Q1 2021 Tricon Residential Inc Earnings Call
Good morning, My name is Jamie and I will be your conference operator today.
At this time I would like to welcome everyone to the Tri Con residential first quarter 2021 analyst conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press the pound key I'd now like to hand, the conference over to you.
Speaker today or take Nowak, managing director of capital markets and Thank you. Please go ahead.
Thank you Tammy and good morning, everyone and thank you for joining us to discuss <unk> first quarter results for the three months ended March 31, 2021, which will share it in the news release distributed yesterday.
I'd like to remind you that our remarks and answers to your questions may contain forward looking statements and information.
This information and 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 and annual information for them, which are available on SEDAR and our company website.
Our remarks also include references to non-GAAP financial measures, which are explained and reconciled in our MD&A I would also like to remind everyone that all figures are being quoted in U S dollars unless otherwise stated.
Please note that this call is available by webcast on our website and a replay will be accessible there. Following the call. Lastly, please note that during this call we will be referring to a supplementary presentation that you can followed by joining our webcast or you can access directly through our website.
You can find both the webcast registration and the presentation and the investors section of track on residential Dot com under news and events with that I will turn the call over to Gary Berman, President and CEO of dry dock.
You Boyd and good morning, everyone. Thank you for joining US today I hope everyone is having a safe and healthy start to 'twenty one.
Excited to update you on our progress and what has been a very active few months for Tri Con.
Before we get into our quarterly overview I want US first thank our dedicated team members, who continue to go above and beyond for our residents. Our team delivered exceptional results, despite having to navigate ongoing pandemic challenges as well as extreme cold weather, and Texas, Nashville, and Indianapolis, which thankfully had minimal impact on our residents and our homes.
Our frontline colleagues responded quickly efficiently and empathetic Lee to these challenges while displaying tremendous teamwork and continue to raise the bar when it comes to serving our residents and I want to acknowledge their efforts.
Let's start on slide two and talk about the key takeaways, we want to emphasize for you today for.
First our business is benefiting from long term tailwind to support our sunbelt middle market rental strategy.
<unk> continued to sell and searched job growth better weather lower taxes, and affordable living options and our rental homes address the housing needs for America's largest demographic the millennials.
Second our core single family rental business continues to deliver solid operating performance with near record occupancy levels and demand trends like we've never seen before our single family rental business is booming.
Third our U S multifamily business, which experienced some softness through the pandemic is showing signs of sequential improvement for.
Fourth we are on track for the most prolific your fundraising and trike and 33 year history with $1 billion of third party equity capital and commitments announced year to date. These investment joint ventures provide a clear path of growth for <unk> for years to come.
And finally, we have not only achieved but also exceeded our deleveraging target and a year ahead of schedule at that.
Let's now turn to slide three for summary of our results. We reported core <unk> per share of <unk> 13, this quarter and increase of 30% compared to last year. Our net operating income grew a solid 14% year over year, while overhead and interest expenses remained relatively stable on the whole, creating strong bottom line growth.
And this quarter. We also delivered on several important strategic initiatives, including syndicating, our U S multifamily portfolio, which raised 432 million and gross proceeds forming a $1 4 billion Canadian dollars joint venture with CPP investments and launching and $1 5 billion homebuilder direct joint venture we did all of this while reducing our leverage.
Significantly.
Moving to slide four and our single family rental business, we continue to see exceptional growth for new and existing assets is try and cons proportionate share of NOI increased by eight 3% and same home NOI grew four 1% compared to last year without the impact of the Texas Storm, our same home NOI growth would have been 80 basis points higher.
At four 9%. We also achieved near record same home NOI margin of 66, 7% driven by strong operating metrics. It is worth noting that our NOI margin would have been 67, 1%. If we exclude the impact of the taxes freeze and 67, 8%, if we normalize for the higher bad debt and.
Lots of ancillary income as a result of the pandemic.
And U S multifamily rental and we're especially encouraged by strong sequential improvement and occupancy turnover and blended rent growth, which turned positive for the first time and for quarters and finally for sale housing delivered another strong quarter distributing $12 $9 million of cash to Tri Con.
Let's now turn to slide five to discuss the fundamental trends supporting our sunbelt middle market strategy.
We often talk about the great migration to the us Sunbelt and I've shared with you numerous statistics in recent quarters, such as data for moving truck companies. They clearly show these migration trends accelerating during the pandemic. These are not just passing trends, but rather longer term population shifts that have been in place for many years. The US government recently published its tenure.
Census, data, which shows that the south has been the fastest growing region and the us more specifically the states for trike and operates a experienced population growth of 11% and average over the past decade, which is 400 basis points above the national average clearly its not just depend dynamic that is bringing people. So it's attractive combination of warmer weather.
Your taxes strong job growth and affordable living options that has been in place for some time and we expect will continue to drive the sunbelt migration.
On slide six we touch on another one and trike and fundamental long term tailwind demographics to demographic shifts are behind the significant demand for single family housing. The first is the giant and millennial cohort those born between 1980 in 2000 and numbering 72 million people for entering their primary age of family formation over the.
Next decade.
With an average age of head of household of 38, and our asset for our portfolio millennials represent the primary source of demand for our single family rental homes.
The other major cohort as the baby Boomers, who number 69 million people and and the second largest demographic group.
Most will remain a significant driver demographic trends over the next 10 years and are increasingly choosing to age and place rather than moving to a retirement home by.
