire us many employees to match the initial donation, creating a multiplier of fact, which leads to even more giving.
Since the program's inception of couple of years ago. Our teams donated approximately $200000 to a wide variety of causes that are near and dear to our hearts, which improved the lives of so many.
I tried to hunters real clarity intermission, we care deeply about our employees and the communities in which we operate by focusing on the wellbeing of our employees Hirst inspired and empowered to go above and beyond for our residents when our business growth with Phil Stephen for us longer and truly of the properties like the wrong, which translates in the bedroom.
Actual results for investors and actions, we're taking a balanced approach of our stakeholders will put us.
Everyone employees residents and investors in a better position and truly drive sustainability.
That concludes my opening remarks, I would now like the pass the presentation over the with Sam to discuss our financial results.
Thank you Gary and good morning, everyone.
Let's begin with slide 10, I never repeat of the five key priorities, which we introduced last year.
These include growing our core of ethical for share of compounded annual rate of 10% of risk feeder reported flat too.
The raising of approximately 1 billion of third party capital over three years.
Growing book value per share by reinvesting, our free cash flow into accretive growth opportunities, reducing our leverage and improving our reported.
You can see these properties represented a net graphical dashboard on slide 11.
Our team has worked incredibly hard over this past year to make meaningful progress on all of the firms getting us much closer to meeting our 2022 of targets.
Let's start with the 30 year off of below target.
We had a strong quarter and achieved 16 sensor that the vote per share, which brings us the 49 per share for the full year.
Assuming the current trends hold we are confident that we can achieve our EF of full target of 52% to 57% in 2022.
Even with a higher diluted share count caused by the exchangeable preferred share offering and deleveraging.
In terms of raising third party capital, we are well on our way of raising another $1 billion of fee bearing capital ahead of schedule with the upcoming syndication of the U S multifamily portfolio, that's a meaningful step up of the school.
We also expect additional capital raises in our <unk> business and Canadian multifamily business later this year.
Another one of our priorities of reducing leverage start target range of 50% to 55%.
Well the syndication multi tenant the portfolio. We have reached the low end of the target range of the ahead of schedule and we will continue to work I'm thinking of our luggage slower a little longer term, while continuing to grow all of our business.
Our final priority of what's improving our reported book of substantially completed with our transition from investment entity accounting to consolidated accounting or the or this year.
As well as adopting we'd like MD&A disclosure such as the ethical per share in the whole per share.
With the ESG is of companywide priority, we shared our first ESG roadmap at the beginning of the 2020.
And I'm looking forward the publishing our first annual ESG report in the coming weeks.
Let's turn to slide 12 for we provide highlights of the metrics for the quarter.
The first.
Our net income grew 87% year over year to $81 5 million.
This included $79 million of annualized from our rental properties, representing 14% of year over year of increase.
Yes.
The 7 million adult fit most of the gain from rental properties in Q4, compared with 32 million in the prior year.
Select and strong hold by the depreciation and tried clinical markets.
Second our core <unk> per share increased 60% of the 16 or 20, Canada.
For blended that this includes excludes our fair value gain on the Canadian multifamily business, which historically Huawei included.
Peter for best apps of lifetime.
And you do not because of just doesn't put the run rate going forward, but the underlying number of the stroke.
All of the performance from all of our Epicentral se.
Third we reported.
Yeah.
<unk> per share, which triangulate the 17th.
It provides us for.
All of our quarterly dividend.
The <unk> per share, reflecting in the Bay area.
The 32 per site.
Moving to slide 13, which highlights the drivers of that.
For our ethical.
For the quarter.
Our year over year of inquiries.
For sure for the strength across all aspects of our business.
Our single family portfolio, which makes up the stairs.
The Liberty loving pet growth in telecom.
All of them.
Slide 10, 8% increase the number of holes in the portfolio.
With very strong blended rent growth of five 4%.
And the healthy occupancy of $96 four per month.
Our other businesses also contributed meaningfully this quarter.
Of note residential development.
Well the demand for the bulk of the lots of our for sale housing business.
Our expectation.
