Q3 2021 Tricon Residential Inc Earnings Call

Good morning, My name is Sarah and I'll be your conference operator today at this time I would like to welcome everyone to the trike and residential third quarter expanded 21 analyst conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

I would like to ask a question. During this time to press star followed by the number one on your telephone keypad. If you would like to we try a question Breasty bounty.

Do you have the conference over to speaker today, biotech, Nevada, managing director of capital markets. Thank you. Please go ahead.

Thank you Sarah and good morning, everyone and thanks for joining us to discuss <unk> third quarter results for the three and nine months ended September 32021, which were shared 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 is 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 discussion and analysis and annual information form which are available on SEDAR, Edgar 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, during this call we will be referring to a supplementary presentation that you can follow my joining our webcast or you can access a directly.

Through our web site.

Can find both the webcast and presentation in the investors section of truck on residential dot com under news and events with that I will turn the call over to Gary Berman, President and CEO of triangle.

Thank you Boyd check and good morning, everyone. Thank you for joining us to discuss another successful quarter for Triton before we get into the details I want to thank our exceptional team who are the real drivers behind the strong results. We are presenting to you today, our team's unwavering dedication to our residents and the communities. We serve is fundamental to our culture and I believe it's a key reason our company can.

To perform well quarter after quarter. This is a team that I'm incredibly proud to work with.

Let's start on slide two and talking about the key takeaways, we want to emphasize for you today.

Our single family rental business continues to deliver solid operating performance with record high occupancy and rent growth on new move ins north of 20% demand for as far as clearly off the charts and we expect it to remain this way for some time.

Second in Q3, we saw a meaningful contribution from fee revenue earned from the syndication of our U S multifamily rental portfolio and the formation of new <unk> joint ventures earlier in the year.

As you all know we are laser focused on growth this quarter acquisitions team achieved a new milestone by purchasing a record of nearly 2300 single family rental homes and in theory competitive housing market using our sophisticated technology platform.

And going forward our growth plan is supported by 2 billion of third party equity capital commitments announced year to date with the capital and platform in place we were on our way to doubling our portfolio to roughly 50000 homes in the next three years.

Finally, we've achieved significant growth, while remaining disciplined with our balance sheet substantially exceeding our deleveraging target a year ahead of schedule.

Now turn to slide three for a summary of our results.

We reported earnings per diluted share of <unk> 92 cents compared to 21 cents in the prior year, which included strong fair value gains driven by near record home price appreciation, our core <unk> per share was <unk> 14.

Up 17% compared to last year.

Our results were driven by consolidated consolidated NOI growing 21%, but also by private funds and advisory fees, which grew by 120% as we launched several new investment vehicles. This year in partnership with third party investors. We also announced a number of new strategic accomplishments, including the launch of our largest JV to date to 5 billion asset <unk>.

<unk>, which has the capacity to acquire approximately 19000 homes over three years and most recently we listed our common shares on the New York stock exchange and close to U S marketed offering and private placement for gross proceeds of $570 million, which strengthened our balance sheet and brought our pro forma net debt to assets of 34% and pro forma net debt.

EBITDA down to seven six times.

Moving to slide four in our single family rental business, we saw strong growth from new and existing assets is triton's proportionate share of NOI increased by 13% and same home NOI grew six 5% compared to last year, we achieved a near record same home NOI margin of 66, 6% driven by consistently high occupancy.

Record low turnover and strong rent growth of nine 1% on a blended basis.

In our adjacent residential businesses U S. Multifamily rental is recovering nicely with same property NOI up 15, 5% year over year and is now solidly above the pre pandemic levels driven by strong occupancy gains lower turnover and rent growth.

For sale housing delivered another strong quarter distributed nearly 14 million of cash to Triton and Canadian multifamily is progressing on its development pipeline with over 1000 apartment units on track to be completed in 2022.

Let's now turn to slide five to discuss our exciting and very successful dual listing in U S. IPO completed in early October our transaction was one of the largest real estate ipos in the U S. In recent years and was significantly oversubscribed. This IPO was the culmination of a decade long journey to transform our company from a small asset manager.

Best in for sale housing to a tech enabled rental housing company focused on single family rental and given our sunbelt middle market focus it made perfect sense to provide an opportunity for U S investors to participate in our growth many of whom we've had conversations with for years, we were thrilled with the response and the stock performance afterwards.

