Q4 2022 Tricon Residential Inc Earnings Call

Speaker 2: Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Tri-Con Residential 4th quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers or marks, there will be a question and answer session.

Speaker 2: 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, again press the star one. Thank you, Voitech Novak, Managing Director, Capital Markets. You may begin your conference.

Speaker 3: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss track on fourth quarter results for the three and 12 months ended December 31st, 2022, which we're shared in the news release distributed yesterday. I would like to remind you that our remarks and answers to your questions may contain forward-looking statements and information.

Speaker 3: This information is subject to risks and uncertainties that may cause actual events or results to differ materially.

Speaker 3: For more information, please refer to our most recent management discussion and analysis and annual information form which are available on Cedar, Edgar and our company website, as well as the supplementary package on our website.

Speaker 3: Our remarks also include references to non- GAAP financial measures which are explained and reconciled in our MDMA.

Speaker 3: US dollars unless otherwise stated. Please note that this call is available by webcasts on our website and the replay will be accessible there following the call.

Speaker 3: Lastly, please note that during this call, we will be referring to a slide presentation that you can follow by joining our webcast or you can access directly through our website. You can find both the webcast registration and the presentation in the Investors section of TrichonResidential.com, UnderNews and Events. With that, I will turn the call over to Gary Berman, President and CEO of Trichon.

Speaker 3: Thank you, Goitech, and good morning, everyone. 2022 marked another record breaking year for TriCon as we adopted to a difficult macro environment to deliver on our business plan, implement both strategic initiatives, and go above and beyond for our residents.

Speaker 3: We are exceptional performance to our world-class team and their unwavering commitment to our residents and the communities we serve.

Speaker 3: As the people first organization, our goal has always been to prioritize our employees, so they in turn can provide a residence with inspired customer service.

Speaker 3: We know that when our residents are fulfilled, they rent with us longer, treat our properties like their own and refer other customers.

Speaker 3: On slide 2, I wanted to highlight that I've taken time in my 2022 annual letter to shareholders to explain how this virtuous philosophy of doing business leads to strong operations and ultimately good financial results. The letter also provides some interesting insight into project journey for the sale of our US multi family business.

Speaker 3: Our learnings are managing both US multi-family and single-family rental property operations.

Speaker 3: The benefits of having one foot in the public market and one foot in the private market, how we can use technology to make our business more efficient and improve the customer experience and our belief that a kinder form of capitalism is the best approach for managing rental housing over the long term.

Speaker 3: It makes for some decent bedtime reading. I hope you all time review it when it's released later this week. Let's turn to slide three so I can share with you our key takeaways for today's call.

Speaker 3: First, we delivered another rock solid operational corridor with single-family Reynolds-Samehome NOI growth of 9.7%. A record high NOI margin of 69.8%. Near record occupancy of 98%, record low turnover of 12.2%, and consistently strong-blooded and rank growth of 7.4%.

Speaker 3: Second, we remain disciplined on acquisitions and grow a portfolio by selectively acquiring 815 homes during the quarter. Although we are starting to slow acquisitions into 2023, we remain committed to growing our business over the long-term in a strategic and responsible way.

Speaker 3: At this time, that means slowing the piece of our acquisitions until it makes sense to accelerate once more.

Speaker 3: Third, we are focused on cost containment during this near-term period of slower growth by driving cost savings within corporate overhead and property operating expenses. At the same time, we are encouraged by green shoots emerging in the debt markets.

Speaker 3: As dislocation and the securitization market phase and pricing improves, we may be able to accelerate growth later this year.

Speaker 3: And finally, when market conditions do improve, we are well positioned to grow with nearly $3 billion of available capital, including liquidity on our own balance sheet and third-party unfunded equity commitments.

Speaker 3: What I love about our models is that we can scale our acquisition program, offer down very quickly depending on market conditions. And we will lean in and deploy that capital responsibly and when the time is right.

Speaker 3: On slide four, we reflect on the past year and our first parade to setting guidance.

Speaker 3: We are proud to report that we delivered on what we promised and largely exceeded our initial financial targets.

Speaker 3: By all accounts, 2022 is a fantastic year for Trigon, with Core FFO for share of 76 cents and same-womanal agro with 10.4 percent, both well above the high end of our initial guidance. In a period of capital market uncertainty and lower transaction volume, we are fortunate to sell the remaining interest in our US multi-family portfolio.

Speaker 3: generating 319 million gross proceeds to try it on and simply thank our business in the process.

Speaker 3: We also acquired a record of more than 7,200 homes, largely one at a time, expanding our portfolio by over 23%.

Speaker 3: and half of 2022, this number would have been even higher.

Speaker 3: And we recently commenced lease up under second Canadian multi-family property, the Taylor, which is tracking months ahead of schedule with over 41% of units leased at an average monthly rent of $4.42 Canadian per square foot as of December 31st, 2022. Last but not least,

Speaker 3: We continue to prioritize the well-being of a residence by introducing an industry leading Bill of Rights, the first of its kind for US single-family rental, outlining our commitment to providing quality, moving ready homes with caring and reliable service. We also launched our flocks to Pricon Vantage program.

Speaker 3: A suite of programs and resources available to our US single family residents to help them realize their financial goals, including the goal of home ownership if they sow good chance.

Speaker 3: As you can see on slide five, this year's accomplishments have added to a long track record of creating value for shareholders.

Speaker 3: Through our consistently strong operations and active acquisition program, we've grown our proportionate NOI and book value per share at a compound and annual rate of 17 percent and 18 percent respectively. It's clear that real task load is driving and underpinning our book value, and we think that a serious disconnect exists between our depressed stock price.

Speaker 3: and the fundamental value of our underlying real estate and operation.

Speaker 3: We know that the markets can be inefficient in the short term, but over time this valuable surface and be realized for our shareholders.

Speaker 3: Let's take a look at the current state of our business fundamentals in slide six.