The business contributed $11 5 million to our core of the pull this quarter and generated $14 4 billion of free cash for triangle.
Our multifamily business also reported a slight increase in net helpful. As lower NOI was offset by interest expense savings.
Likewise, we saw a year over year decrease in corporate interest expense due to refinancing activities have allowed us the benefit from lower interest rate environment as well as lower balance outstanding on our corporate credit facility.
There are two other factors that essentially net each other out first.
We benefited from a one time tax recovery of $7 $3 million this quarter driven by tax losses applied to historical tax games.
And offsetting that is the higher compensation expense, mainly driven by yearend bonus accrual and psus.
Given the uncertainty of the pandemic, we had accrued of lower variable compensation for the first three quarters of the year and true this up for actual performance in Q4.
Lastly, we adjusted our P&C liability as the share price increases.
For the full year, however, cash compensation was up 3% year over year.
And lastly, let's not forget our weighted average diluted share count was up 16% higher than last year, reflecting our exchangeable preferred share issuance in August.
Turning over to slide 14.
We have significantly improved our liquidity profile over the past year as well as position ourselves to address our near term debt maturities and potentially realize the significant interest expense savings.
We currently have $29 million of corporate liquidity, including cash on hand, and room on our corporate credit facility.
The us multifamily syndication will enhance the further.
In terms of use of proceeds from the syndication that we plan to immediately pay and retire the $110 million credit facility outstanding of the portfolio, which is due to mature later this year.
We also have the option of prepay some of the property level debt and the single family rental portfolio, which matures next year.
Beyond that we expect to pay down of our corporate credit facility in full and had the cash on hand for near term growth and hospitals.
Yeah.
As we look out to 2022 aside from retiring a portion of the Dod that we expect to refinance the bulk of these maturities with new property level debt, including secret types of patients.
We see a significant opportunity for interest expense savings in today's low interest rate environment, given that the blended rate of these maturities is just off the 3%, whereas the latest securitization was that of $1 83 per cent.
And tell us who could save of 100 basis points on the $1 billion of debt shown here that translates to about 10 million of interest expense of annual growth.
The incremental for ethical per share for triangle.
Talking about financing the interest expense savings of exciting, but what's more exciting us talking about our operations.
Now I'll turn it over to the Waltz, Chief operating officer fit of the operational highlights for the quarter.
Yeah.
The sale.
The line.
We might take the momentum, reflecting the successes over the past year.
Proud of him.
<unk>.
The persevere through these difficult times to improve the lives of our residents.
And do you think the exceptional.
The dampening of the many changes that had kind of a way.
We remain steadfast.
For employees.
Of course, which ultimately is in the best interest of our investors.
I also wanted to take a moment to acknowledge all of us and everybody.
Who have been impacted by the recent when their salons in the Texas Nashville and Indianapolis.
Eric mentioned earlier the rest.
Please go ahead.
At the top of mind.
For the gently at the local level.
Thank you Bobby.
Let's now turn the strength.
The operational performance of our single family loan business, which represents about kick the can spark proportional balance sheet.
The benefit from standard of care.
The wind, which drove higher occupancy growth.
Resident retention.
The Cmos.
Yeah.
I think well into the numbers.
But the one.
From a two eight.
That's really driven by an occupancy increase of 140 basis points and higher average rents.
So in the pool.
What I'll do the.
The last year.
Yes, I think the afterwards.
The expense.
The expense.
The revenue compared to the 0.8.
In the prior year.
Our bad debt expense and the pacing.
Casey overtime.
Great.
And the carryover Inc.
Okay.
Yeah.
Hi.
Yeah.
Is your sense of Harrington.
Here.
For the push for the economy of reopening.
At the peak.
Okay.
The start to stabilize the near term that net normalize even for 2022.
Well.
On the expense guidance.
The increase of one point.
Compared to last year due for.
The reduction from the controllable expenses.
The 10% decrease turnover accounts.
I'm kind of a rate increase.
10 basis points compared the last year the 22.
Two points.
The Pepsi the state changes of the bulk of the patent.
As long as the focus.
Service.
Yes.
Okay.
The 1% year over the years.