By staying put the increase and length of time American stay in their homes and limit the supply of single family homes available for the younger generation and drive up home pricing for icon residential plays an important market role in addressing this demand supply imbalance by providing maintenance free single family rental housing and and affordable price points, and millennials, who have grown up and the.
Sharing and economy, and often prioritize experiences over ownership.
With such compelling long term trends and our side it should come as no surprise that we focused on single family rental as our core growth strategy on slide seven we outline our asset mix, where you can see that single family rental and that represents 93% of our consolidated real estate assets and is expected to remain above 90% going forward.
And residential development is expected to remain near 5% of assets and also includes built for rent communities and add to our <unk> portfolio.
Multifamily rental has now been reduced to 2% of assets as a result for the recent syndication and is expected to remain below 5% going forward.
Let's now move to slide eight to expand and our asset for our growth strategy and talk about our various acquisition channels. As you can see we have a diversified acquisition strategy and our form complementary joint ventures with third party investors to help us scale faster across each of these channels.
And our largest acquisition program and <unk> JV, one where we acquire homes, mainly through the MLS as well as off market channels and portfolio acquisitions over the past year. We've also expanded into development and build to rent communities and our joint venture with Arizona State retirement system.
And just a few days ago, we announced the formation of our homebuilder direct JV, which focuses on buying new scattered homes and completed build to rent communities directly from homebuilders. This new venture is very synergistic with our legacy for sale housing business as it leverages, our long standing relationships with homebuilders to gain access to newly built homes.
On slide nine you can see a summary of our various asset for our joint ventures. The cheek. The key takeaway here is that homebuilder direct extends our runway to grow our single family rental portfolio beyond 30000 homes and as we fully deploy the capital and asset for our JV, one and work towards closing a follow on JV to this summer you should expect us to.
Expand our acquisition capacity significantly more.
Turning to slide 10 wed.
And we'd like to give you some more insight into build to rent communities, which are meaningful growth opportunity for us and when we say build to rent and we're referring to dedicated single family rental communities that we either acquire once completed or develop and partnership with homebuilders today, we own six build to rent communities with 474 homes and five markets, we expect to develop.
Per acquired 10 communities. This year, and then add roughly 15 communities per year, and 'twenty, two and beyond either through acquisition or development.
Once the communities are stabilized it enables us to add 200 to 800 rental homes per year, and addition to over 3000 homes being acquired each year through MLS and other channels.
Filter and communities are win win for both for icon and our residents for our residents. We can offer complete neighborhoods and affordably price price rental homes with a true sense of neighborhood and community. We can also custom design and the homes to ensure a highly efficient use of space with light and bright for plants that live larger than equivalent sized homes.
And on the <unk> side, we benefit from a maintenance honeymoon as the homes are newly constructed and come with a warranty coverage that is expected to result in maintenance and repair costs are 34% lower than our existing portfolio over 10 year ownership period.
Let's flip to slide 11, where we showcase for our existing build to rent communities. What we love about the build to rent product is and it provides a residence with the best of all worlds, the privacy and perceived safety of living and a brand new single family home as well as the community us atmosphere, and amenities and multifamily and the monthly rent of our existing communities.
Roughly $1 per square foot, which is 30% to 50% cheaper than similarly, situated garden style apartment rents on a per foot basis.
To round out the discussion of our growth strategies I'd like to touch on Canadian multifamily on Slide 12, where we recently announced a $1 4 billion Canadian dollars joint venture with CPP investments to nearly double our platform towards 7000 units, while Canadian multifamily development is less than 5% of our balance sheet assets. It does represent and.
Citing source of upside for our shareholders, which could add close to $3 per share to our NAV and Canadian dollars. As this portfolio has developed and stabilized over the coming years.
Our first project with CPP investments depicted on slide 13 is located in Toronto downtown and East Submarket and in close proximity to our future, Ontario line subway station.
Situated and a fully entitled one eight acre site. The planned development consists of two towers totaling 870 rental suites and will feature a half acre park and an extensive list of amenities to give our residents and unmatched downtown living experience.
That concludes my opening remarks, I would now like to pass the presentation over to Sam to discuss our financial results.
Thank you Gary and good morning, everyone.
Overall, we had a great start to the year with all groups firing on all cylinders and.
A very busy quarter and we're proud of what we've accomplished.
From our fundraising efforts to our robust financial results. We've made significant progress on all of our key priorities outlined on slide 14.
To refresh everyone. We introduced these five key priorities in 2019. These included growing our core <unk> per share at a compounded annual rate of 10% over three years through 2022.
Raising approximately 1 billion and 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 our progress against these goals and the dashboard on slide 15, and I'm excited to report that we are on track to achieving or exceeding these goals and in some cases doing so well ahead of schedule and all.
And while in the middle of a global pandemic.
Net had been achieved without the amazing effort from our people. So I want to thank our team for the endless hours and dedication along this journey.
Let's begin with our three year <unk> target.
We had a great start to the year and achieved 13 central and <unk> per share assuming the current trend holds we are confident that we can achieve our <unk> target range of.
A 52 to 57 and 2022, even with higher diluted share count caused by our exchangeable preferred share offering last year and our deleveraging plans.
Recall, we set the target prior to even considering and 80% syndication of U S. MSR, but we are still confident we will achieve it.