Speaker 3: The demand for rental homes continues to be very strong, with leads for available home well above pre-pandemic levels. At the same time, there is evidence of higher rental supply in our markets, partly caused by would-be home sellers opting to rent out their homes, given the challenging mortgage environment and having attractive legacy mortgages lock in place at very low rates.

Speaker 3: Taken together, the combination of strong demand but higher supply of rental listings over recent months has contributed to a moderation of rank growth on new move-ins, although rank growth in our same home portfolio remains strong by historical measures and has shown signs of strengthening into 2023.

Speaker 3: We believe we have a long runway to capture industry high releasing spreads, given the 15% embedded loss to lease in our portfolio, which we've accumulated by self-governing on renewals over the past few years. So we feel good about our revenue trends for the year ahead and believe we can grow same-home revenues by 6 to 7.5% in 2023.

Speaker 3: As we turn our attention to expenses on slide seven, we remain focused on cost control, especially during this period of slower acquisitions.

Speaker 3: We turn our attention to expenses on slide seven, remain focused on cost control, especially during this period of slower acquisitions. We see opportunities on two fronts.

Speaker 3: One is leveraging our existing corporate overhead platform, which we've expanded over time to be able to handle a much larger number of homes.

Speaker 3: This means being very prudent with hiring and G&A costs while earning incremental property management fees as we grow and complete the investment program for our JV partners.

Speaker 3: With this, we expect to save three cents of core FFO for share and corporate overhead expenses this year compared to last.

Speaker 3: The second opportunity is to capture efficiencies of scale and our SFR portfolio by bringing more work orders in-house, leveraging our national procurement programming and using technology to become more efficient, which should help us continue seam home expense growth in the range of 6 to 7.5% this year.

Speaker 3: Turning to external growth on slide 8, let's talk about what the opportunity set looks like for acquisitions.

Speaker 3: Within our target markets, home prices that meet our buy box criteria have declined by over 8% from mid-year 2022 peak, or rentered down to about 5% and stabilizing into January . This is resulting in slight expansion of acquisition cap rates.

Speaker 3: At the same time, NLS transaction volume is down materially, which is largely related to the lock-and-effect caused by existing homeowners not wanting to trade out of their low mortgage rates. This makes it more difficult for us to acquire meaningful number of homes at meter cap rate criteria, which is currently in the 5.5 to 6 percent range, albeit with a preference for cap rates close to 6 percent.

Speaker 3: As you can see on slide 9, Stank Discipline with this criteria means that we often need to bid for homes at a meaningful discount to the asking price to make the math work. Consequently, we end up buying fewer homes today than in the past, often losing out to individual home buyers who do not buy homes for the cap rid of mine.

Speaker 3: That being said, if we were to shift our criteria to lower target cap rates, let's say 5.25 to 5.25, we could buy a lot more homes. And so you might be asking, what's the magic behind a 5.5 to 6% cap rate? We step back for a moment. Our general strategy is to acquire homes at cap rates that are equal to a greater than our cost of death finance.

Speaker 4: Some sort of the market turmoil to? with the

Speaker 5: Thank you Gary. Good morning everyone.

Speaker 5: The main takeaway of acquisition is that as financing rates decrease we can lower our target cap rates and go back to buy more homes.

Speaker 5: So let's start at slide 10 and see how this is evolving.

Speaker 5: The dead markets were essentially closed for business from August to January . And then as we moved into February , we were encouraged to see some green shoots with one of our peers completing a transaction at a yield of 5.74%.

Speaker 5: As Gary mentioned, we generally aim to acquire homes at cap rates that are equal to or greater than our cost of desfinancing in order to meet our target returns.

Speaker 5: We also had a good sense of the depth of the market at various cap rates. And so, if we assume both that financing and cap rates of 5.75 percent.

Speaker 5: We should be able to buy between 800 and 1200 homes a quarter, like we did in Q4. In order to go back to higher acquisition volumes, we would need one of two things. We should be able to buy between 800 and 1200 homes a quarter, like we did in Q4.

Speaker 5: Either see the financing costs revert to 5.25 to 5.5%.

Speaker 5: Or we would look towards financing at lower loan to values where the debt costs are cheaper. This is a real possibility and it's something we are discussing with our joint venture partners.

Speaker 5: Either way, we are optimistic that slightly lower financing costs will allow it to accelerate acquisitions later this year.

Speaker 5: Let's turn to slide 11 to review our key financial metrics for both for the fourth quarter.

Speaker 5: Net income from continuing operations was 56 million compared to 110 million last year, which includes 56 million affair value gains on rental properties against a very strong cost of $262 million last year. As home price appreciation has moderated since.

Speaker 5: Core FFOPR share was 31 cents, an increase of 107% your year.

Speaker 5: AFF OPERSHARE was 28 cents up 133% year-over-year, providing us with ample cushion to support our quarterly dividend with an AFF OPERAT ratio of 18%.

Speaker 5: Both core IPHEL and ASFO per share benefited from net performance fees earned on the sale of the U.S. multi-family portfolio this quarter, which amounted to $0.16 per share.

Speaker 5: Lastly, our IFRES book value stands at $13.89.

Speaker 5: That's $18.83 in Canadian dollars.

Speaker 5: Up almost 24% year over year. I will also note that our book value does not factor in the value of our private funds and advisory fee streams.

Speaker 5: Let's move to site 12 and talk about the drivers of CoreFFL for share.

Speaker 5: Our single-family rental portfolio delivered 24% year-over-year growth in Trichon's proportion at NOI.

Speaker 5: This was driven by an 8.9% increase in proportion to rental home count and 9.7% increase in the same home and a Y. I have a full-femme fees increased materially due to the $100 million of performance fees received upon the sale of the U.S. Multi-Family Portfolio. In our adjacent residential businesses.