I want to thank our Canadian investors for their ongoing support and give a warm welcome to our new U S shareholders.

Let's turn to slide six to refresh you on our strategy.

We may be the smallest of the three public asked if our companies our strategy is differentiated and we believe it can provide investors with significant upside the old outage in real estate is location location location try guns outages growth growth growth and it's our first point of differentiation with the capital and platform in place we intend to double our.

Portfolio, roughly 50000 homes in three years as far as one of the largest asset classes in the world and it's incredibly fragmented thinking best of ours, a classic rollout, there's a golden opportunity to acquire high quality homes, one at a time and drive synergies in the process. Our unique approach to acquisitions is powered by technology and enables us to build a <unk>.

Billy targeted portfolio focused on the middle market demographic and U S Sunbelt.

Our second point of differentiation is our strategic capital platform over time tracking has developed deep relationships with some of the largest private investors in the world. These partnerships allow us to scale faster drive efficiencies raise capital when the public market window is closed and take development off balance sheet.

Third point of differentiation is our tech enabled operating platform, which is the backbone of our business and allows us to enhance the resident experience and improve our operating metrics. It is one of the key reasons to try tennis, leading operating metrics and asset far without nearly the scale of our peers.

So how do we grow rest of our business, let's zoom in on our acquisition program on slide seven.

Today's as if our market includes over 16 million homes valued at approximately $3. Four trillion is a huge market and any one player or frankly, all institutional players combined remain a drop in the bucket.

We're playing in a sandbox of about $1 3 million annual home sales in our target markets and in the third quarter, we processed 264000 MLS listings about one in three of these homes theater acquisition by box, which automatically filters homes based on a 90 point criteria, including age size bedroom count and neighborhood quality.

This left us with roughly 92000 homes for acquisition team to screen in order to find high quality rental housing for our residents at an accessible price point.

We were then able to quickly and efficiently kick in homes that are below our target returns are locked aesthetic qualities were looking for in the end. We generated about 30000 offers during the quarter winning about one in 13.

I should note that the vast majority of the homes, we offer on but don't acquire are purchased by traditional homeowners.

We've continued to ramp up acquisitions over the course of this year and then move from 800 homes in Q1 to over 500 homes in Q2, and now almost 2300 homes in Q3 historically, our acquisition program has always been constrained by capital non opportunity and with the new joint ventures. We're finally in a position to take advantage of what we believe is a mass.

As an evergreen opportunity to acquire homes our.

Our expanded by box enables us to buy homes in 21 markets compared to 12 previously under our CFR J D. One including cities, such as Phoenix, Las Vegas, and Greenville, South Carolina, while still remaining focused on our middle market demographic.

Let's move to slide eight for an ESG update ESG is a top priority at Triton as evidenced by our continued commitment to self govern on rent renewals and prioritize our residents. This quarter, we engaged in several new initiatives in support of our broader companywide commitment to ESG.

I'm pleased to report that we secured our first green loan to fund construction of West Online's Block 10 elite gold level certified rental apartment building within a master plan that includes Ontario's first purpose built indigenous health and education hub.

We also rolled out a diversity inclusion and belonging strategy for our team, which provides a roadmap to fostering genuine inclusiveness across our organization I'm proud to report that we've made significant progress and in nearly a year. We've increased our percentage of women in leadership positions from roughly 35% to more than 45%. Although there is still <unk>.

Lots of work to be done diversity inclusion and belonging remain a priority for our organization and a key aspect of our hiring plans for both leadership and non leadership positions.

I tried to on there is a genuine purity intermission, we care deeply about our employees and we know that a diverse organization will position us better to serve our residents and the communities. They live in and ultimately drive consistently strong results for our business.

And finally, we committed to the United Nations principles of responsible investing a leading global framework that integrates ESG considerations into investment practices and ownership policies. This is another important step in furthering our commitment to ESG.

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.

Q3 was another tremendous quarter for Tri Con and I'm proud of what our team has accomplished so far this year.

We've achieved exceptional results large significant vehicle to support our growth of our business and effectively control costs in an inflationary environment, while meaningfully reducing our leverage.

Slide nine highlights our progress against our five key priorities that we set out in 2019. These.

These include growing our core <unk> per share at a compounded annual rate of 10% over three years through 2022.

Raising 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.

Take leverage and improving our reporting.