In terms of raising third party capital and we achieved a major milestone by raising $1 billion of fee bearing equity capital a year ahead of schedule.
This includes our recent U S multifamily portfolio syndication the single family rental homebuilder direct joint venture.
And our Canadian multifamily joint venture with CPP investments.
With more exciting opportunities on the pipeline, we are planning to continue with us momentum as the year progresses.
We're focused on beating this target as we continue more third party capital raising efforts.
In terms of reducing our leverage target range of 50% to 55% I am very happy to report that we've exceeded our target ahead of schedule.
And are now sitting at 49% net debt to assets. This translates to a 46% net debt to us us on a proportionate basis.
We remain focused on bringing our leverage lower over time, while continuing to grow our business.
Our final priority was to improve our reported which is substantially completed with our transition from investment entity accounting to consolidated accounting last year.
And as well as adopting REIT like MD&A disclosures, such as <unk> <unk> per share.
With ESG as a companywide priority, we issued our first ESG roadmap at the beginning of a 2020.
Turning to slide 16, and I'm thrilled to announce that our first annual sustainability report will be released later this month.
ESG has always been a part of <unk> DNA and how we treat our people and how we treat our residents and also how we operate our business.
This report is a major step in it and our ESG journey and highlights our many sustainability initiatives, we are committed to as well as showcasing how we did this past year.
Let's talk about the quarter, let's move on to slide 17, and will provide highlights of our key metrics.
First our.
Our net income from continued operations grew 190% year over year to nearly $42 million.
This included $66 million of NOI from our rental properties, representing a 14% year over year increase.
We also had $112 million sales value gain on rental properties and Q1.
Compared to $21 million and the prior year, reflecting significant home price appreciation and <unk> markets.
Second our core <unk> per share increased 30% to 13 or 16 and Canadian dollars.
Third we reported <unk> of <unk> per share. This translates to <unk> 13 cents Canadian and provides us with ample cushion to support our quarterly dividend of <unk> Canadian per share.
Reflecting an <unk> payout ratio of 42%.
Moving onto slide 18, which highlights the drivers that contributed to our <unk> per share growth for the quarter.
The year over year increase of three or <unk> 30 per cent per share was due to strength across several aspects of our business.
Our single family rental portfolio, which makes up over 90% of our real estate assets delivered 8% growth for trac on share of NOI.
This was driven by $9, one increase and the number of homes, coupled with strong blended rent growth of six 4% and occupancy of 96, 3%.
Okay.
And our other businesses also contributed meaningfully this quarter residential development performed very well as demand for develop and lots in our for sale housing business exceeded our expectations during the pandemic.
The business contributed $6 7 million to our offer for this quarter and generated $12 9 million of cash flow for <unk>, which includes performance fees.
There was also $1 1 million increase and private funds and advisory revenue driven by an increase and development piece earned from our growing portfolio of Kenneth Navy and residential developments.
Likewise, we saw year over year decrease and interest expense due to refinancing activities that have allowed us to benefit from a lower interest rate environment as well as lower balance outstanding on our corporate credit facility.
This was largely offset by higher corporate overhead as we continue to grow our company as well as higher weighted average share shares outstanding.
Turning to our debt profile on slide 19, aside from the significant reduction and leverage that I spoke about earlier.
Can see that we also have improved our liquidity position over the past year with $776 million of liquidity, including cash on hand, and room and our corporate credit facility.
A big part of the improvement towards the us multifamily portfolio syndication, which brought in $432 million for gross proceeds.
We use that to repay $110 million credit facility outstanding and the portfolio as well as debt outstanding on our corporate revolver.
We expect to US most of the remaining cash to partially repay the term loans and our single family rental portfolio, which matured next year that can be prepaid this year.
As we look ahead to 2022 is set from retiring a portion of the debt.
We expect to finance the bulk of these maturities with new property debt, including securitization.
We see a significant opportunity for interest expense savings and todays low interest environment given that the blended rate on these maturities is 3%.
Whereas our latest securitization was done at 183%.
And so if we could save 100 basis points on our $1 billion of debt.
We could translate that to $10 million of interest expense savings annually or <unk> <unk> per share and incremental core <unk>.
On that note, let me pass the call over to Kevin <unk>, Chief operating officer to discuss the operational highlights for the quarter.
Thank you Sam and good morning, everyone.
And as Gary noted despite the pandemic and these difficult times our team continues to rise to the occasion and amaze me with their dedication to our residents.
The winter storms in Texas, Nashville, and Indianapolis were no different with our teams from across the country coming to each other as a to prioritize the safety and wellbeing of our residents. We were fortunate that everyone remains safe and that the overall damage was minimal and that despite these challenges our operational performance has never been better.
I've been and rental housing for over 25 years, and I've never seen metrics like this we would dream of tons less fees.
So with that let's turn to slide 20 to review the performance of our core single family rental business.
We continue to benefit from strong demand trends, which drove higher occupancy rent growth and resident retention and <unk>.
<unk> and same home NOI growth of four 1% year over year and for 9%, excluding the impact and the Texas storm.
As we dive into the numbers same home revenue grew by three 1%.
This was driven by an occupancy increase of 80 basis points and higher average rents, which resulted in rental revenue that was five 1% higher than last year.
The offsetting factor was higher bad debt expense of $2, one per cent of revenue compared to 0.8% for prior year.