The one time tax adjustment.
For 2019, which would she need our property tax unusually high in that quarter.
One of your basis property taxes.
Perfect.
Can we sort of 5% increase.
The increase across the industry.
Together robust revenue growth combined with the diligent expense control translated into a record high sitting home in my portion of the 16th.
Perfect.
Yeah.
As we start them.
Slide 16 the positive.
Alright.
Okay.
At all time highs of rent growth on new move ins.
Aimed at the double digits as we harvest the loss to lease the tenant that is all the time with that low kind of abate.
Meanwhile, the rent growth of renew.
A couple of weeks.
For a home for all of Us.
That's it for while still being sensitive to the challenging economic environment impacting us.
Right.
Now, let's turn to slide 17, you discussed sort of UBS.
The Agri business.
It feels like.
I think in Q3, 'twenty and are now seeing Inc.
Thanks.
Year over year, the Q for bearings segment of us.
NOI decreased 8%.
Nothing of concessions of accounting policy is conservative whereby we expense all concessions in the current period.
The amortized concessions over the term of the lease our year end of line declines of seven 1%.
If we look at the components of best buy revenues were down $2 four per cent relative to last year as the result of lower occupancy higher leasing concessions and higher bad debt provision.
Set slightly by higher revenue from ancillary services.
Expenses increased by three 2% year over year, driven by slightly higher property management expenses property insurance repairs and maintenance of turnover expenses at specific properties.
While the year over year percentage change in NOI is meaningful the dollar changes only $1 4 million and underscores the fact that our portfolio of 23 properties is still relatively small when compared to the rest of our residential rental business.
The location of our multifamily assets are also not as diversified as the portfolios of some of our public peers. We continued.
The experienced challenges in the Houston, and Orlando, which make up 32% of the total.
Total suites in our portfolio.
These markets are among the hardest hit by the pandemic with unemployment rates above the national average.
On the bright side, however of the quarterly <unk> contribution of the multifamily business actually increased by 100 thousands of dollars compared to last year as we benefited significantly from lower LIBOR rates, which positively impacted interest expense of roughly a third of the portfolio of debt that is tied to floating rates.
Also looking at the sequential trend from Q3. The Q4, one can see the NOI has increased by three 3% and were optimistic that performance can get better from here.
The increased the increase reflects stronger occupancy and improve the expense control, which more than offset the pressure from blended rent growth, which was still negative but to a lesser extent than in recent quarters.
On that note, let's turn to slide 18 for an analysis of the sequential trends on the month basis.
<unk> to the end of January we've seen a 130 basis point increase in occupancy ending at 94, 6%.
The blended rent growth is now in positive territory of each and one five per cent of Jaguar.
We're getting closer to flat lease trade outs on new leases, coupled with strong rental increases.
Notably we have achieved these improvements while reducing the use of concessions, which has moved from 420 per lease in July.
$70 in January of.
This will continue to serve as a positive tailwind for net operating income.
I'd like to end the off with slide 19 to give you a sense of our top operational priorities for the year ahead.
The first priority is to grow same home NOI, we expect to maintain a strong occupancy bias and see continued upside from rent growth, especially on new leases. Additionally, we continued to grow ancillary revenue, while keeping the cost to maintain stable.
We believe our bad debt exposure peaked in Q4 of 20 weeks.
It will remain above the pre pandemic levels much of 2021.
Turning back to normal sometime in 2022.
Second we plan to increase acquisitions by gradually ramping up.
Purchases to between 800000 homes per quarter, and expanding our build of that program.
Third we plan to continue innovating to drive efficiencies, which has been a company wide priority for years.
In 2021 of our focuses on expanding our smart home log for U S.
Escalating our use of intelligent virtual agent technology to help automate the scheduling of leasing tours and respond the maintenance requests from the call Center. We will also be expanding the national procurement program and continuing to improve our fleet efficiency and productivity.
Finally, we plan to realize synergies between the single family multifamily portfolios.
There is the maintenance leasing and operations will also be relying on our operating platform to lease up and stabilize three Canadian multifamily assets over the next 12 to 24 months.