As you can see we are well on our way to achieving it in most cases exceeding these goals well ahead of schedule.

You can see here, we have raised over $2 billion third party capital compared to our target.

Range of 1 billion.

This is one of our key drivers for doubling.

The size over the next three years.

More importantly, we've achieved 42 <unk> per share year to date.

Assuming the current trends hold we are confident that we can achieve our <unk> target of 52 to 57, a year ahead of schedule.

Even with higher diluted share count caused by our exchangeable preferred share offering last year as well as this year's equity offering in the U S IPO, which have been instrumental in reducing our debt.

We plan to refresh us dashboards with new targets for 2022, when we report year end results.

Let's turn to slide 10, where we provide highlights of our key metrics for the quarter first.

Our net income from continuing operation grew almost three folds year over year to $202 million.

This included approximately $76 million of NOI from our single family rental portfolio.

Representing a 21% year over year increase.

We also had a $362 million fair value gain on rental properties in Q3 compared to $60 million in the prior year, reflecting significant home price appreciation in our sunbelt markets.

Second.

Our core <unk> per share increased by 17% year over year to 14.

Finally, we reported <unk> 12 per share.

This provides us with ample cushion to support our quarterly dividend with an <unk> payout ratio of 40%.

You will note that this quarter, we changed our dividend from seven cents Canadian to five eight U S.

To better match, our functional and reporting currencies.

At the current spot rate this represents a 3% increase quarter over quarter.

Let's now move over to slide 11, and talk about the drivers that contributed to our <unk> per share for the quarter.

On the whole core <unk> grew by 46% from last year to $38 million in the third quarter.

On a per share basis, the year over year increase of <unk>.

Our 17% can.

Can be attributed to strength across several aspects of our business.

First.

Our single family rental portfolio, which makes up 90% of our real estate assets delivered 13% growth triangles proportionate NOI.

This was driven by 9% increase in the number of homes, coupled with a 6% increase in the average monthly rent.

This was offset by higher direct expenses associated with a larger portfolio net of savings from lower resident turnover and less marketing and leasing spend.

Our private funds and advisory fees contributed meaningfully this quarter was 120% increase in revenues.

Driven by an incremental fees from new investment vehicles, and <unk> and U S multifamily along with higher development fees generated from our Johnson subsidiary.

In our adjacent residential business residential businesses U S multifamily rental <unk> reflected an 80% is syndication of the portfolio earlier this year and as Gerry mentioned this portfolio is doing very well.

This was coupled with solid results from our for sale housing business.

And on the corporate side, we had higher corporate overhead, partly offset by lower interest expense as well as the impact of the higher diluted share count reflected common and preferred equity financings.

Let's turn to slide 12, and talk about the significant increase in fee revenue, which I just mentioned.

The fees, we earn from managing third party capital not only allow us to scale faster and improve operational efficiency.

But also allow us to offset a large portion of our corporate overhead expenses.

These fees include asset management fees property management fees and development fees.

Which together covered about 73% of our total recurring overhead costs this quarter.

Now granted this was a particularly strong quarter for Charleston development fees NSF or acquisition fees.

But overtime, we expect our fee revenue to eventually cover the bulk of our overhead expenses.

This means our shareholders were essentially got our platform for free.

And we would reap the benefits of strong NOI growth contributing directly to the bottom line.

Let's talk about our balance sheet on slide 13.

We have shown a successful track record of reducing balance sheet leverage coupled with the significant growth in the business, while navigating a global recession and a pandemic.

We have decreased net debt to adjusted EBITDA by five five turns in the past year and a half to nine eight times in the third quarter.

And with the proceeds from the U S. IPO, our pro forma leverage comes down to seven six times.

This translates to 34% net debt to assets compared to 61% in the beginning of 2020.

As we embark on a period of hyper growth over the next three years, we plan to stay disciplined.

And manage our leverage generally with a range of eight to nine times EBITDA as we deploy significant capital into growing the <unk> portfolio.

Turning to our debt profile on slide 14, we have also made meaningful progress in addressing near term debt maturities.

At the end of Q3, we had $1 3 billion of debt maturing in 2022.

Since then we have repaid the 2017 dash one securitization a $455 million with the proceeds from our U S. IPO.

And more recently, we refinanced the final tranche of our short term debt and the <unk> JV, one with a fixed rate debt financing at 249% with.