Speaker 5: The year-over-year decrease of 63% in FFO reflected the sale of the U.S. multifamily portfolio and lower results from the U.S. residential development as market conditions have normalized versus a very strong cost and prior year. On the corporate side, interest expense was up.

Speaker 5: As we have a higher debt balance to support the growth of our single family run to portfolio, along with higher average interest rates. Meanwhile, corporate overhead expenses increased from last year due to the $50 million of performance fees.

Speaker 5: related LTD and Performance C expense associated with the sale of the OS multifamily portfolio.

Speaker 5: If we were to exclude these expenses, overhead cost is actually down year over year by 2 million.

Speaker 5: as we continue to focus on cost containment in the stuff or operating environment. Lastly, the diluted share count this quarter was 2% higher than last year from the residual impact of the US IPO capital raising initiatives in the prior year.

Speaker 5: Now let's start our proportion and depth profile on flight 13. Our near-term damage areas consist of two subscription lines used to fund acquisitions.

Speaker 5: as well as a bank term loan, which we will extend later on this year.

Speaker 5: In terms of leverage, we ended the quarter at 7.2 times net debt to adjustity but done, which is below our near-term target of 8 to 9 times and excludes the impact of a performance fees firm in the quarter.

Speaker 5: Our floating rate that exposure notched down to 29% of total deaths compared to 31% last quarter. As a reminder, we use floating rate warehouse lines to fund acquisitions in the short term.

Speaker 5: This is not a permanent part of our capital structure and is an exposure that we actively seek to turn out and roll into fixed-rate instruments when we have a large enough pools of homes to do so. I would also like to highlight that more than 73% of the floating-grade data subject to the cups which are explained on slide 14.

Speaker 5: While rising interest rates have been ahead-winden 2022, our interest rates caps have also recently started to kick in, and we should help mitigate some of the impact of rising rates in 2023.

Speaker 5: And now to give more insight into our same home metrics, I'll turn the call over to our very own David Hasselhoff or Chief Operating Officer Kevin Baldritch.

Speaker 6: Thank you very much, Russam. Good morning, everyone. I want to start out by giving a big shout out to our amazing front line operations team for their hard work and tremendous commitment in reaching the lives of our residents this past year. I'm incredibly proud for the operating metrics we've been able to achieve while remaining

Speaker 6: a 7.7% increase in average in place rents and a 20 basis point gain in occupancy.

Speaker 6: Lended rent growth increased by 7.4% during the quarter, supported by 11.5% growth on new movements, and 6.8% on renewals.

Speaker 6: Our renewal spreads reflect our policy of self-governing, which typically maintains rent growth below market levels for existing residents, which in turn helps keep our turnover low.

Speaker 6: Over time, the loss lease of about 15% that we have built up in our portfolio has allowed a renewals to kick up while still offering our residents below market rents, which is a win-win in our books.

Speaker 6: And as we moved into the new year, I'm pleased to report solid demand trends continuing with 13.9% new lease growth and 7.3% blended red growth in January .

Speaker 6: Our bad debt expense, which is embedded in the revenue numbers, has been tracking around 1.3 percent compared to 1.8 percent in the prior year.

Speaker 6: And we aim to move it down to pre-pandemic levels of 1% or lower by the end of this year.

Speaker 6: It's hard work and we rely on the tremendous efforts of our collection teams to ensure collections are on time while being compassionate to our residents individual situations.

Speaker 6: and working with them towards an agreeable solution.

Speaker 6: Other revenue decreased by 18% from last year. This was partly driven by improved collections which helped to reduce our bad debt, but also results in lower late fee revenue. As well, our record low turnover is resulting in lower ancillary revenue for things like early lease termination fees and resident recoveries on turn.

Speaker 6: By 16, the discuss are same home expense growth of 0.8%.

Speaker 6: The slight rise in expenses was mainly driven by property taxes, which were up 10.7% from last year, reflecting meaningful home price appreciation in our markets. We were a touch conservative on our tax accruals during the year and have trueed up in Q4 based on final tax assessments.

Speaker 6: which resulted in a 13.4% increase for the full year. On the other hand, repairs and maintenance expenses were down this quarter by 11.6%.

Speaker 6: Although the portfolio experienced higher volume of work orders as well as cost inflation post pandemic, we were able to offset this in part by completing 75% of our work orders in-house or 6% more year over year, which in turn saved us about $400 per job. Turnover expense was also down significantly.

Speaker 6: of our longer resident tenure and people generally spending more time in their homes during the pandemic, we had more extensive turns such that a greater proportion of turn costs ended up being capitalized.

Speaker 6: You can see the table on the right that are same home cost to maintain, which includes expense and capitalized activities rose by 14% for the full year.

Speaker 6: Next, on property management expenses, we're seeing inflationary pressures and labor costs offsetting some of the efficiencies of scale that we've achieved as our portfolio has grown.

Speaker 6: And finally, homeowners associations cost increased as there was a year and true of HOA bills. But we also are seeing a heightened level of restrictions imposed by HOAs coming out of the pandemic, which drove higher HOA fees.

Speaker 6: In this higher, interest rate environment, our focus remains on containing the expenses that we can control. This includes leveraging our national procurement program, driving efficiencies through technology, and making operational improvements wherever we see the opportunity.

Speaker 6: all the while creating the best resident experience possible.

Speaker 6: Let's turn to slide 17 to dig deeper into more recent leasing trends and give you some insight into how we manage revenues.

Speaker 6: Demand trends were solid in Q4, but you can see the slight moderation in new lease rent growth as we took an occupancy bias to lease up homes in the seasonally weaker holiday period. As we rolled into January , we shifted back towards a rent growth bias, keeping homes in the market a bit longer to achieve our target rents.

Speaker 6: with a minor loss of occupancy. This way we can effectively capture our loss to lease on new leases while continuing the self-governed on renewals for existing residents.

