Q4 2022 Tricon Residential Inc Earnings Call

Speaker 1: 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 are marks, there will be a question and answer session.

Speaker 1: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one. Thank you, Voitech No. Doc, Managing Director, Capital Markets. You may begin your conference.

Speaker 2: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss track-on's fourth quarter results for the three-involved months ended December 31, 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 2: This information is subject to risks and uncertainties that may cause actual events or results to differ materially.

Speaker 2: 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 2: Our remarks also include references to non- GAAP financial measures which are explained and reconciled in our MDNA.

Speaker 2: I would also like to remind everyone that all figures are being quoted in 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 2: 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 to our website. You can find both the webcast registration and the presentation in the Investors section of trichonresadential.com, UnderNews and Events.

Speaker 2: With that, I will turn the call over to Gary Berman, President and CEO of Trigon.

Speaker 3: Thank you, Boy Tech, and good morning, everyone.

Speaker 3: 2022 marked another record breaking year for Trichon as we adopted to a difficult macro environment to deliver on our business plan, implement bold 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.

Speaker 3: 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-Same Home 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 blended rank growth of 7.4%.

Speaker 3: Second, we remain disciplined in 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. At this time, that means slowing the pace 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.

Speaker 3: 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. What I love about our model is that we can scale our acquisition program, offer down very quickly, depending on market conditions.

Speaker 3: 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 of 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 F and F for sure of 76 cents and same momentum I growth of 10.4 percent, both well above the high end of our initial guidance.

Speaker 3: 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, 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%. If our cost of capital hadn't deteriorated in the second 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 round of $4.42 Canadian per square foot as of December 31st, 2022.

Speaker 3: Last but not least, 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 flagship TriCon Vantage program. We also launched our flagship TriCon 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 sowuni's financial car.

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 compounded annual rate of 17 percent and 18 percent respectively. It's clear that real cash flow 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 a rental home continues to be very strong, with leads for available home well above pre-pandemic levels.

Speaker 3: At the same time, there's 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. We believe we have a long runway to capture industry high-releasing spreads.

Speaker 3: given the 15% embedded loss to lease in our portfolio, which we've accumulated by self-governing on renewals over the past few years. And so we feel good about our revenue trends for the year ahead and believe we can grow same-home revenues by six to seven and a half percent 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 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 a slight expansion of acquisition cap rates.

Speaker 3: At the same time, MLS transaction volume is down materially, which is largely related to the lock-and-effect caused by existing homeowner's not wanting to trade out of their low mortgage rates.

Speaker 3: 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, staying disciplined 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 with a cap rate of mind. That being said, if we were to shift our criteria to lower target cap rates.

Speaker 3: Let's say 5.25 to 5.25 percent, we could buy a lot more homes. So you might be asking, what's the magic behind a 5.5 to 6 percent cap rate? We step back for a moment. Our general strategies to acquire homes at cap rates are equal to a greater than our cost of debt financing in order to generate potential low-teen gross IRRs and our JVs.

Speaker 3: and potentially higher IRRs for Trichon when we factor in the fees we earn. So it's really the cost of available death financing that dictates our acquisition parameters. With that, I'll turn it over to Wesant to talk about where the death markets are today.

Speaker 4: Thank you Gary. Good morning everyone.

Speaker 4: The main takeaway of acquisition is that as financing rates decrease we can lower our target cap rates and go back to buying more homes.

Speaker 4: So let's start at slide 10 and see how this is evolving.

Speaker 4: The dead markets were essentially closed for business from August to January .

Speaker 4: 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 4: As Gary mentioned, we generally aim to acquire homes at cap rates that are equal to or greater than our cost of debt financing in order to meet our target returns.

Speaker 4: We also had a good sense of the depth of the market at various cap rates.

Speaker 4: And so, if we assume both debt financing and capital rates of 5.75%, we should be able to buy between 800 and 1200 homes a quarter.

Speaker 4: So if we assume both debt financing and capital rates are 5.75%, we should be able to buy between 800 and 1200 homes a quarter, like we did in Q4.

Speaker 4: In order to go back to higher acquisition volumes, we would need one of two things.