With maturity concurrent with the JV term.

This leaves a 2200 $21 million term loan as the only remaining maturity in 2022.

Which we aim to refinance early next year.

Our liquidity profile is also strong.

$637 million in available cash and credit facility to fund our growth.

On the whole this was a very strong quarter and we're going full steam ahead into the next quarter.

On that note, let me pass the call over to Kevin to discuss the operational highlights of the quarter.

Thank you Sam and good morning, everyone.

First and foremost a big thank you goes out to our Tri Con operations and customer service teams, who helped deliver this quarter's outstanding results.

To say I am proud of this team would be an understatement as they continue to go above and beyond day in day out to make the lives of our residents better.

Moving to slide 15.

It's our focus on the superior resident experience that sets us apart and allows us to continue to deliver consistent predictable and scalable results quarter after quarter.

To put things in context, if you look at our metrics over the past six quarters. We've historically reported rent growth on new move ins that is higher than our public peers.

Electing the strong loss to lease embedded in our portfolio.

Meanwhile, rent growth on renewals has been tempered by our policy of self governing and our commitment to ESG.

With strong demand for our homes and is allowing us to slowly adjusts to that metric upward while continuing to be sensitive to our residents financial circumstances.

Our same home NOI growth has similarly exceeded that of our peers over time, driven by top line growth disciplined expense management and industry low turnover rates.

And we think our industry low churn rate is a function of our middle market strategy, our diligent underwriting and self governing on renewals and unmatched customer service.

In the third quarter, we continued to deliver solid same home results, including six 1% revenue growth and five 3% expense growth, which combined to produce six 5% same home NOI growth compared to last year.

Let's talk about the drivers of same home NOI growth on slide 16.

Yeah.

The left side of this slide depicts the underlying components that made up our year on year same home revenue growth in the third quarter.

While strong by historical standards, we expect this number to remain robust and possibly improve in the quarters to come.

We expect high single digit blended rent growth to continue blended rents were nine 1% in the quarter supported by an impressive 28% increase on new move ins and 5% growth in renewals.

Since we've been self governing on renewals for the past three five to four years, we conservatively estimate that our we have an accumulated 15% 20% loss to lease in our portfolio, creating a runway for significant rent growth ahead.

Our ancillary fees. Other revenue also grew meaningfully up 18% from last year.

We see a path to increase this number by another 40% as.

As we continue to rollout programs, such as smart home and renters insurance, but also from future programs like Telecom Concierge services.

<unk> upgraded solar panels are more.

Lastly, our bad debt has come down from a high of two 8% of revenue to one 4% in the quarter and we expect it to continue to trend towards pre pandemic levels of sub 1%.

Let's turn to slide 17 to discuss some of the key expense variances this quarter.

Property taxes continue to trend higher in line with the massive home appreciation, we are witnessing in our markets.

With the benefit of successful Appeals, we have managed to keep property tax growth.

Took four 5% this quarter.

But the underlying growth in taxes and generally in the mid to high single digits.

Repair and maintenance expenses were higher this quarter as we returned to pre COVID-19 levels of maintenance activity, whereas last year, we cut back on any non essential work during the pandemic.

Conversely, our turnover expenses is much lower as our turnover rate decreased by 660 basis points from last year.

Across both of these line items, we're seeing inflation materials and labor expenses, but we are mitigating these to some extent by completing more work orders in house versus using third party contractors and by leveraging our beneficial relationships with national manufacturers and suppliers.

Property insurance costs have also increased driven by rising premiums across the industry, which we hope to mitigate over time with greater scale and diversification.

While we expect inflationary pressures to continue in the near term we remain focused on what we can control.

Harvesting operating efficiencies through technology and process improvements, providing superior resident service and driving economies of scale.

You can see the results in our cost to maintain at the bottom of this slide which has dropped meaningfully over the past three years from 3200 per home to 2600 currently while our NOI margin has increased from 61% to 67%.

Over the same time period.

Let's now turn to slide 18 for an update on more recent leasing trends.

I continue to be blown away by the consistent insatiable demand for our product.

We're getting approximately 5000 calls per week by people enquiring to lease one of the only say 300 homes available at any one time.

And we registered higher call volume in October than we did in September.

When we consider online leads that number increases to 9000 leads per week.