Of course with all of the above the top priority is always to ensure our employees and resins stay safe and healthy as we work through the tail end of the pandemic, while maintaining our mission of providing quality housing for families across America.
Now I will turn the call back over to Gary for closing remarks.
Thank you Kevin for that exciting update I'd like to conclude our presentation today with an overview of upcoming catalysts on slide 20 that our team has been working on.
First we expect to close the syndication of our U S multifamily portfolio of this month.
That ties to our second point here of course.
This transaction.
It shouldn't be approximately 50% net the assets, which again represent the production of all of them 100 basis points of leverage and just for one year.
In terms of growth we are working on additional third party capital raised was across all the residential strategies, which I outlined earlier.
On balance sheet investments will remain focused on single family rental which will account for over 80% of of our net asset value for our.
The acquisition program is back the pre pandemic levels, and we expect to accelerate the acquisitions of rental homes during the year.
Meanwhile, our legacy for sale housing assets remains a very small part of our business, but are quietly generating significant cash we expect to generate over $300 million in the next five to seven years, which can be used for deleveraging and to reallocate tour around the housing businesses.
And lastly, north of the border we continue to construct develop and stabilize our Canadian multifamily development properties. In addition to the Saudi we of around 3700 units under various stages of development and construction.
And we believe that when these properties are stabilized over the next three to four years and we applaud today's cap rates, we will be able to generate another $2 per share of value on top of the existing iron for US now so we see significant value upside as we finally incubated for fast and class a multifamily portfolio.
I'm very proud of the progress our team made in 2020 of the piece of an extremely challenging environment. We're very fortunate to emerge from the pandemic in such a strong position to be able to hit the ground running in 'twenty. One for so many exciting plans that concludes our prepared remarks, our capacity call back to Jason to take questions for Sam Kevin and I will be joined by John <unk>.
<unk>, Andy Carmody, Andrew Joyner the answer questions.
I was the reminder, if you would like to ask the question. Please press Star then one of them for one.
The phone keypad, if you would like to withdraw your question simple press the pound for Ya Li.
We'll now pause for just a moment, but I'll. Thank you for their roster.
Your first question comes from a lot of the cloud from BMO capital markets. Your line is open.
Thank you and good morning, guys.
Steve Good morning.
Good morning.
So lots of great detail on the call and congrats on the quarter of the business is really humming along very nicely. Thank.
Thank you I, just sort of a couple of questions just the.
Couple of questions for you you know you had some interesting commentary.
Around the third party.
Third party capital commitments and I'm, just wondering if you could give a little bit of color on a couple of things for the first of all of them being <unk>.
The multifamily J D growth expectations I know that's still in process the.
The second the second one day.
Supposed to get all of the timing around the hassle of margin in two and the Canadian multifamily.
Timing for those.
The second.
Capital investments as well.
Yeah sure. So I think in terms of sequencing.
Next announcement, you should expect for us will be on the Canadian multifamily development side built the core we are working with the major events of major investor to grow that strategy and take advantage of dislocation of Toronto and so you should expect something from us on that fairly soon.
With respect to the.
The single family rental initiatives.
Really that represents I think the lion's share of what we're really going to raise over the balance of the year and were obviously theres major focus as we talked about in terms of our balance sheet investments.
The bad capital will likely be announced in Q2 right. We're working on two major initiatives. One is the continuation of the existing strategy J D. One so that will call that G. B two and the second one is what we've been calling homebuilder direct.
We would be able to buy homes from builders public and private new homes.
Specced something there in.
In Q2 with respect to the multifamily syndication that we just announced we are working on a growth strategy.
Called out of dry powder of vehicle and that's likely a Q2 event of.
The overall amount will probably be a little bit lower than what we talked about it before.
But we will have the ability to upsize that if we see it pushes the compelling opportunity. So overall, we're incredibly excited about all of the third party capital raising of becoming coming down the pipe.
And probably all of that again should hit in the first half of this year.
Okay, that's great.
The $2 billion.
Just more of it.
It's the.
Is that the number of sort of.
Is that maybe for that.
The higher than that as you go.
Works for negotiations.