Speaker 4: Either see the financing costs referred to 5.25 to 5.5% or we would look towards financing at lower loan to values where the debt costs are cheaper.

Speaker 4: This is a real possibility and it's something we are discussing with our joint venture partners.

Speaker 4: Either way, we are optimistic that slightly lower financing costs will allow it to accelerate acquisitions later this year.

Speaker 4: Let's turn to slide 11 to review our key financial metrics for both for the fourth quarter.

Speaker 4: Net income from continuing operations was 56 million compared to 110 million last year, which includes 56 million of fair value gains on rental properties. Against a very strong cost but 262 million last year, as home price appreciation has moderated sense.

Speaker 4: Core FFOPR share was 31 cents and increase of 107% your year.

Speaker 4: AFF OPERSHARE was 28 cents up 133 percent year over year, providing us with ample cushion to support our quarterly dividend with an AFF OPERAT ratio of 18%.

Speaker 4: Both Core IFAFEL 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. Lastly, our IFRS book value stands at $13.89.

Speaker 4: That's $18.83 in Canadian dollars. Up almost 24% year over year.

Speaker 4: I will also note that our book value does not factor in the value of our private funds and advisory fee streams. Let's move to site 12 and talk about the drivers of Core FFOP over share.

Speaker 4: Our single-family rental portfolio delivered 24% over year growth in Trichon's proportion at NOI.

Speaker 4: 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.

Speaker 4: FFV from fees increased materially due to the $100 million of performance fees received upon the sale of the U.S. multi-family portfolio.

Speaker 4: In our adjacent residential businesses, the year-over-year decrease of 63% in FFO reflected the sale of the U.S. multi-family portfolio and lower results from the U.S. residential development as market conditions have normalized versus a very strong cost in prior year.

Speaker 4: On the corporate side, interest expense was up, as we have a higher debt balance to support the growth of our single family run to support folio along with higher average interest rates.

Speaker 4: Meanwhile, corporate overhead expenses increased from last year due to the $50 million of performance fees.

Speaker 4: related, altered, and performance expense associated with the sale of the OS multifamily portfolio.

Speaker 4: Before it to exclude these expenses overhead costs is actually down year over year by 2 million, as we continue to focus on cost containment in the stuff for operating environment.

Speaker 4: Lastly, the diluted chair count this quarter was 2% higher than last year.

Speaker 4: From the residual impact of the US IPO, capital raising initiatives in the prior year.

Speaker 4: Now let's start with a proportion of dead profile on flight 13.

Speaker 4: Our near-term damage rate is consists of two subscription lines used to fund acquisitions as well as a bank term loan, which we will extend later on this year. In terms of leverage, we ended the quarter at 7.2 times net debt to adjust the EBITDA, which is below our near-term target of 8 to 9 times and excludes the impact of a performance fees fund.

Speaker 5: in the quarter.

Speaker 4: Our floating rate that exposure notch down to 29% of total death compared to 31% last quarter.

Speaker 4: As a reminder, we use floating-rate warehouse lines to fund acquisitions in the short term.

Speaker 4: This is not a permanent part of our capital structure.

Speaker 4: And it's 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.

Speaker 4: I would also like to highlight that more than 73% of the floating-grade data subject that are explained on slide 14.

Speaker 4: While rising interest rates have been ahead when in 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 4: 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 3: Thank you very much, Rosam. Good morning, everyone.

Speaker 1: I want to start out by giving a big shout out to our amazing frontline operations team for their hard work and tremendous commitment to enriching the lives of our residents this past year. I'm incredibly proud for the operating metrics we've been able to achieve while remaining true to our values of taking care of each other, our residents, and our communities.

Speaker 1: Let's move to slide 15 to talk about the drivers of our same home and NOI growth of 9.7% to the quarter.

Speaker 1: On the top line, revenue growth was driven by a 7.7% increase in average in place rents and a 20 basis point gain in occupancy.

Speaker 1: Lended rent growth increased by 7.4% during the quarter, supported by 11.5% growth on new movements and 6.8% renewals.

Speaker 1: 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 1: Over time, the loss lease of about 15% that we have built up in our portfolio has allowed our renewals to pick up while still offering our residents below market rents, which is a win-win in our books. And as we moved into the new year on please report solid demand trends continuing.