Since the beginning of our business our challenge has not been with lead generation, but rather with lead management and we've addressed these challenges can technology, such as our proprietary CRM system automatic outbound dialing and intelligent virtual assistant.

This strong demand funnel, coupled with significant loss to lease is allowing us to continue to push rents on new move ins by over 20% in October.

Meanwhile, rent growth on renewals is hovering around 5% and our overall blended rent growth has remained at a healthy 8% October.

Which is slightly lower month over month due to a higher mix of renewals.

At the same time occupancy remained consistently high at 97, 6%.

All in all our momentum did not show any sign of slowing during this quarter with strong demand trends continuing coupled of course with our team's excellent execution.

I want to truly thank our operations team for pouring their hearts into what they do as the purity and our purpose continues to translate into exceptional results.

Now I will turn the call back to Gary for closing remarks.

Thank you, Kevin let's spend a few minutes discussing our cheese and residential businesses on slide 19, which account for less than 10% of the balance sheet, but represent a meaningful source of value for shareholders and a potential source of cash to supercharge. Your SSR growth. These businesses include our Canadian multifamily built the core business of 20%.

Interest in our high quality multifamily portfolio are located in the Sunbelt and legacy for sale housing assets using conservative current valuation metrics. We believe these assets have the potential D. We're two times, our <unk> carrying value overtime and represent 1 billion of value for our shareholders should we monetize these assets over time, we would use the proceeds.

We used to pay down debt or grow our asset portfolio and in the process simplify our business.

Taken together these investments can be worth almost $4 per share when fully realized.

And so let's conclude on slide 20, if Theres one thing you should take away from our story is our focus on growth by partnering with leading global real estate investors to form three complementary <unk> joint ventures, <unk> has a clear path to doubling its asset portfolio to 50000 homes in the next three years, we have the balance sheet operating platform and third part.

The capital in place to achieve this target with confidence and believe favorable tailwind in our industry should drive strong operating performance for years to come that concludes our prepared remarks I will pass the call back this year to take questions, which Sam Kevin and I will also be joined by John <unk>, Andy Carmody, 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.

Last part just a moment to compile the Q&A roster.

First question comes from the line of Richard Hill from Morgan Stanley. Your line is open.

Hey, good morning, guys and congrats on your first earnings call as a public a U S company.

I'm pretty comfortable with the revenue side of the equation.

We feel we feel pretty good with where you stand I did want to maybe unpack a little bit more about your same home expenses that you've provided on 17 I think this is a great slide.

Two things I want to focus on the repairs and maintenance looks like it increased.

Somewhat significantly year over year maybe.

Maybe walk us through that and if you think about the property management, which is another big line item. How do you think about that in the year ahead.

Not not asking you to get into guidance by any means I know you don't provide guidance intra quarter, but maybe just talk us through what the inflationary impacts are in your portfolio recognizing that they are probably going to be more than offset on the revenue side of the equation.

Hi, rich great to talk to you and thanks for the kind words I'm going to turn it over to Kevin to answer those questions.

Sure Thanks, Gary and good morning, Rich good question.

Yeah on the R&M side, we really we returned back to kind of pre COVID-19 levels of activity. So during last year in the third quarter.

At least one month, we were doing only non essential work.

And where this quarter, we have been back to full full work and we're doing all the work or does it come our way. So it's a little bit of a noisy comp comparing to third quarter of last of last year, but really the more meaningful way.

And is that it depends and quarter to quarter month to month on the mix of the work orders, we get so Q3 of this.

This last quarter, we got more bigger HVAC work orders landscape repair work orders and that made up between 13% to 15% of that 20% year over year growth you see and then there were some of the material and labor cost pressures call it 5% to 7% about 20%.

And we're doing more preventative work.

Now when we were before but I will tell you in October we already have our number as we have visibility to October numbers and they've come in lower meaningfully lower than it's been last last quarter and lower than the same month last year. So we think where we are on the mend from that.

Got it.

I said that it was pretty comfortable through revenue side of the equation, but I can't help but ask a question.

Your new lease spreads of 28, I think I got that right or pretty consistent with what our projections were a few new leases.

And frankly, it looks like your new lease growth is.

Okay fairly unabated here.

Can you maybe talk through those demand drivers and if there is an ability to push newly new lease rate growth. Even further I know some of your sunbelt.

<unk> in the apartment sector are doing even higher than that.