Yes, I would say that.
You don't buy where the gas is you're going to be lower or higher it's more likely to be higher.
Right, Okay that makes sense okay.
What's the thank you.
So part of Us and that's obviously, you're benefiting from a lot of these sexual problems and.
One of them, we're going into the quarter okay.
Talk a little bit about how you see that had a lot of margin.
The people, who would have thought or whole bonding program pre pandemic levels.
And in July.
The ongoing rent growth.
Do you expect how Easter because evolved kind of this year of maybe into next year as things normalize.
Well I think I mean again the.
Home buying wouldn't necessarily impact certainly the same store margin of our same home margin the cut over time, if we depending where we pay all of them. So I think I just want to be very clear day, a major driver of the margin is where the homes are located in the property taxes right because that's the biggest cost in the margin and so you could have.
Very different margins, depending on where your portfolio is located so you do you need to isolate that.
But I think I think the most obvious thing about us that if we were to normalize that.
And the remember for ESG policy.
We're trying to be sympathetic as we can for our residents. During this really difficult time of trying to keep them in their homes. So we are incurring higher bad debt and we're earning less fees. If we were just normalize that our margin would be almost 1% higher.
So instead of being close to 67% of would be closer to 68%.
So that's the that's a big move onto itself.
And then again as we discussed in previous earnings calls we continue to believe this is a business, where we can drive revenues faster than costs over time, which could lead to more margin expansion. It's not crazy to think that one day. We can have a seven handle on this margin I mean never thought of millionaires, we'd ever get there, but it is possible it will take time.
The offsets to that are obviously property taxes.
The states and local municipalities are going to need to find a way to incur more revenue and one way to do that is obviously through property taxes on residential property, which has been very strong.
And obviously, we are seeing us not a major component of the margin, but we are seeing higher premiums on insurance. So those would be the offsets, but I think the trajectory for where we're going couldnt be better right now.
Right. So the nice positive bias there.
Okay. That's great and then just finally on the resi business.
You had a nice bump in the some of the investments on the for sale housing.
Do you have any insight into sort of how that what that looks like.
I know, it's a lumpy business, but should we expect more of that going forward as we roll into the share given the strength of the south of market or or what the kind of visibility do you have into those skus coming in.
The market is incredibly strong I mean, I don't know I mean, we haven't seen it the strong since since 2004 and five I mean, it's just the markets on fire.
Obviously, it's a very difficult business to predict it's the cash flow as episodic. So I can't give you a huge amount of guidance, but I would say that we expect further strength in the year.
From a modeling perspective.
I would probably just you know us I mean, we used to guide to this kind of before the pandemic, but.
But I would probably think if you look at our our fair value on the portfolio, which is about 160 million. Today. If you took let's say, 7%, 9% as the kind of Unlevered yield you can kind of think about that is where the.
The <unk> of our investment income could shake out over time.
Hopefully, we do better than that but that's probably a fair range of 7% to 9%.
On the fair value, so I hope that helps but I can't be any more specific than that.
Yes, certainly that's a that's all for them to understand that its lumpy and difficult to predict the.
Thank you Gary and best of luck. Thank you. Thank you.
The.
Your next question comes from the line of Jonathan Culture from TD Securities. Your line is open.
Thanks. Good morning, good morning job, just just continuing on the.
Yes, the the <unk> business.
What's your expectation.
For property taxes.
Insurance increases in Inc.
2021, and further just on the on the insurance side.
You grow your portfolio or is there any cash.
That's for for savings of just given the the bigger sites.
Yeah, So hi, John So I'll start with that and then I'll talk I'll pass it over to Sam So on property taxes.
And in working with our tax consultants, we think that there you know, we probably guide to increases of 5% to 6% for 'twenty one.
And remember for 'twenty, we were for years to 5%, we actually did better than we thought in 'twenty in 2020, but I think of a little bit higher for 21, 5% to 6% not as high as where it had been a few years ago.
But obviously it represents a bit of a headwind on the margin.
And then on insurance.
Probably looking at insurance increases the premiums of about 10%.
Across the board, which is in line with the industry, obviously theres been a lot of storms the.