And I'm pleased to report that has moved to the other side of this pandemic our bad debt expenses declined by 70 basis points since the fourth quarter of 2020.
We do believe that things will continue to improve as the effects of the pandemics and side and we expect bad debt to normalize into 2022.
On the expense side, we saw a modest increase of <unk>, 9% compared to last year, reflecting our focus on expense control.
Contributing to this was a 7% reduction in repairs and maintenance and turnover costs.
Reflecting an 80 basis point decrease and turnover rate compared to last year to 26%.
We attribute this to the propensity just stay in place and.
The result of the COVID-19 pandemic as well as our focus on superior resident service.
Property taxes grew by three 7% year over year as our property values appreciated meaningfully and addition that we saw a 10% increase and property insurance premiums increased across the industry.
Turning to slide 21.
You can see that the exceptional demands and the trends and single family rental homes have not slowed down.
Occupancy remains at all time highs and has nudged higher and April rent.
Rent growth on new move ins continue to accelerate and hit an all time high also at 16, 3% growth in April as we harvested the loss to lease that has built up overtime with our low turnover rate.
Meanwhile, rent growth and renewals and ticking upwards as strong demand for our homes and allows us to push that metric a bit more.
But still being sensitive to the challenging economic environment impacting our residents.
Now, let's turn to slide 22 to discuss the U S multifamily rental business, which was consolidated in our results at 100% ownership throughout the quarter.
Compared to last year. The Q1 variance is still negative as NOI decreased by 5%.
If we delve into the components of NOI revenues were down one 3% relative to last year as a result of lower occupancy lower average land and higher bad debt provisions.
Led by higher revenue from new ancillary services.
However, ablate concessions and decreased meaningfully blended rents are improving which is encouraging to see our average concession and March was $63 down from $420 in July of last year.
Expenses increased by four 3% year over year, driven mostly by utilities and slight increase in property taxes and marketing expenses.
Despite the decrease in NOI compared to last year, we actually saw and increase in net <unk> contribution from the multifamily portfolio of approximately $300000 as we benefited from lower interest rates.
I'm also encouraged that we're seeing that our NOI has stabilized on a sequential basis. This reflects significant improvement and operating metrics, including a 100 basis point increase and occupancy lower turnover and blended rent growth of positive two 9%. So first time and four quarters that we've reported pause.
For the blended rent growth.
We are optimistic that performance will continue to get better from here as local economies open up we've seen these trends continue into April which bodes well for strong performance through Q2 and into Q3.
I want to thank our operations team for the contribution this quarter for both our single family and multifamily rental performance and I look forward to continuing at full speed ahead as the year progresses.
Now I will turn the call back over to Gary for closing remarks.
Thank you Kevin I'd like to finish our presentation today with an overview of our private fund raising pipeline and future catalysts turning.
Turning to slide 23, private funds and advisory has always been a part of <unk> core activity over 33 years of history and 2021 is gearing up to be the most prolific your fundraising and our company's history.
On this page, we highlight our existing investment vehicles as well as our fund raising opportunities for 2021, while we're still early into the year. We've already raised $1 billion of third party equity commitments year to date, including the U S multifamily syndication homebuilder direct and the CPP investments joint venture, it's been a busy year and.
And we're not done yet still on the horizon as asset for our JV to a successor vehicle for SSR JV, one, which we expect to be fully invested by mid year and secondly, we're working towards a growth vehicle to acquire garden style multifamily apartment buildings and the U S sunbelt to round out our syndicated portfolio overall, we expect the investment vehicles raised.
This year should contribute 10 million of annualized asset management fees to our topline.
And so let's conclude on slide 24, with an overview of the catalysts and our team has delivered on and ones that you. Our shareholders can look forward to first we closed the syndication of our U S multifamily portfolio and Q1, which ties towards second point here that upon closing of this transaction our leverage has been successfully reduced to 46% on a proportionate.
<unk> and.
In terms of growth, we raise third party capital across all residential strategies, which I outlined earlier with more to come.
And our own balance sheet investments will remain focused on single family rental which will account for over 90% of our real estate assets going forward.
Our acquisition program is already back to pre pandemic levels, but will be accelerated further as we layer on homebuilder direct and asset for our JV to later in the year.
Meanwhile, our legacy for sale housing assets remain a very small part of our business, but our quietly producing significant cash we expect to generate over $300 million and next five to seven years, which can be used for deleveraging and to reallocate our rental housing business and lastly, north of the border. We continue to construct develop and stabilize our Canadian <unk>.
<unk> family development properties that we think can generate close to $3 per share value on top of the existing iron for US now as we quietly incubate a best in class multifamily portfolio I'm thankful to our team for all the progress we made so far this year, we're very fortunate to emerge from this pandemic and such a strong position and to be able to hit the ground running.
And 2021 with so much momentum that.
That concludes our prepared remarks, I will pass the call back to Tammy to take questions with Sam Kevin and I will also be joined by Jonathan Allen Swag, any harmony and Andrew Joyner to answer questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Matt Logan with RBC capital markets.
Thank you and good morning.
Good morning, Matt.
Given the strength and your asset for our business and February March and April.
Should we be thinking about the growth algorithm going forward.
Is this now low to mid teens rent growth with 20% turnover and rent increases of 4% to 6% for sitting tenants.
Well, let's take each let's take each component I mean first of all we're going to continue to have and occupancy by us.