Comps are easier than yours, but maybe think about maybe talk walk us through where you could go into new lease rate growth or is this sort of a new normal 20% is as good as it's going to get.

Yes, so rich I'll take that I don't think we're going to go much higher than 20.

Obviously, we're in line in October as you've seen the.

The markets range from hot hotter and hottest.

For Us to guide you that we're gonna be beyond 'twenty on a blended basis. Just seems unreasonable look there are markets that are closer to 30 Phoenix for example is red Hot.

Our Atlanta market is extremely strong we've got some markets that are beyond 'twenty, but you have to also look through and look at some of the laggards, which might be markets like Houston, or San Antonio or where we've had to deal with pandemic emergency restrictions in northern California. So I think you have to take all of that together and I don't think we feel comfortable.

Thinking we're going beyond 20%.

At the end of the day, the blending growth matters and.

It's been it's been 8% to 9% and I think we feel pretty confident you can continue that way we are edging up as we talked about we do self governing on renewals and we are edging that up a little bit as the economy opens and we certainly see significant wage inflation, we're always trying to be sensitive to our residents, but they're doing better and we are edging up that renewal growth and so.

We should be able to continue with very strong blended rent growth as we go forward.

Yes, Gary Thank you for that and sorry for the annoying sell side question I recognize that.

Super greedy, if you can put up 20% with your blend it where it is for the foreseeable future I think we'd all be quite happy. So thanks. Thanks again nice to see a really solid quarter look forward to continuing to talk with you. Thank.

Thank you rich.

Your next question comes from the line of Jade Rahmani from <unk>. Your line is open.

Thank you very much in the wake of the recent news about Zillow offers I wanted to ask about <unk> ability to achieve its growth outlook, specifically with your plans to double the portfolio over three years, what do you see as the major constraints in achieving the growth outlook do you believe that its supply of homes is at pricing in the marketplace.

In availability of labor.

Emerging timelines and what are your plans to address those constraints.

So.

Good to talk to you. This is Gary eminent I'm going to start and then I'll pass it on to John to maybe talk more specifically about the CLO, but.

I mean really we don't see any constraints I mean, as we talked about this as kind of a massive evergreen opportunity.

Operational difficulty for us is not acquiring homes at it's really and by the way in the past. The only reason we didn't acquire more homes was because we were capital constrained, but now that we've got the capital from these larger joint ventures, you've seen that we've ramped it up.

One from 800 homes in Q1 2500 in Q2 down 2300 in Q3.

It is the proofs in the pudding there are no constraints on the acquisition side. This is a massive market. It is unbelievably fragmented and we're being incredibly disciplined and targeted about what we buy right. So we can obviously be buying a lot more homes, if we weren't being as disciplined based on our buy box.

Only thing we have to make sure of is that we hire and anticipate any growth. So that's that.

It's obviously a key thing because there is one thing to make the acquisitions, but then also we have to renovate those homes and then ultimately turn a larger portfolio and so we do need to make sure that we ramp up hiring.

Hiring in order to match and elevated acquisition pace, but it's a difficult environment to hire obviously there is some wage pressure we're reading all about that we're seeing that in their own business, but none of its interim mountable. So I would say there is nothing that we see that makes us feel like we can't hit our long term target of getting to 50000 homes and we're doing that.

I would say by being incredibly incredibly disciplined.

John maybe you could talk about how the virus play into this.

Just one thing I would say Gee, we don't we do not depend on buying portfolios or even buying homes from my buyers, where literally buying one home at a time. The 'twenty 300 homes. We bought this quarter essentially all came off the MLS So im going to turn that off to turn it over to John.

Sure and thanks, a lot Gary good morning, Jade Yeah. So Gary noted the eye buyers are one of our buying channels. When we really look at them in many ways the supplements or a replacement for MLS homes. If you think about a home seller in Phoenix or Dallas, They can choose with their home on the MLS or they might instead sell it too and I buyer to expedite sales process and we underwrite our I buy our homes the.

Same way as we would in individual retail home more specifically with regards to Zillow, we've definitely seen an uptick in the volume of homes, we acquired from Zillow in late Q3, and Q4 as they've announced their distress and begun to liquidate home. So when you think about our Q4 target of 1600 homes, which reflects lower listing volume as we approach Thanksgiving or Christmas.