Recent event in Texas, and that's all of us putting a drag anything you want to add to that Michele yes, Joe the only thing I would add us we definitely do get the benefit of scale as we continue to grow the portfolio and we also got a benefit of scale by combining both single family and multifamily.
But despite all of that we're still assuming anywhere from 9% to 10% growth in insurance premiums for the next year.
Okay.
That is helpful of and you guys you guys do your debt your bad debt against revenue correct.
That's right.
Okay.
It would sound like I, just I guess sticking with you because I like the balance sheet stuff too.
The given given what interest rates of done the last.
A few weeks or so what do you think you could do a current securitization of that.
Well, we're looking at the loss of securitization deal that we did end of 'twenty 'twenty 2020 was around 183% right now we've seen the curve uptake after five years.
So if I were going to do the same transaction the rate would've gone up probably by anywhere between 25 to 75 basis points, depending on whether you want 70 of our eight year of nine year maturity. So we still think that it is very meaningfully lower than our 3% blended.
Maturities interest expense, but we think we could probably be in the 225 range right now.
Okay.
It's helpful and then lastly.
You do have your convert coming due in about a year from now what what are your early thoughts on part of what Youre going to do with us.
Yeah at this point of we obviously have the right to force converted at the end of this month at this point of the ideas do nothing we do think there's a lot of catalyst for our stock to move up further of which point that we'll put it automatically in the money. So for now we're just kind of sit there finish what we started to focus on completing the the growth.
And focus on raising the equity and see what happens so that's sort of short term plan, but definitely the ideas.
I'll turn it back.
Great.
Your next question comes from the line of John tuned from.
Of the Stifel. Your line is open.
Hi, guys. Good morning, one list of couple of quick ones for me or Gary and the team.
Although the results of course, I'm talking about 10% for growth.
Growth on the go forward Batesville.
But one quick math suggests the.
10% growth number would put you for 2021 other than in the room.
One of the downfield for too.
From 2002.
The commentary from all of the businesses bounds of other than the kind of running on all cylinders. Just wondering how you balance the growth a little bit it's looking like it's true well is it an issue of.
Like what's the last question of you talked for a long term conversion estimates how do we balance.
The the robust operating performance.
With the models there.
Yeah, no great question.
Yeah.
Well look there's a bunch of puts and takes I think as to your question. The first one is that we are really now aiming to the very low end of the guidance on leverage right with the syndication and maybe we even go lower so obviously if you prior to prioritize the lower leverage that we will have an impact on the <unk> growth.
So it's something to keep in mind and we've always we talked about the 10% growth as the CAG of over three years not specific to any one year right. So we've always you know and the reason we've kind of out of us because we knew that there might be some conversions from deleveraging.
Just look at the syndication unto itself and you look at the 80% loss half of faux if you've been out all of the interest savings and some of the fee income we're going to generate will actually be a little bit short.
So the syndication in the short term, especially when we get into Q2 and this is something everyone should be aware of is going to be it's going to be dilutive in the short term, but long term. We think its neutral so that all has to get taken into account into 'twenty one.
But you know we don't we're not.
So we're very confident that we will hit that 52 to 50 target of 57 target in 'twenty, two very confident and.
And obviously with the really strong operating fundamental obviously it could be at the high end of that range.
Thanks for the part of the day, almost the shuttle with respect to the multifamily syndication.
The feedstocks for similar.
The local bar off the malls in the program in the residential housing all of them.
Just wanted to talk about the is there any no.
Yeah, it's a little bit lower the.
For the asset management fees are a little bit lower because it's really viewed as kind of core core plus real estate, whereas in <unk>. We it's more kind of muted in the kind of value out of opportunistic bucket, where we're able to get higher fees. So we the the asset management fees are lower the performance fees I would say of very similar though.
Well first of all ball.
Last question for me what's the.
We're supposed to you know in the past you guys have talked about the different ways to close the valuation GAAP.
U S peer one of world.
The total U S.
Hum of how do you think about that now given where you are the best smartphone and all the puts and takes the neuropathy.