Speaker 6: We expect these rental trends to persist as we anticipate a relatively strong leasing season into the spring.

Speaker 6: Now I'll turn the call back to Sam Francis to introduce our 2023 guidance.

Speaker 5: Thank you, Gavin. Nothing on the slide 18. I am pleased to introduce our 2023 guidance, which brings together many of the themes and messages we've discussed on today's call.

Speaker 5: Core F and 4 per share is expected to be between 54 and 59 cents in 2023. Compared to last year, we'll use about 16 cents from the net performance fees from the U.S. multifamily transaction and another 4 cents related to the recurring fees and FFO from this U.S. multifamily portfolio, net of overhead savings.

Speaker 5: Bring in the total impact to 20 cents.

Speaker 5: This creates a baseline for FFO of 15-6 cents as a starting point. We expect NOI grows to contribute 13 cents, which is being largely offset by higher interest expense of 12 cents. Roughly half of this is already baked into our Q4 run rate and the remaining half comes from incremental debt to fund acquisitions.

Speaker 5: Hence the impact of NOI less interest is one penny to the positive getting us from 56 cents baseline to 57 cents guidance midpoint.

Speaker 5: Aside from this, we expect three cents of overhead cost savings at the corporate level.

Speaker 5: offset by 3 cents of income tax variances and lower acquisition fees. Note that the income tax was a recovery in 2022 and we expect a minor tax expense in 2023.

Speaker 5: Getting to the high end of guidance from the midpoint is largely driven by the higher end of same home and white guidance and the higher end of acquisition guidance which drives that acquisition fees.

Speaker 5: Our same-home metrics are expected to moderate from 2022 levels, but will still remain very robust. Same-home revenue growth of 6-7.5% assumes rent growth on new leases in the 9-11% range.

Speaker 5: and rent growth on renewals near current levels of 6 to 7% as we continue to self-govern on renewals. We also assume occupancy near 97% and turn over notching off towards 20%.

Speaker 5: Simhole Mcspence growth of 627.5% assumes property taxes increasing around 8%.

Speaker 5: and control all expenses inflating and amid single digits.

Speaker 5: We should see less of a benefit from the turnover cost being capitalized versus expense as we would have to have your post-pandemic turns.

Speaker 5: and we expect turnover expense to be fairly flat.

Speaker 5: Taken together, this leads us to the same home N-Y guidance of 6 to 7.5% with stable margins around 68 to 69%. On the acquisition front, we are planning for 2000 to 4000 acquisitions this year.

Speaker 5: including only 400 acquisitions or so in the seasonally low Q1 period, and potentially accelerating into the summer.

Speaker 5: The low end of our guidance simply assumes

Speaker 5: CECL strengthened MLS listings into the summer, but no real change in the acquisition environment.

Speaker 5: The higher end of the guidance assumes a more significant acceleration in the second half of the year, assumes favorable cap rates and available financing rates both around 5.5 to 5.75%.

Speaker 5: With that, I'll turn the call over to Gary for final remarks. Thank you, Sam. As we look ahead to another exciting year, we want to emphasize the following messages on slide 19.

Speaker 3: First, the value of our company is underpin by our SFR portfolio, which continues to form extremely well and is reflected in a book value for share that is well above our share price. Next, we believe in responsible growth. We are prudent in our capital allocation, disciplined with our cap rate criteria, and laser focused on cost and payment during this period of time.

Speaker 4: join her to answer any questions.

Speaker 2: 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.

Speaker 2: Your first question comes from a line of Chandilutra from Goldman Sachs. Your line is open.

Speaker 7: Hi, good morning. Thank you for taking my question. So, you know, third quarter you talked about a single shift from OPEX to CAPEX because more costs were getting capitalized. Now, obviously, you know, you gave some color on it that a lot of work orders are being done in house this year, or rather, more recently. But could you help us understand?

Speaker 6: Yeah, thank you. Thanks for the question. Yeah, we did spend the last

Speaker 6: Our six to nine months really focused on cost containment. Our teams haven't been able to cross the country. And we've done a number of things. We've really tightened our scopes, such that we're able to rein in what the costs are on all the terms. So whether it's a...

Speaker 6: We've done things like, or before we might paint ceiling, for instance, on a turn when we didn't really need to, so we've tightened that up. Or, you know, we pride ourselves in providing really good service and homes to our residents. And sometimes we had a little bit of scope creep, like an HVAC maintenance.

Speaker 6: we're not buying quite as much. We've repurpose some of our maintenance teams to help you in-house turns, as well as we've increased the number of work orders that we do in-house. We're now doing 75% of work orders in-house, and we've found that when we do work orders ourselves, we're saving about $400 a job. We're now doing 75% of our work orders.

Speaker 6: With costs is about $150 a work order. When we do it in house, for instance, it's $500, $600 a work order, we've ended out. So that's more our costs as well. And then we've also negotiated prices down. We have a price book that we use across the country.

Speaker 6: And we've negotiated 670 line items down that we all of our maintenance tech and supervisors have. So between bringing down prices and doing more work orders in the house, really looking at the scopes. We've been able to drop our costs. Our cash cost to turn a home.

Speaker 6: dropped from like $5,200 in September to $3,800 in February . That's a 27% decrease in the cash cost to turn a home. And we've also dropped just the maintenance expenses, our cost to maintain homes by doing work orders by about just under 7%, 6.7%.

Speaker 6: And we hope to bring that down further the rest of the year. So while there's some conflationary pressures out there, mainly in whether vendors on labor, we've been able to, you know, cost ourselves just by being by scrutiny, to more we're doing on scope in our costs.

Speaker 4: And, Jenny, the only thing I would add to that is that it's important to look at everything over a longer period of time. There could be noise in a quarter. It's always better to look at the full year. If you look at the full year cost to maintain, which includes both expense and capitalized items, that was up 14% in the same home portfolio. We think in 2023.