We've been picking up a lot more homes than normal from Zillow, which may allow us to beat that targeted numbers. So thinking about how that would impact us. We're just seeing a little bit more listing volume zillow, obviously as they clear out their homes, which should help us in our Q4 and Q1 numbers.

And just a follow up and accelerating the growth can you talk about risk management and how you aim to mitigate that the risk of overpaying and managing quality control as well.

Hello has admitted that their algorithms their data analytics and there you know one of the largest in the housing market. We're not predictive in terms of accuracy of home prices. So how do you plan to mitigate that I know you have a lot of boots on the ground and I think that local presence is critical.

Yes, I mean look I think we remain incredibly disciplined.

We have a whole number parameters in our buy box that it get audited by our joint venture partners.

Obviously, one of the key parameters are eased the cap rate right. So this is not growth for growth's sake, it's not growth at all costs is based on hitting a predetermined parameters in our buy box, including the cap rate and were buying homes on a nominal basis between cap rates of five to five 5%. So this.

This is all about discipline.

The risk management in terms of then to operate the homes as I talked about before it makes it means that we have to have boots on the ground. As you said, we need to have we need to ramp up our operational workforce. So that we have the ability to actually then renovate and turn those homes. So again, it's just making sure that you get ahead youre going to acquire more homes you have to get ahead of that and higher in advance that's the key way to mitigate.

Again, the risk but.

We're making sure that we observed that the natural speed limit of our business right and remember we've always been a real estate company, where we're applying tac to allow us to operate better we haven't gone from a tech company to them being a real estate company, which is a much more difficult transition.

And we can understand why zillow, probably struggled with it.

This business model has been built slowly.

Over time, and we just continue to push the growth as we get more confident with the systems and people in place.

Thank you very much and congrats on the dual listing.

Thank you Jade.

Your next question comes from the line up of Stephen Mccleod YOD from BMO capital markets. Your line is open.

Thank you good morning, guys.

Steve.

Just a couple of questions to follow up here.

On the single family rental business I know that your acquisition price sort of ticked higher.

Quarter over quarter I was wondering if thats more attributable to the markets you're buying in or is it the channels you are buying.

Wondering if you can give some color there.

Yes, I mean, it's partly attributable to home price appreciation right.

The thing I mean, if if home prices last year were 300000, you get 20% home price appreciation on your 360 right.

It's amazing how fast prices have moved across across the sunbelt. So some of it is just the underlying inflation in the market. Obviously, we've been able to offset that with the rent inflation, we've talked about that on new lease growth. So it's allowed us to keep the kind of cap rates that were buying it fairly constant, but I would say some of it's just underlying inflation in the market and <unk>.

Some of it to your point is mix right because in essence <unk> JV one as an example, we were not buying in let's see Phoenix or Las Vegas.

And now we're buying in in those markets. We're also starting to buy in Austin.

And those markets do have higher home prices and so it's a little bit of mix. We're also activating our homebuilder direct program, where we are buying new homes and those new homes are also are at slightly higher prices. So I think all of it together is leading to inflation, but again, what's important is the cap rate.

Even though the home prices are moving up.

The cap rates are staying the same.

Yes.

Okay. That's great. Thank you.

And then just wanted to think about the <unk> business going forward, you've had an occupancy bias through the pandemic, but still have been able to drive strong rent growth.

Is that is that sort of a strategy that you expect to continue to anchor to.

Move away from that as the market.

Demand pandemic subsides demand remains strong going forward.

Kevin do you want to you want to answer that for Steve.

Yes, youre talking about.

Our occupancy bias versus rent growth.

Question was about.

Yes, and just with respect to to the outlook and even maintaining occupancy bias through the pandemic and I'm just wondering if that shifts at all with the pandemic subsiding in demand and growth remaining strong.

Yes, I think that and I've mentioned it before this is an incredible business I've never been in a business like this in my life and the amount of demand that we have is since I started six years ago has not abated.

We're a little bit worried what might happen during the pandemic and it got stronger and it continues to be robust we are leases per rent ready homes. In this last quarter were up 12% year over year.

We're getting upwards of 9000 leads per week on anywhere from 300, plus homes that are available.

And we still today, we're still denying anywhere from 48% to 52% of applicants I mean, that's how confident we feel in our ability to to really drive a good rent roll because of the demand is just so high and what's interesting also is while our rents on.