Speaker 1: with 13.9% new lease growth and 7.3% blended red growth in January . Our bad debt expense, which is embedded in the revenue numbers, has been tracking around 1.3% compared to 1.8% in the prior year.

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

Speaker 1: It's hard work and we rely on the tremendous efforts of our collection's teams to ensure collections are on time while being compassionate to our residents' individual situations.

Speaker 1: and working with them towards an agreeable solution.

Speaker 1: 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. This was partly driven by improved collections which helped to reduce our bad debt, but also results in lower late fee revenue.

Speaker 1: As well, our record low turnover is resulting in our ancillary revenue for things like early lease termination fees and resident recoveries on turns.

Speaker 1: However, over time, we do see a path of increasing other revenue as we continue to roll out value-added programs such as Smart Home Technology and Renners Insurance, which are embedded in these numbers and increased by almost 20% year on year.

Speaker 1: Let's now turn to slide 16 to discuss our same home expense growth of 0.8%.

Speaker 1: 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.

Speaker 1: We were a touch conservative on our tax accruals during the year and have trueed up in Q4 based on final tax assessments, which resulted in a 13.4% increase for the full year.

Speaker 1: On the other hand repairs and maintenance expenses were down this quarter by 11.6%.

Speaker 1: 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.

Speaker 1: Turnover expense was also down significantly as our turnover rate decreased by over 310 basis points to a record low of 12.2%.

Speaker 1: Thanks to our occupancy bias and focus on superior customer service in what is already a seasonally slow period for moveouts.

Speaker 1: Because 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 cost ended up being capitalized.

Speaker 1: 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 1: Next, some property management expenses were seen in flashinary pressures and labor costs offsetting some of the efficiencies of scale that we've achieved as our portfolio has grown.

Speaker 1: 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 1: 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 1: all the while creating the best resident experience possible. 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 1: Demand trends were solid in Q4, but you can see the slight moderation in new lease rent grilled as we took an occupancy bias to lease up homes in the seasonally weaker holiday period.

Speaker 1: As we rolled into January , we shifted back towards a rent growth bias, keeping homes on the market a bit longer to achieve our target rents with a minor loss of occupancy.

Speaker 1: This way, we can effectively capture our lost elice on new leases while continuing the self-governed on renewals for existing residents.

Speaker 1: We expect these rental trends to persist as we anticipate a relatively strong leasing season into the spring.

Speaker 1: Now I'll turn the call back to Sam Francis to introduce our 2023 guidance.

Speaker 4: Thank you, Gavin. Moving on to 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. 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 US multi-family trends.

Speaker 4: In fact, NOI grows to contribute 13 cents, which is being largely offset by higher intersex expense of 12 cents.

Speaker 4: Roughly half of this is already baked into our Q4 run rate and the remaining half comes from incremental debt to fund acquisitions.

Speaker 4: 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 4: Aside from this, we expect three cents of overhead cost savings at the corporate level.

Speaker 4: Offset by three sense of income tax variances and lower acquisition fees.

Speaker 4: Note that the income tax was a recovery in 2022 and we expect a minor tax expense in 2023.

Speaker 4: 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 acquisition fees.

Speaker 4: Our same whole metrics are expected to moderate from 2022 levels, but will still remain very robust.

Speaker 4: Same home revenue growth of 6 to 7.5% assumes rent growth on new leases in the 9 to 11% range.

Speaker 4: and rent growth on renewals near current levels of 6 to 7 percent as we continue the health covering on renewals.

Speaker 4: We also assume occupancy near 97% and turn over nudging up towards 20%.

Same home expense growth of 627.5% assumes property taxes increasing around 8%.

and controlable expenses inflating and amid single digits. We should see less of a benefit from the turnover cost being capitalized versus expense as we lap to have your post-pandemic terms.

And we expect turnover expense to be fairly flat. Taken together, this leads us to the same home NOI guidance of 6 to 7.5% with stable margins around 68 to 69%.

On the acquisition front, we are planning for 2000 to 4000 exhibitions this year.

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

The low end of our guidance simply assumes seizle, strengthen MLS listings into the summer, but no real change in the acquisition environment.