So if you notice our occupancy has been taken off a little bit over 97, 5% and.
And we're very comfortable.
Comparable operating and that 97% range through this year. So that's something I think we certainly learned by being in and pandemic that we think it makes sense to operate at a higher level in the past, we would push rents significantly higher and let's see if we were at 95%, 96%. So we will continue to have and occupancy bias.
On rent growth.
Again, we're going to self governing on renewals. So those renewals are ticking up.
But we do have and internal cash and we will be mindful of that so I think with the self governing on renewals Matt.
I think we will be able to hit blended rent growth of approximately 6%, but I wouldn't I wouldn't guide any higher than that I mean, we're seeing unbelievable re leasing spreads I mean, Kevin talked about 16% and April that's clearly not sustainable. So we don't want you to get focused on 16%, but I think if we can do 6% that would be outstanding even though.
And April we're at 8%, which is just really mind blowing and we've never seen metrics like this.
I've said before the business is absolutely booming and then I think on turnover.
I think turnover will remain and maybe Kevin can chime in too, but I think turnover will remain definitely lower all year, but it's probably a little bit artificially low and.
As we get out of the pandemic that that will move up a little higher but probably should stay below where we were in 2019 and look at turnover does take up a little bit obviously that hurts our R&M on the margin, but it also allows us to capital loss to lease so its probably kept cash Kevin anything you want to add.
I think you said it perfectly the only thing I would add us as people start moving out maybe because of the pandemic getting behind US. We will also see our collections improved and.
And while turnover may go up a little bit we'll also see our collections improved and will offset each other.
And when you think about the type of tenants that you're attracting today versus say a year or two ago.
Has there been any change and do you think the demand is reflective of kind of pent up demand through the pandemic.
Or are we starting to see more structural changes and people moving.
From north to south or from urban to suburban us vaccine rollout progresses.
Kevin I'll, let you start and then I'll continue.
Yes, I'd say, we have stayed very disciplined from the very beginning with our underwriting and.
And where we are.
Right now we still have I would say our household income to rents are and the 22% and 23% and we've really kind of stuck to our knitting and made sure that we were being disciplined and.
And during the middle of the pandemic, we actually also.
We're asking right before somebody moved and we then did another check to make sure. They still have a job and so we have found that the resident profile that it has.
And then with us throughout the pandemic and even the people that we're approving now all have jobs all have very good qualifications and so it's something we continue.
To work on and and believe that our.
And our bad debts and will continue to improve before the pandemic Weir and 0.8% and we're confident we'll get back there.
Into 2022.
And I'll talk more about the migration trends map and I think just on the bad debt I mean, we really view the bad debt, which is obviously elevated right now, but it's not a big factor and driving our results, but we just view it as a cost of doing business is really an artificially high number in the pandemic because we are not a victim generally for non team and.
And the rent there is significant demand as you know for our products. So this so the higher bad bad debt just for your wares is not an indication of really of the economy and it's just more of our ESG approach and being sensitive during this time and trying to keep people in their homes and work with them.
That's the only reason that the bad debt is elevated but as Kevin said, we believe that.
Will start normalizing into 'twenty two.
On the migration look the demand for this business is incredibly strong going into the pandemic and we really view. The pandemic is an accelerant of a lot of the trends that were taking place before right. So this great migration that we've talked about was there its just continuing.
For many factors, but what the pandemic layered on top of that was this feeling of this want for D urbanization and de Densification prioritization of safety and then obviously the work from home trends and we think those are going to continue it's not to say by any means that we think offices that we're investing and our own office space, We believe and building.
Culture, but on the margin, we think more and more people will be working from home there will be more flexible work arrangements and all of that fevers, the sunbelt, because if youre going to live anywhere.
It makes sense to live and a place where and costs last year and lower taxes and better weather. So we think we're set up really well.
We don't think this is these are short term or pass and trends as we said in our prepared remarks this very much could be.
A decade.
Really strong growth. We think these <unk> are going to be with us for a long long time, and we're incredibly well set up.
Completely agree and I appreciate the color and maybe one last one for me just in terms of your 2022 <unk> guidance can you remind us of the key assumptions in terms of organic growth third party capital and <unk> acquisitions.
Yes, so we assume on <unk> acquisitions that we would complete J D. One and acquired roughly 800 homes per quarter.
And we assumed.
Same store NOI growth and asset for our 4% to 5% we're right on track for that we assumed about 3% for multifamily obviously, we're behind there, but it's become a very small part of the portfolio, but I would say, we're going to catch up significantly it wouldn't surprise me at some point at the end of the year for same store growth and multifamily is higher than <unk>, because we're seeing them.
Big resurgence, there and really strong trends into the stronger leasing season.
And then on the third party capital, we assume that we'd raise $1 billion of equity of fee bearing equity and we've already done that so so we feel very confident about hitting the 52 to 57 range, but please keep in mind us with Sam mentioned, when we set those targets, we didn't anticipate deleveraging as fast as we have and.
And we're ready below our targets significantly below the target. We also didn't anticipate syndicating and 80% of interest for the U S. Multifamily portfolio I think at that time. It was only about 50% and not short term dilutive something obviously you need to take into account certainly next quarter, but will not will be long term neutral.
And then also the.
The Blackstone preferred stock deal obviously, we didn't take into account so all of those things and and and then last thing I would say us and as you know at one point, we were erroneous Lee, including multifamily Canadian investment income Internet <unk> calculation, which we shouldnt have been doing and so we actually said that 52 to $57 target with <unk>.