I think that's something that we absolutely are going to explore and I think long term could make us could make a lot of sense, because obviously it would give us a U S currency, which would certainly help at a minimum anchor R. R.
Our balance sheet, and our functional currency, which is the U S dollars. It gives us an acquisition currency.
And potentially could brought in.
The share of holding to a larger audience on which would all of that we think could be catalyst for Clos.
Closing of evaluation GAAP over time, so it's something we're going to look at I don't think of anything thats imminent.
But it's certainly something that that we will be exploring.
Thanks very much of the for me. Thank you.
Your next question comes from the line of true.
Where are you from National Bank financial your line is open.
Hi, Good morning, everyone. Good morning Tao.
All of them on the Canadian multifamily side.
Looking at adding new projects from Toronto over the next few years I'm just wondering how you've seen like your entry cost the two new developments.
Evolve from wherever they were and sort of say 2019 to maybe where we were 2022 of where you see it going over the next couple of years you know that.
The price per billable square foot kind of held steady so rising.
For any bargains out there maybe you can just comment on the part of the market for us.
Sure I mean, I think the first thing to say is you know we are working on of new venture with the major investor to grow that strategy and the reason we're doing that is one because we want to minimize the amount of equity that we put into development we.
We want to try to be as productive as we can with their own balance sheet and we think there are good opportunities out there to take advantage of and so you will be learning about you know more about that soon I'm not I'm not going to get too specific because we are working on that on an opportunity.
You'll learn about it and it does represent an opportunity where we've been able to pick up of land that I think of pretty meaningful discount to where it was pre pandemic, it's not to see that.
The market is distressed.
I think that would be a misrepresentation, but I think that there are certain pockets certain vendors that immediate need of gone traveler, who got stretched and theres an opportunity because we're well capitalized to take advantage of that so we will be looking at that but I want to be clear. It represents a small part of our kind of overall balance sheet allocation.
And I think with respect to costs cost.
<unk> still moving up.
They're probably up 5% plus on there's some puts and takes there but the industry. Even throughout this pandemic has continued to go full tell us.
The trains are still stretched there's certainly an increase in our in cost of <unk> of.
Supplies of material and so we are still seeing we're still seeing costs move up.
Okay. That's helpful. And then just from the asset management platform. So you know you talked about if you sort of get.
The $1 2 billion in crush commitments ex us.
You did.
And it all but you know all of our explants youre looking at about $10 million incremental in fees I'm wondering if you've looked at a couple of years, because it'll probably take us from time to deploy all of the capital like what what do you see sort of the run rate kind of number for that private fund of.
On the advisory revenue.
You know like longer term.
Yeah, Yeah. So let me try to break that down for you because there is there is a number of components to the FAA.
The first one is asset management fees.
<unk>.
We view those that run rate at around 11, maybe $11 million.
A day and.
60% of that let's say comes from for sale housing and so that for sale housing is going to burn off of let's say over the next five years, but obviously you just talked about the the positive to that as we layer on new vehicles, we'll get 10 million plus back right. So that gives us a little bit of insight into how the asset management fee component will move.
The development fees are largely made up of Johnston, our March sales, which do ebb and flow and sort of third party home sales, it's actually been lots of clothes that we'd get the fee.
And that does ebb and flow of so for example, Charleston was weaker year over year, but was stronger than in Q3.
And all I can see right now is that that business is extremely strong for us.
The party home sales were up 25% year over year offered very strong 2019, I mean really of the business is booming. So we should be in good shape, there, but it's very hard to kind of predict that.
The quarter and performance fees are also somewhat episodic, but the way of the way I think if youre looking for guidance Tao I would say don't look at the quarter book as the year right and consider the year really.
To be more of a run rate and go from there.
Okay, that's perfect. Thanks, Gary.
Once again it feels like it's on a question. Please press Star then the number of one of your telephone keypad. Your next question comes from the one of my Hogan from RBC capital markets. Your line is open.
Thank you and good morning.
Hi, Matt.
Kevin and some of your prepared comments you talked about expanding the depth of the Ret program could.
Could you give us an update on where you stand for some of your current projects and maybe how big you think the same quantity of your business could be over the next two or three years.