The higher end of the guidance assumes a more significant acceleration in the second half of the year, assumes unfavorable cap rates and available financing rates, both around 5.5 to 5.75 percent.

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.

First, the value of our company is underpinned by our SFR portfolio, which continues to form extremely well and is reflected in a book value for a 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 containment during this period of slow growth.

And finally, we have the platform, people, technology, and available capital to grow much faster when the time is right. I will now cast a call back to the operator to take questions. With Sam Kevin and I, we'll also be joined by John Allen Swagg, Annie Carmody, and Andrew Joener to answer any 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.

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

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?

Sure, yeah, thank you. Thanks for the question. Yeah, we did spend the last.

Our six to nine months really focused on cost containment. Our teams haven't even been across the country. And we've done a number of things. We've really tightened our scopes.

We've done things like, or before we might paint ceilings, 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.

turns with using in-house people. Now that 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. It costs us about $150 a work order. When we do it in-house, we're saying it's $500, $600 a work order. We've ended out. So that's more of our costs as well. And then we've also.

You know, negotiated prices down. We have a price book that we use across the country, 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 costs,

just under 7%, 6.7% and we hope to bring that down further the rest of the year. So while there's some inflationary pressures out there mainly and whether vendors on labor, we've been able to, you know, increase costs ourselves just by being by scrutinizing more we're doing on scope in our costs. And Jenny, do you only think the only thing I would add to that?

be up about 7%. So still in an inflationary environment but we are seeing moderation and part of that is because of the scope improvements and cost containment that Kevin talked about.

That's very helpful. Thank you. And you know, from my follow-up, could you guys talk about what sort of conversations are you having with your JV partners? As you think about accelerating, you know, purchasing homes later in the summer?

you know, you gave some thoughts around bringing down the loan to value, but could you give us an update on where price two FF4 multiples 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 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 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 it very much viable. All over existing.

major investors have indicated that they would like to re-up and they'd like to put more money to work. And 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 is going away.

I would say it's probably halfway back now. So that's an improvement. We talked about green shoots. 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 5.5% cap rate and then get NOI growth of 4% in perpetuity, that's a 9.5% return and they're happy with that. They'll take that all day long. We obviously would do better than that because we get the impact of the fees. And from that point forward, it's only a decision of how much more incremental leverage you want to put on.

to make to improve the returns a little bit more. 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. Our next question comes the 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.

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...

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 Nick, but I would say that if we kind of think about where we're seeing wage growth, we're seeing that moderate probably from about 8%. I would say with our frontline workers now down to maybe five or six.

And as a result, we think that kind of 6 to 7% especially given the loss to lease in the portfolio makes sense. Thanks, that's helpful. And then just on cap allocation, I know it was pretty minimal in the quarter in terms of the buybacks, but how are you thinking about those going forward giving current valuation and the sources of use is capital in 23? Yeah, I mean, so we've got a buyback in place. We currently bought about a million half shares. We'll probably fulfill.

not want to rob those opportunities in future growth by buying back our stock and spades. So that's the way we're thinking about it.

Thank you very much. Your next question comes from a line of Mario Sarah from Scotiabank. Your line is open. Thank you very much.

Hey, good morning. Just two quick ones on the guidance and then one on the acquisitions. In terms of, so I appreciate the the color and the commentary provided comparing the cap rate to the debt cost and how that drives.

capital allocation going forward. So is it fair to say within the guidance understands today like you expected refy rate or debt cost rate in 23 is kind of in that 5.5 or 5.4 or 6% range the two list of owns why ton

Hey Mario, yes that's the expectation is given what's happening in the capital markets and the financing rates today, we expect to refinance between 575 and 6. Obviously we hope to do better but that's what we're guiding towards.

Okay, and then within the same sort of revenue growth, 5 to 9 percent, we talked about the cap on 3,0,6 to 7. What type of turnover are you?

Okay, and then within the same store revenue growth, 5 to 9 percent, we talked about the cap on 3,0,6 to 7. What type of turnover are you thinking about at the midpoint?

Yeah, we're assuming we're assuming occupancy of 97% From actually low too high in the guidance and turnover 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 20%

And obviously it's accretive for us to have more turnover. It's not what we're trying to achieve, but that's essentially what we're modeling.