New on new leases were pushing rents, 20% our rent to income ratios have remained static they are still in the 20% to 23%.

And that rent to income rate and our FICO scores improved. So we remained very very robust I think that we can continue to have an occupancy bias and push rents at the same time.

I mean, I think that this business and.

The state that we're in is as strong as it's been and I don't see that abating for a while.

No question, yes.

Yes.

Kevin I, just want to build on that Steve It's interesting because when Kevin joined Us and Kevin in a lot of our senior operating team came from a multifamily background. Because there was there was no single family rental management, obviously back in the day and the prevailing view in multifamily was always you know once you hit 95% occupancy that's when you start driving rent.

And we apply that for awhile towards single family rental business I think the one thing we've learned coming through this pandemic that we're actually better operated higher occupancy to have more of an occupancy bias and so I can see is over time, even in different conditions operating closer to 97%.

And the reason for this is such an intense business. There is so many moving pieces.

And we think of it almost like a machine or an apparatus. If you can keep it quiet I would just like you can keep your body quiet as an analogy youre probably performed better over time and so we think that's a key learning that's come out of this pandemic and I suspect we'll continue to maintain for that reason, a very strong bias occupancy buys going forward.

Okay. That's that's great and then maybe just one last final one when you think about your goal to double the size of the <unk> portfolio.

Does that does that do you need to have a need to raise more third party capital in order to do that or is that based on what you what you have.

<unk> today.

Yes, it's based on the capital we have in place in the <unk> joint venture. So that's what's so incredible I think about our story for shareholders is that we've got all the capital All third party capital balance sheet and the operating platform in place to hit that target with confidence.

Great, Thanks, Gary and I'll say, it as well congrats on the U S listing.

Thank you Steve I appreciate it thanks for all your support.

Again, if it was like to ask a question Press Star then the number one on your telephone keypad.

Our last question comes from the line of Jonathan <unk> from TD Securities. Your line is open.

Thanks, Good morning, just.

Alright, just on the.

So far.

Acquisition fees that you highlighted as being.

Strong quarter does that is that a function of the record acquisitions you did in the quarter or were there any one time fees.

The new JV in there.

No that's a function of the it's a function of the acquisitions right.

When we when we acquire a home so if.

If you wanted to think about if you want to think about the fees I would say on the whole.

We're largely run rate the fees are largely run rate I think we're.

There is some one time I mean, certainly the performance fees are.

We're always ebb and flow as you know.

The development fee side, we did have a big commercial land sale, and Johnson, which generated nearly $1 million of fees. So I would say, that's probably not run rate.

And then the only other thing related to the acquisitions, we did a big vendor and so what we did is we acquired a lot of the homes on balance sheet and then we've ended it into the joint venture when it closed.

And when we've ended those homes in our limited partners or private investors. Pete has a preferred return so that preferred returns nearly $1 million Thats included in the <unk> number John and so that is one time, but I will say that the offset to that as we incurred higher interest expense, which is also in <unk> in order to warehouse those assets. So.

It is a bit of a kit kit.

But if you're just trying to model out the fee revenue that is about $1 million.

Okay.

That is helpful and are you still I guess the limit is really on operations in terms of taking on new or are you still targeting roughly 2000 a quarter on average.

Yes, Yes, I think I think we're going to.

We're a little higher this quarter and I will say that it is seasonal I mean as John talked about acquisition volumes will typically be lower than Q1, and Q4 were when less people list their homes, so youre going to see you're going to see higher acquisition acquisition volumes generally in Q2 and Q3, but.

The goal is to get to roughly 8000 homes over the course of the year.

Okay.

That's it for me I'll turn it back thanks.

Thanks.

We have a follow up question comes from the line of Jade Rahmani from <unk>. Your line is open.

Thank you very much with the turnover ratio around 20% and new lease rent growth above 20% do you believe that the remaining 80% of the portfolio has.

Rents that are 15% to 20% below market granted that would be realized over time, but is that your current beliefs.

Yes, I mean, when you say, that's conservative its probably closer to 20% if not higher.

The loss to lease.

Thank you very much.

There are no further question at this time I will turn the call back over to Gary Berman, President and CEO of Tracon residential.

Thank you Sir I would like to thank all of you on this call for your participation. We look forward to speaking with you again in the new year discuss our Q4 and full year results.

This concludes today's conference call you may now disconnect.

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