And without any of those factors and so and the fact that we still think we can hit it just shows how strong we are growing.
And I appreciate the color Gary. Thank you I will turn the call back.
Thank you.
Your next question comes from the line of Dean Wilkinson with CIBC.
Hi, good.
Good morning, everybody.
Just a couple of quick ones for with Sam once tax <unk> accounting.
And with Sam have you have you been able to sort of dissect that proposed tax deductibility app federal budget.
And how that could impact you guys and are there ways to deal with that if you do bump up against those 40 and 30%.
And.
We have not fully dissect it that we're still waiting for more information and come out more specific information.
But just we have a strategy in place already from a tax perspective, both in Canada, and the us whereby we have more we shipped expenses between countries and we have the ability to look at look at tax.
Achievable areas, both in Canada, and the US so we have not looked at it and detail yet, but we have strategies in place to account for it if it does come through.
Okay and would you be up against those limits right now based upon where your current leverage is.
And I haven't done the math.
No we're not.
Okay.
It's probably a moot point.
And then the second question is just.
Just a quick accounting one day.
<unk> 2020, <unk> was recast and make it comparable.
Well, we see a similar recasting and Q2 Q3 and Q4 as you roll those forward or do you have those numbers already.
No we will not see you will not see us similar similar recasting and one of the items that we've fixed the.
Multifamily and Q1 of 2020, we included that and our <unk> and then we strip that out so Canadian development was stripped out and we didn't and we never took any further <unk> gains will not in Q2, Q3 and Q4, so I feel like those.
Perfect dose will be a pure comp okay. That's it I will hand, it back for some others to ask questions. Thanks, guys. Appreciate it.
Thank you.
Your next question comes from the line of Lauren Calmar with TD Securities.
Thanks, Good morning, everyone.
On the <unk> acquisition pace I think you guys said with the homebuilder direct now you'll be up to about 1000 and would you expect that to increase further with the JV too.
How do you see the quarterly acquisitions trending.
Moving ahead.
Trending up that's for sure sure.
Yes.
Guidance, we can give you on training up look we've been we've been doing 800 per quarter through <unk> JV, one and now that we lay our homebuilder direct on top.
We could probably go to 200, and then if we're able to enhance our buy box and then raise <unk> JV too I think is a long term stretch goal, we could probably get to 500 per quarter. So almost a doubling of kind of where we've been over time not immediately but that would be the longer term goal. So we're super excited.
Have an opportunity with these fund raises to significantly ramp up and increase our scale and become more and more efficient. So this is a really exciting story of growth and efficiency at the same time, obviously, we'll be generating more.
Third party fee income as well, which will come to play the only other thing I would add more and is that on homebuilder direct it will be somewhat cyclical right at it.
It does depend on us entering into contracts with builders and it will ebb and flow a little bit.
There'll be times, when we get more and more acquisitive and others last depending on the builders' appetite and in some cases, even though we put homes under contract they might not actually closed for many months or even until the next year and we only record the purchase of acquisition. When it does close so just be mindful of that but over time, though I mean, I think when you look at.
All the programs together and so far J D. One eventually JV to homebuilder direct and the joint venture with Arizona State Youre going to see significantly higher acquisitions going forward.
Okay, and then maybe just switching gears and what other things you've been hearing anything for a little bit now as rising construction costs.
And it didn't look like the costs are expected costs really increase much quarter over quarter, but how do you see those sort of trending and do you think.
That demand and the market rents will be able to keep up and let you guys get your desired yields.
Yes, yes.
Answer to your second part of your question is absolutely we are seeing.
Home price is rent growth.
Stay on pace and in some cases exceed cost increases, but maybe to answer your first part of the question I'll turn it over and antique harmony.
Who oversees our build to rent program to give you a little bit more color on inputs and homebuilding costs.
Sure Lauren.
And this is Andy.
And the cost side, we're certainly seeing a spike and construction cost right now and through the first part of this year cost in aggregate have risen about 10% with certain commodities, we've all heard and read about lumber up considerably more and that's a pretty aggressive rice on the cost side construction cost side in such a short period.
And probably a little more importantly.
As many of you know land as a necessary component for new construction and development and the land market for near term availability is really tight right now and land land price have gone up between 10% to 40% and some prime locations. So this definitely putting pressure on our development activities, but as Gary mentioned.
So far we're seeing that and the ability to offset that with better rents and on the <unk>.
And for sales side with better home prices, but I'm not sure that's going to hold up and will probably put a little more pressure on our growth and the development side.
And may temper, the pace here until the market equalizes, a little bit from a construction cost standpoint.
Okay, and maybe and the same day and what about on the Cade and multifamily fronts.
Yes, and Canadian it seem I mean, it's a similar trend and Canadian multifamily, where we're seeing higher and higher input costs.
Even during the pandemic I mean residential construction and construction as you know is largely been ongoing its been considered to be and essential service. So there's been no.
Abatement and in construction, it's continuing and we're seeing higher commodity prices.
Less labor and many cases, so all of that continues to put pressure on construction and.
And and the cost, but it hasnt done at 200, and extent, where we arent able to hit our unfunded and trended development yields so to give you a sense.
The project, we just closed on very exciting project in downtown and East.