Sure, Matt I'm going to turn that over to Andy comedy who needs of that business for us it can be much more articulate them on the.
Sure.
Hi, Matt.
This is Andy you know we talk about this program at our Investor day back in January and Us.
Snapshot with five communities with about 425 of homes today, we expect to add nine or 10 communities for another about 1000 of homes. This year and I think where we're headed to in this business is adding something like about 15 communities per year at about 1500 homes per year in the build to rent pipeline.
Excellent.
And maybe changing gears for the for sale housing business. That's one of the bit of a two part question, but given how well the businesses performed day.
Does that change of plans for potential dispositions of certain assets or for that.
The entire business.
And number two.
Do you think that bodes well for a potential reversal of.
Some of the fair value write downs that we've seen last year.
Yeah. So you know, Matt I'll start with that I don't want any time of Andy chime in if he wants to add more detail the.
Look the the big write down in Q1 was kind of a onetime reinvent revaluation.
The change discount rates and the methodology in the sense and also we took into account. The fact that we thought the cash flows would be lower significantly lower actually as we went into the pandemic that turned out not to be the case now that the business is actually booming, we're not going to write it all the way back up.
But now.
Now that when you'd kind of of DCF to kind of straight line. The cash flow over time, we do expect the dot net investment income will grow and we will certainly look a lot better than where it has been so and its certainly expresses of yield because you have to look at it also on the balance on the outstanding capital not just in terms of the total quantum of about the fall So I think the.
For the direction. There is is the very very positive and what kind of you'll see that over time, but we're not looking to do kind of of a meaningful write up.
It's more going to you know, let's take it over time.
And with respect to monetizing quicker.
We're in no rush to do the hard I mean, we want to take advantage of this has become a really small part of our business is the only about 2%, but it is generating significant cash flow.
For a point, we want to maximize the cash flow if we've got a great offer on a let's say of Masterplan community.
Or there is an opportunity to.
To expedite that well, but it's it's it's our intent to only do that if it really makes sense for.
So we're just happy to keep the cash over five to seven years anything you want to add.
Yes, Gary I would just say that the baseline strategy is harvesting for value with us to sell lots and land at full retail value of versus discounting that in some sort of bulk sale, but as Harry mentioned you know if the right opportunity comes along and we do see it from time to time, we'll certainly accelerate an exit on a project of two.
The economics makes sense.
Bridging the gap between the adult the land for.
For sale housing.
Ladies.
Pretty synergies between the two ways to pay.
Perhaps cross sell some of the group.
The opportunities.
Andy I'll, let you take that share is it's a great question.
The link in the foreseeable business is allocating sections of land.
Many of the large master planned communities, particularly of Texas has many different products and home types and what we're doing synergistically. They were just adding build to rent is another product line in those neighborhoods.
The trick level of it is you can't take US 5000 home Masterplan community the.
All rental so it's bits and pieces in smaller a couple of hundred units section versus the wholesale the revamp of the for sale out of business.
I appreciate the color.
And one last one for me just in terms of the multifamily proceeds how much of the of that.
The cash do you plan to keep on hand, and how much goes to repay debt.
Yeah. Thanks, Bob.
The the idea is as I mentioned earlier of retired the CIBC facility that matures later this year, which is about $110 million also retire some of our so far.
Proceeds day I would just probably another 150 million of those are all due soon to us about 250 of the for 30 so far.
And then we also have of some maturities coming up in the Canadian multifamily for one of the.
And we also have maturities.
Outstanding debt on our revolving credit facility all of the Dod being considered that's about <unk> 75 of the 425, so that leaves us probably about 50 million of ourself for growth for.
For out of the acquisitions over the next couple of months.
Thanks for Tim I appreciate the color I'll turn the call back. Thank you.
Thank you Matt.
No further questions at the turn the call back to the person of interest for any closing remarks.
Thank you Jason I'd like to thank all of you on this call for your participation wash for annual report and annual let her in the coming days and we look forward to speaking with you again made the discuss our Q1 'twenty one results.
That concludes today's conference call you may now disconnect.
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