Speaker 4: that same cost to maintain number will be up about 7%. So still in an inflationary environment, but we are seeing moderation. And part of that is because of the scope, you know, improvements and cost containment that Kevin talked about. That's very helpful. Thank you. And, you know, for my follow-up, could you guys talk about what sort of conversation?

Speaker 4: are at the moment for you know homes that you did acquire in the fourth quarter and where that could potentially go where it becomes feasible for you again. Well so what we need to do in order to get to the next fundraise we essentially need to get to roughly the midpoint. So if we can buy...

Speaker 4: roughly 3,000 homes and the breakdown of that would be 80% JV2, 20% home builder direct. We'll be at a point where the existing venture, single family rental ventures will be fully committed. And that allows us to then go and raise a follow on fund. We've started to have those conversations with our JV partners. I could tell you they are very confident, I think, in the overall strategy in our performance.

Speaker 4: and they feel bullish about the future for single family rentals. And so we are going to start fundraising, you know, imminently and hoping that, you know, if we can, if we can again hit the midpoint, we'll be in a position to launch, let's say, JV3 later this year at the end of the year, maybe early into 2024, but the hope would be at the end of the year. And that's really our goal. We take this very much viable.

Speaker 4: all over existing major investors have indicated that they would like to re-op and they'd like to put more money to work. I think they've gotten around, obviously there's a lot of dislocation in the equity capital markets, but there's a couple things happening. One is in the debt capital markets, that dislocation's going away.

Speaker 4: I would say it's probably half way back now. So that's an improvement. We talked about green shoots.

Speaker 4: And we had our representatives at the Securitization or ABS Conference in Vegas last couple days and very positive response from buyers of CNBS. So it feels like that's opening back up, which is helpful. But then also the JV partners are starting to say, look, we're somewhat agnostic to debt. So the way they think about it is if you can buy homes at a five and a half can.

Speaker 4: So that's a big difference right now, I would say, between private capital markets and public capital markets, which are a state of angst, I would say, about what the cost of capital is. Private capital markets are looking through that.

Speaker 4: So that's a big difference right now, I would say, between private capital markets and public capital markets, which are a state of angst, I would say, about what the cost of capital is. Private capital markets are looking through that. Thank you so much.

Speaker 2: Next question comes to line of Nick Joseph from city your line is open. Thank you appreciate all the comments on the build up to same stored guidance for this year just wondering why 67% is still the right renewal cap just given the broad macro environment today.

Speaker 4: Well, there's always an art into thinking about how to set a renewal cap. The key thing for us is always try to set rents below, slightly below market so that we benefit our residents and they don't have anxiety about whether they have to move out or whether they can afford the home. So that's incredibly important to us. And we've shown over time that that actually leads to...

Speaker 4: you know, great results not just for our, you know, residents, but also our shareholders and investors as well. So it's a bit of an art neck, but I would say that if we kind of think about where we're seeing wage growth, we're seeing not moderate probably from about 8%. I would say with our frontline workers now down to maybe five or six.

Speaker 4: And as a result, we think that kind of 6 to 7 percent, especially given the loss to least in the portfolio, makes sense.

Speaker 2: Thanks, that's helpful. And then just on cap-to-allocation, I know it was pretty minimal in the quarter in terms of the buybacks, but how are you thinking about those going forward, given current valuation and the sources of use is capital in 23?

Speaker 4: Yeah, I mean, so we've got a buyback in place. We've currently bought it by the million half shares. We'll probably fulfill the existing buyback, which is 2.5 million. But then after that, we're probably inclined to really reserve our capital for future opportunities and growth. We don't think that it's the right thing to do right now is to return capital to shareholders and the way of higher dividends or to buyback our stock.

Speaker 4: We're a smaller company, we have a great future, we have commitments in our JVs, and we would not want to rob those opportunities and future growth by buying back our stock and spades. So that's the way we're thinking about it. Thank you very much.

Speaker 2: Your next question comes from a line of Mario Serra from Scotiabank. Your line is open.

Speaker 2: Your next question comes from a line of Mario Sarah from Scotiabank. Your line is open. Hey, good morning.

Just two quick ones on the guidance and then one on the acquisition. In terms of, so I appreciate the color and the commentary provided comparing to caprate to the debt cost and how that drives.

capital allocation going forward. So is it fair to say within the guidance on the stance today like you expected refly rate or debt cost rate in 23 is kind of in that 5.5 or 5.4 or 6% range the two list of on slide time. Yes, that's the expectation is given what happening in the capital markets and the financing rates today.

What type of turnover are you?

I'm thinking about the midpoint. Yeah, we're assuming occupancy of 97% from actually low to high in the guidance and turnover of 20%. So we're holding that constant. So we're assuming that the turnover edges up. It was obviously extremely low in Q4, but 15% for the year in 2022. So we're assuming that moves up to...

Let's see, implied as far cap rate using your 23 expects the same joint align that you're reflecting the $14. Yeah, I would say, I think you, well, it depends how you measure it. I think if you're using in place, you're probably at a very high four.

close to 5 if you're using 23 you're probably in the low 5s.

And I think that makes a lot of sense to us. And I think, again, that valuation is certainly underpinned by what we're seeing in the market. If we wanted to go out and buy 2,000 homes a quarter today, you'd be looking at 5.25 cap rate. Right, that's one home at a time. And we think this type of business, once you've accumulated a portfolio and those homes are stabilized, deserves a premium.

And the only other data point I would give you is that we sold nearly 300 homes in 2022. We're planning to sell about 400 homes, do a bit of, you know, a capital recycling in 2023. We've got almost half of those already under contract and those prices are all about 10% above our fair value. One. Our bank card.

10% above our fair value so the market is nowhere close to not only our book value, but where you know homes are actually trading in the market.

Got it yet. So the the counter to the comment that you're buying at 5.5 to 6 caps and you're using

Let's get a little five cap. Based on 23 expected in all lines is really the 15% embedded mark to market in the portfolio. At the end of the day.