We underwrote that to a mid for 5% cap rate or development yield that's on trend and based on today's costs entities rents.
So we think that's a really attractive yield given where underlying financing rates are and cap rates.
And would you like that Andrew would you like to add to that yes sure yes. Thanks Gary.
And it's a fair question and I think the ultimate Big difference too between Canada and the Us us.
Timber has been the headline inflationary item and we have very little wood and what we build up here in Canada. So theres no question. There are some some upward pressure but.
We've been trying to be thoughtful and deliberate to about leveraging our scale bulk contracts, including caps and our in our contracts and we have seen land moving our direction a little bit and so that's helped us maintain our yields as well.
Good day.
[laughter].
Yes.
Thank you.
Your next question comes from the line of Mark Rothschild with Canaccord.
Thanks, and good morning, everyone.
Bob and Mike.
And my question have been answered already and Gary you definitely spoke about this earlier.
Target range of 52 to 57 cents and <unk>.
All that has happened since then that wasn't necessarily and that original target.
Going forward with all this capital that's raised and the accelerating pace of acquisitions are you more focused on pushing that number higher versus strengthening the balance sheet and reducing leverage or either.
Either one a clearer focus.
We're trying to strike the balance because I mean look we could.
I mean on and <unk> per share basis, I mean, we could we could crush it if we werent focused on the balance sheet.
But we know it's important for our shareholders to maintain our discipline on the balance sheet and the debt and so now that we've got our leverage down below 50% debt to assets, we want it and we want to keep it there and so that ultimately becomes the anchor.
And so therefore.
We have to keep that in mind us we're targeting the growth, but I think what I would say US work, we're really fortunate and it's very difficult for most real estate companies as you know mark to both grow and you can see that our <unk> per share year over year grew 30% and at the same time drop our leverage by about 1000 basis points I mean, that's almost unheard of.
Right and it just goes to speak to it speaks to how strong the fundamentals are for our rental business, particularly single family rental business right now and for sale housing, which is also booming.
We've just almost never seen conditions like this and we're taking advantage of it right to get the leverage lower and then to drive growth, but I think once we get through this is this is a period, it's always a little bit painful when you Delever US you know and we're going through that right now, but still putting putting posting very good <unk> numbers once we get through that us.
Possible that our <unk> per share growth could be much stronger.
Okay, great. Thanks, that's all for me.
Your next question comes from the line of Chi.
Okay.
With Stifel.
Hey, good morning, everyone. Just a couple of quick questions for me just with respect to the wind growth, obviously, 16% pluses is very strong.
Sustainable long term, but Gary and team maybe can you talk about which areas you are seeing geographically the best kind of strength demand fundamentals and <unk>.
Second part for that question.
And as vaccine rollout proliferated through the US is there and then any.
Difference at all between areas.
More along the path of destination versus areas that are less along the path or.
And just any general comments on the demographics that would be great.
Yes, I'll take the first part of the question the easy part and then I'll pass the more difficult part on to John to give his perspective on the vaccine Rollouts and she is in the us.
So look I mean overall and the re leasing spreads.
I mean, we did 16% in April.
The range is about 10% to 20% depending on the market.
So no matter, even and the lower markets, which tend to be the taxes and markets like San Antonio Houston, We're still seeing unbelievable demand the strongest market is actually our biggest markets like Phoenix, Atlanta and Charlotte.
And those markets are just just absolutely booming so across the board, it's Hoover's just and such a fortunate position. There is so much demand for this rental housing, but its pretty strong everywhere.
And certain markets, even as even stronger John do you want to talk about.
A little bit more are we seeing any differences depending on approach too.
The pandemic and COVID-19.
Sure and thanks for the question.
And look with regard to the vaccine rollout.
We're starting to see and a real strength almost across our entire portfolio and that's because we're in largely similar markets across the sunbelt.
Politically there may be some differences, but we are starting to see the us push the vaccines for essentially all of our markets and <unk>.
<unk> rates and might vary a little bit, but those are really due to personal preference I was preferences I would say and it's not changing.
Peoples demand or leasing habits, so whether you're in Texas or California, you are still seeing strong strong demand regardless of our politics, let's say and again the vaccine is.
Becoming quite relative available or is readily available here and youre getting the points and many of our markets, where there's more vaccines available and then there are demand.
I will say I mean, she and I will say just sitting up here in Toronto and that is without question that the fact that the us is being able to rollout that vaccine much faster.
And then we have up in Canada, and it certainly in the sunbelt they've taken a more pro business approach has made a huge difference and you can see that and the numbers between what we're doing and rental housing across the entire sunbelt versus Toronto, let's see which is relatively weak.
No.
It is striking how different they are at this point and time, it's almost like on a different planet.
But certainly the pro business approach and getting those vaccines out quickly and has made a very big difference and it's benefiting us tremendously.
I appreciate the color there and I think everyone on the call would agree we can only hope that we can catch up to her.
Our U S counterparts for rollout, but maybe just one last question for me with respect to Capex there with.
And the impact of the Texas storms.
NOI and stuff like that was there any impact on.
The capex side of things with it.
A bit lower than it really should have been and can we expect to see that trend higher for some catch up over the next couple of quarters.
Well, so look I mean, the Texas storm was a big event I mean, a lot of a lot of our team on the ground and people and police described and in some cases being worse and a hurricane it was a big event and it affected a lot of our homes more than 600 and single family rental homes about 10 multifamily properties, but on the whole the damage was light.