Correct, and it's probably a little higher than that, but yeah, we're using 15 Okay

Your next question comes from a lineup Brad Heffern from RBC Capital Markets. Your line is open.

Okay, good morning everyone. With Sam, I was wondering if you could just talk through the funding plan for 23. Presumably there's no equity, but expected cash flow dispositions and that would be great.

Yeah, and from, there certainly is no equity at a current share price. So if I look at what we need for growing forward for 2023, based on the guidance that we provided of buying 2002, 4000 homes, assuming 60% LTV is pretty standard numbers, you're looking at commitments for as far between 80 million to 160 million.

on a full-year basis. On top of that, adjacent businesses probably need about 50 million of funding and CapEx probably another 40 million of funding. So in total, our cash flows and our need going forward is probably about 17 to 250 depending on what's out of the guidance you're on. Now where do we got that from? We got that from three different sources. Source number one is our AFFO.

Less our dividends on a run-rate basis around generates around 60 million of cash for us Source number two is of Gary mentioned we're looking to probably sell around 400 homes in 2023 that's probably going to gross proceeds of about a hundred million and Let's not forget that we have 207 million of cash on our balance sheet today and another 500 million of liquidity on our credit facility so add it all together. We're in pretty good position. Take advantage of opportunities

Supplies being driven by, you know, build to rent and things that are more institutional.

Kevin, you want to start with that and maybe I'll chime in after. Sure. We have seen supply come up for the obvious reasons that a lot of people can't sell their homes. But supply is still not what it was pre-pandemic. It's clearly higher than it was during the pandemic, but it's not higher than...

and say 2019, 2018, and really well. So, you know, I don't really feel our portfolio on its out there. It's not a big driver. I mean, a lot of the almond possum, they don't have the websites that we do. They don't have the maintenance teams that we do. They can't advertise as much. And so...

It hasn't been a really big impact for us. And I think that some of the people that if they didn't sell their home and they're running it out, they had to go move somewhere. So they took another home off the market or some of the homes that they are now running would have been bought by other small investors or people like ourselves and would have come on the market anyway. So I think there's a little bit.

I have not found it to be a problem from the long past. And then I would just add to that with all the talk, you know, for Bill to rent, and obviously we think it's important long-term. It's certainly a solution to add supply. We've got a very significant program. But with all the talk of it, it's a tiny part of overall supply. And then I would just add to that with all the talk of it.

commentary on supply from mom and pops in terms of new home supply that's probably you know that's probably down 15% year over year and obviously going into 2023 it's going to be very difficult for the builders whether it's for sale or built to rent to add more supply.

Okay, thank you. Your next question comes from a line of Adam Kramer from Morgan Stanley . Your line is open.

Yeah, hey guys, thanks for the question. I just want to ask about the January New Leaf growth. Kind of nice acceleration there. I'm just wondering, you know, maybe kind of what drove that? Like I'm sure there's some kind of normal seasonal patterns that maybe help drive that. But just wondering what drove that? And then maybe kind of any discloser you can give on February New Leaf? I think would be helpful as well.

Yeah, hey guys, thanks for the question. I'm just going to ask about the January Newly Scroofe. Kind of nice acceleration there. I'm just wondering, you know, maybe kind of what drove that? Like I'm sure there's some kind of normal seasonal patterns that maybe help drive that. But just wondering what drove that? And then maybe kind of any discloser you can give on February Newly. So I think it would be helpful as well. All right, Kevin over to you.

Sure, yeah, usually what we have found, what I've found is that there's a law that happens from Thanksgiving to Christmas and the year turns and there's a little bit of pent-up supply that occurs. We also became more have a rent bias. We felt that so we started pushing rent harder than we have been.

So it's a combination of the two. You know, we went into Q4 and you know, we started dealing with seasonality for the first time in two years. And so we really went more towards an occupancy bias. And if you remember at the time, there's talked, you know, about recession. How deep is recession going to be? Interest rates were...

you know, had climbed. And so we went to an occupancy bias and got to 98% and let rents drift down a little bit. We turned the year and we fell in January , that push, and people coming back into the market. So we took advantage of that. We let our occupancy drift down a bit to get a wrench and to be able to...

to harvest our lost elise. Going into the quarter, I would say for Q1, we're going to be probably around 12% for the quarter in new lease rack growth and mid-seventies for blended. Again, that's the beginning of the year to get this pent up demand.

12% new lease, right? But it's still phenomenal in my book. Hopefully I can give you some guidance. Yeah, and I think in Adam, just that compares to our guidance. The mid-point of our guidance is 6.5% renewals and 9.5% on new leases.

Right, so 7% blended rank growth with 20% turnover. So already what we're seeing out of the gate is we're ahead of that at the slow part of So that's really good news. That's really helpful guys. Thanks so much for kind of that color. We'll just make a switching gear, same store expense growth, 6 to 7 and a half I believe. Just wondering if you could kind of provide any, maybe incremental details, right, whether it's kind of proper.

non-controllable property tax insurance. That's going to be a high single digits. We think our property tax is going to be up roughly 8%.

on the same home, insurance probably up about 10%, which is pretty good compared to what we're seeing in the industry, and certainly a moderation from 2022. And then on the controllables, we're thinking mid-single digits.

Right, so that gets you to kind of that 6 to 7 and a half percent. We feel pretty confident about that today.

Thanks again for the time, guys. Thank you. Your next question comes from Alaina, Steve McLean from BMO Capital Markets. Your line is open.

Thank you, morning guys. I see. Lots of great colors, so thank you. I just wanted to ask about one thing with respect to the acquisition plan for 2023. You know, you talked a little bit about potentially being able to adjust the loan to value in order to...

accelerate on the SFR acquisition side. I guess two questions on that. What sort of factors do you take into account as you think about adjusting the loan to value? And then secondly, are there any other levers that you can pull just outside of the spreads to drive potentially higher acquisitions?