And we're very fortunate that our obviously our residents and our team are safe.
And so at the end of the day.
Between single family and multifamily and <unk>. The entire damage is about $5 million about 80% of that is going to be covered by insurance or out of pocket is only about $1 million and we expense some of that in Q1 will expense a little bit more probably in Q2, but otherwise it's really de minimis, it's not going to have a big impact.
<unk> on our Capex.
Or anything above the line and the expense either way. So I think we've been very fortunate there I think the other thing you might notice when you look and our results if you look and a cost to maintain.
Which covers all of the costs of maintaining a home the cash cost those are lower meaningfully year over year and.
I think speaks partly to lower turnover that Kevin has talked about but also we just keep on getting more and more efficient and the way, we maintain and manage the Capex program and our in our rental business. So that's a really positive trend for us and it's able to offset the uncontrollable expenses and higher property taxes and insurance.
And.
Thank you very much that growth for me.
Thank you.
Again, if you would like to ask a question for Crestar, There's a number one on your telephone keypad.
Next question comes for line of Tal Woolley with National Bank financial.
Hi, good morning.
Tell us.
Just wanted to talk about the Canadian multifamily business for a bit.
Just looking at your development schedule, you've got a lot and the hopper construction wise.
And what should we be thinking about for your share of the development spend over the next few years.
In terms of the COVID-19.
Sam do you want us to take us absolutely.
So one.
One thing one thing to note is we have a lot of the projects that are underdeveloped and our active construction today, we have purchased a few years ago.
And we have put and construction loans and we put and the equity component already so we're hitting most of them were hitting construction loans. So theres very little cash requirement from Tri Karnes portion going forward a lot of it is going to be and construction loan financing that is non recourse to tri con.
One thing I would add there will be obviously, some incremental spend on new projects like the project, we just announced and downtown.
East there will be an incremental spend there.
And we are planning and add maybe a project or two per year.
And so that does need to get taken into account but.
The good news is that because with our venture with CPP, we're only 30% of the equity it's really not a large drain on cash.
Right. This is not and this is not a big cash user for us.
And we're able to scale this business very very efficiently.
Yes, I think I was trying to get a sense of with it with us.
And that's where I would be like too as well just like I like what's the growth like how the remaining unfunded amounts like are getting how.
How we should think about how much what we had spent each year that's all.
Yes, if you want to guesstimate number it'll be around let's assume 50, a year of expenditures going forward.
And that covers everything from all the projects and all of our equity commitments. So if you want to map out something $50 million us a good number to use going forward of actual cash that includes all the new projects and are projected to two projects that we're looking to buy as well.
Okay. That's perfect. Thank you.
And just youre talking about accelerating the single family rental.
Interest rate.
And.
And I guess with multiple joint ventures, and also your own accounts.
Well to like when we think about it like a 1000 to 200.
Units.
<unk>.
How many fall into which.
Should we expect to fall into which bucket.
Okay. So on the on the traditional acquisition of buying from MLS or I buyers or small portfolios for <unk>.
Currently doing about 800 per quarter.
Right and then homebuilder direct like I said before and in <unk>.
Answering another question is cyclical and it will ebb and flow that you can think of it as being lumpy, but it is possible that moves up to about 400 on top.
It won't be 400 every quarter could be 100 and be kind of another quarter, we have much more and it's going to move around but if you're thinking about and over time it might be about 400, <unk> got 800, plus 400, that's 200.
And then if we are able to open up the JV buy box and JV too, meaning that we can buy and slightly lower cap rates bind more markets, which would have lower cap rates and it's possible. We could add another few hundred on top of that so like I said the stretch school can be going from 800 today to about 500.
Okay, that's great and then obviously.
You guys have achieved a lot of the a lot of the targets you've laid out for yourselves or you're on your way to achieving most of those agenda items, you've laid out over the last couple of years.
And in the past trial and has been very comfortable shifting its asset mix to chase interesting opportunities.
And everything is running well right now I'm just wondering should investors expect or are you contemplating any other shifts and asset mix going forward right now.
No short answer to that is no.
We found our growth it took a long time to get to this point.
We're always playing chess always playing a couple of steps ahead to get to this point, where we are today.
Times, it was a little bit messy doing everything and the openness of the public markets and kind of shift the mix and shift obviously.
Obviously transform the business to be rental housing, but we've achieved what we set out to do.
And the asset mix, we showed us is a very good very good template of what we're looking to do going forward, we absolutely still believe in the synergies we can obtain between single family and multifamily rental and we're excited to take over the.
Get ready to take over that and multifamily rental portfolio later in the year.
But at the end of the day the vast majority of growth is going to be on single family rental and that's what that's what our shareholders and investors should expect and and the reason for that is simply we are just seeing.
Better.
Better metrics right.
And in almost all respects and.
And.
And we're also able to.
And when we do third party capital raised and we're also able to get better terms and so we're very much focused on single family rental and Thats, what investors should expect going forward.
Okay. That's great. Thanks, a lot Gary.
Thanks.
There are no further questions at this time I'll turn the call back over to Gary Berman, President and CEO of Tracon residential.
Thank you Tammy I would like to thank all of you on this call for your participation. We look forward to speaking with you again in June and our annual meeting and in August to discuss our Q2 results.
This concludes today's conference call you may now disconnect.
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