Well, we're governed right now by the existing joint ventures, right? Again, single family rental JV2 and HomeBuilder Direct and both of those have leverage requirements. So we are governed by those requirements. We're typically around 60%. So that does put a bit of a limiter because if we got rid of that leverage, we could go way faster.

So again, I think when I made my comments about our JV partners being open or being agnostic to leverage and potentially considering a vehicle in the future that has lower leverage, that's on future vehicles. It's not on the existing vehicles. So those existing vehicles need to be about 60% and that's really what's kind of holding us back a little bit is because at 60% the cost of leverage is in that kind of high-five range.

which is what Wesam talked about. So that's why it's probably gonna be a slower year. You know, we're planning 400 acquisitions in Q1 and we probably move that, let's say, if we wanted to go to midpoint, we could assume that's 400 Q1, 1000 Q2, 1000 Q3, 600. I'm just giving you an idea of what that could look like. And to the extent, obviously that, you know, that we get a

you know lower rates or lower spreads we're we're able to go faster. Great okay thanks very that's helpful that's all I have thank you. Okay. Your next question comes from a line of Jade Romani from KBW your line is open. Thank you very much with the

Spiking rates, you know, that may call into questions some of the green shoots that you are seeing in the CLO market I realize spreads might be coming in but I am concerned about spiking fixed income volatility here But the backdrop raises a broader question which is with acquisition cap rates right on top of debt costs

What's really the value of leverage in your views? Is it to really just gain scale in markets where there is an opportunity? Have you rethought that? Because I think it could make sense to operate with much lower leverage than historically until the debt markets become.

you know, more amenable. Yeah, so I'm going to answer a little bit of that. I'm going to allow John to, we're going to give John a chance to talk about how we think about leverage in the context of kind of longer term returns and why we use leverage. There's clearly a benefit to getting scale from an operations perspective, because it allows us essentially to go, let's say twice as fast or more. So that there is definitely benefit there. And then there's obviously more fee income associated with that as well.

But we will give you some insight into how our JV partners think and how they think about kind of longer-term IRRs and I'll turn that over to John . I would just say on the, yeah, I mean, look, the debt markets are whipsying and we're seeing like, I mean, the way they're oscillating from day to day week to week is really crazy.

And so we understand this incredibly volatile environment and we know that the benchmark rates have blown out in the last couple of weeks and again into today. But we are seeing green shoots in terms of the CNBS or ABS market. So we just met with 30 investors over the last couple of days and they told us that they're interested again in what they really want and certainly from an A-trunch bigger is better. Right, they are looking for some more call protection.

They are looking for some concessions probably compared to previous type deals, but the bottom line is that investors are waiting for deals and they want to see bigger deals. So that's really good news. What it means then is spreads will come in and we'll have to accept the benchmark rates. And I think those benchmark rates will probably continue to oscillate all year. They'll be up or down and maybe you got to pick a window. But that's the kind of environment we're in. John , over to you to talk about how, like, why would we...

I guess the question is, why would we buy with cap rates in line with debt costs? Why do that at all? Maybe you can give some insight into that. For sure. And I think, Jay, it's a great question. And it's extremely important to think about this over a period of time versus points in time. So your point is right. If you're buying at cap rates right on top of leverage, you're not getting benefit on day one. But if you think about this over, let's say, an eight-year investment program or vehicle life.

And you're going to see, as Gary mentioned before, let's say 4 to 5% and a wide growth every single year. Over time, you certainly get those benefits of leverage. So going in on an unleavened basis, you might expect a 9 or 10% IRR, but if you're adding 50% leverage at or around 5 and a half to 6% the same as your cap rate, you're going to see that IRR expand closer to 14 or 15%. So it's really thinking about the longer term because you're getting the leverage benefit on that growth as opposed to just going in.

So on that point, is there an opportunity to scale up your acquisitions on an unlearned basis and then accumulate a very large portfolio to secure ties in a very low leverage structure which would allow those CNBS buyers you met with, the 30 you met with, to want scale in the deal.

to buy a really big piece of AAA's and maybe into some of the slightly lower rated securities. Yeah, the answer to that is yes.

really big piece of AAAs and maybe into some of the low rated securities. Yeah, the answer to that is yes.

Thank you very much for taking the question and look forward to speaking with you, Jen. Thanks, Jay. Your next question comes from a line of Tal Wolley from National Bank Financial. Your line is open.

Hi, good morning. Just wanted to start with a fundraiser inside. You mentioned you're optimistic that you should be able to re-up with your partners for another joint venture on the single-family rental side.

Just wondering longer term given that there's been such a sort of sea change in credit markets over the last year, how you're seeing, you know, is there still as much dry powder as you hoped in the private markets longer term?

There is, now there are some puts and takes to that, right? The biggest issue in the private capital markets is if you have an allocation of real estate alternatives, you're now dealing with, you know, where do you allocate your capital given an extreme uncertainty and dislocation in office, obviously in retail as well.

And so what that's meant over time and we think that's going to continue to happen and certainly what we're hearing from our JV partners is more and more capital has to find its way to beds and sheds and a lot of investors are underweighted or have virtually no allocation of single-family rent. So that's a tremendous long-term opportunity for our industry and certainly try to be much much bigger and for us to raise a lot.

underweighted to one real estate and certainly underweighted to a single family rental or rezi. So we think, you know, there'll be a lot of opportunities for raise more money at the end of this year and obviously over time. Okay, that's helpful. And then I guess just lastly, a market selection in the single family rental business. You know, are there markets now where you're kind of like at the size you want to be?

And you know, you're not that interested in growing unit count and are there sort of markets where you're really looking to add homes? John , I'm going to turn that over to you.

Sure. So for the first part, I would say from a scale perspective, we're happy to grow in all of our markets. Even if you look at our largest market, Atlanta, we're just a fraction of the size of where we think the opportunity is. So there's no market right now or even submarket within those larger markets where we've reached any kind of concentration limit.

Within the markets where we do, I'm sure there are certainly places where we're seeing stronger performance than others where we're seeing a bit of softening. We continue to view Atlanta, Charlotte, Dallas, Tampa, Nashville, extremely strong. Those are places where we continue to grow. I would say, if you look at rent growth and demand, we are seeing some softening in particular in Phoenix and Vegas. Those are really markets where there was such a strong run-up in rent growth.

at the beginning of the pandemic and home price appreciation we're really just giving a little bit back in those places. So we're seeing a little bit lower cap rates and solar end growth there so we're by using our acquisitions a little bit elsewhere right now. Okay I'm glad you brought up Atlanta. I'm sure you probably saw the piece in the journal constitution a few weeks ago just talking about you know what they saw as the impact of single-family rental in the city.

You know, this is going to be an ongoing question I'm sure for the next few years. Are you seeing any sort of shifting signs of the politics around single family rights on some of your major markets? I actually think we're starting to see some positive. I think we're starting to see some green shoots, not just in the debt capital markets, but on the regulatory front as well. And if we're sticking with Atlanta, we did see that piece, but the University of Georgia is going to be coming up with a landmark study, research study.

which is going to show how that the real issue around high home prices and rents is a lack of supply. And they're going to discuss how any infringement on property rights actually is detrimental and leads to lower supply and higher rents. So that type of research from reputable institutions is incredibly important.

Florida is in the process of passing a bill or an amendment to a bill which will prevent local governments or counties from passing any kind of rent control. We see that as being really positive. Any bills that have tried to limit institutional ownership of homes has failed on the floor. So those haven't gone anywhere.

We think the White House blueprint for tenant bill of rights is a step in the right direction. We've come out with our own resident bill of rights, which we think is incredibly important. We think as this industry matures, you need a standard of conduct or care that will hold all operators to that standard. And we do go.

either can't buy a home because they don't have a credit or they don't have a down payment or they want the flexibility but they can't buy a home and that creates a wealth barrier and so that's why our industry is so important because it allows families to move into these neighborhoods with good schools and it allows them to have better outcomes for their families and then their families and it allows upward mobility so I think when lawmakers and

the media start to understand how important it is for families to have options or alternatives, and they realize all the good things that we and our industry are doing, that sentiment will start to change. I may just add one piece to that. We have created a government relations arm or group within the company.

in how we think about our residents.

So it's something we're taking a very proactive approach to do exactly what Gary was saying and educating people about our industry.

we're taking a very proactive approach to do exactly what Gary was saying and educating people about it about our industry. Great, thanks very much everyone.

Thank you. Your next question comes from a line of Dean Wilkinson from CIBC. Your line is open. Thanks afternoon everybody. Hi Dean, how are you? I'm fantastic. I hope you are too. I don't know if this question is for Gary or if it's a balance sheet question for your very own CJ Parker.

Looking at the Canadian residential development side of things, the 1.5 billion give or take, remaining project costs, how much of that is at risk vis-a-vis inflationary pressures? And have you seen a material uptick in project level financing that is starting to squeeze those returns? Andrew joiners here, so he may want to chime in a little bit on the detail, but I think the short answer,

a venture with Canada Pension Plan where our new projects including Queen in Ontario and Simington are being funded with all equity or all cash. And so those projects are fully funded. So we're really in a great situation. This portfolio is going to add a ton of value over time. It's going to take probably a few more years, but over time we should be able to harvest significant value and then we may be able to think about monetizing some of that.

The way I think about it, I don't know that off the top of my head, the way I think about it is we've got around 200 million invested equity, that's Tricon's proportionate share. So we've got about 200 million invested, I think the fair value of that's about 250, does that sound about right? And we think that's going to easily be worth 400 or 500, right? So that's pretty significant value creation.

over time and we're ready to see that on the tailor. Like the tailor is going exceptionally well. We're ready at 50% least. We're above budget, significantly above budget on time and on rents. And that's looking like it's going to pencil into close to a 6% yield, which is obviously very attractive even with higher baseline rates today. Thank you.

Great, that's it for me, thanks guys. Big D. Your next question comes from a line of Jonathan Keltcher from TD Cowan. Your line is open. Good afternoon. Just on the going back to the regulatory front, how much does regulatory risk factor into your buy box on where you're looking to buy?

But obviously in an environment that's more deflationary, some of that noise goes away. So it's always going to be there. It's always going to ebb and flow. It's not a factor for us for where we buy. There's nothing happening in virtually any market that we're in that's limiting our ability to run the portfolio, to raise rents. I think the only place, and Kevin might chime in, where I think we might want to limit our exposure would probably be LA County.

more Torrance, rental Torrance for residents living in the county, making it really difficult. Now, fortunately for us, most people are responsible. They're paying the rent, but there is a small cohort of people taking advantage of it, and they're going to wait it out until the more corns in. So it makes it a little bit more difficult to operate here. And so it's a small area as Gary mentioned, and we're probably going to...

hold off on investing anymore and going into the future. Okay, so the 400 homes you're looking to sell this year, they'd be sprinkled basically across your portfolio? No, they'd largely be southeast Florida and LA County.

Okay, and then lastly just on the corporate overhead, say you're looking to have that down three cents this year, the starting point for that does that exclude the 50 million in LTIP from 2022? Yes. Okay, thanks, I'll turn it back.

Great. Thanks, John . And there are no further questions at this time. Mr. Gary Berman, I turn the call back over you for some final closing comments.

Thank you, Rob. I'd like to thank all of you on this call for your participation. We look forward to seeing you at our upcoming investor day in April and speaking with you again and may discuss our key one results. This concludes today's conference call. Thank you for your participation. You may now disconnect.