My last question, just in terms of the book value per share and Gary your comment on the extreme disconnect between the trading price and the $14. What's the implied as of our cap rate using the 23 expects the same stront line 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 uh...

you'd be looking at five and a quarter cap rate. That's one home at a time. And we think this type of business, once you've accumulated portfolio and those homes are stabilized, there's a premium. There's been a couple of transactions in the market. Those look like they're trading based on high four, low five in place cap rates. Obviously it'd be higher in a market market.

And remember, we have a significant loss to lease in our portfolio, Mario, the least 15% so that has to be taken into account. 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 due a bit of, you know, a capital recycling in 2023.

Got it. So the counter to the comment that you're buying at 5.5 to 6 caps and you're using a little 5 cap based on 23 expected in lines is really the 15% embedded mark to market in the portfolio at the end of the day. Correct. Correct. And it's probably a little higher than that. But yeah, we're using 15.

Got it. Okay. Thanks, guys.

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, no problem. There certainly is no equity out of current share price. So if I look at what we need for going forward for 2023.

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 flow is on our need going forward. It's probably about 17 to 250 depending on what's out of the guidance you're on.

Now where did we get 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 that 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 to get advantage of opportunities as they come up Going forward

Okay, appreciate that. And then your comments on supply about, you know, kind of mom and pop is running out there existing homes because of the low locked in mortgages. I'm curious, you know, how much you see that as really competing supply for you guys and then how much you think.

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 not in the...

It's not higher than, say, 2019, 2018. It worked out really well. So, you know, I don't really feel our portfolio while it's out there. It's not a big driver. I mean, a lot of the almond posses, maybe 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, you know, it's not, 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. A little bit too much emphasis of being placed on the supply. I have not found it to be a problem from the mom and pops.

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. And we've got a, you know, very significant program. But with all the talk of it, it's a tiny part of overall supply. Like if you look at total starts, Bill to rent maybe is 3 or 4%.

So it's not really having any impact on the broader market. And we're in an environment now because it's become, obviously with really high rates and construction costs still staying fairly high, it's very difficult to add supply. So it's not just that Kevin talked about his commentary on supply for Mom and Pop's.

In terms of new home supply, 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 build to rent to add more supply.

supply, 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 build 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'm just want to ask about the January Newly Scroath. Kind of nice acceleration there. I'm just wondering, you know, maybe kind of what drove that? Look, I'm sure there are some kind of normal seasonal patterns that maybe help drive that, but just wondering what drove that and maybe kind of any discloser you can give on February or Newly, so I think would be helpful as well. Yeah.

Kevin over to you. Sure. 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...

you know, more have a rent bias. You know, we felt that so we started pushing, 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 was talk about recession, how deep is recession going to be, interest rates had climbed. 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. We took advantage of that. We let our occupancy drift down a bit to get a ranch and...

So I feel my thoughts you have now UMorrh....

Hopefully that gives you some guidance. I think in Adam, that compares to our guidance. The mid-point-ever guidance is 6.5% on renewals and 9.5% on new leases. So 7% blended rent 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 the season. That's really good news.

That's really helpful guys. Thanks so much for kind of that color. Let's just maybe switch gears, same store expense growth, six to seven and a half I believe. Just wondering if you could kind of provide any maybe incremental details, right, whether it's kind of property tax expense specifically how much you're kind of budgeting for that, versus maybe kind of everything else, the bucket of everything else.

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, I mean, 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.

That gets you to kind of that 6 to 7.5%. We feel pretty confident about that today. Great. Thanks again for the time, guys.

Thank you. Your next question comes from Alaina, Stephen McLean from BMO Capital Markets. Your line is open. Thank you, morning guys. Hi Steve.

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, single family around JV2 and HomeBuilded Direct.

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 percent and that's really what's kind of holding us back a little bit is because at 60 percent, you know, the cost of leverage is in that kind of high five range, which is what Wesand talked about. So that's why it's probably going to be a slower year.

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 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 spike in rates, you know, that may call into question 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 more amenable.

Yeah, so I'm going to answer a little bit of that. I'm going to give John a chance to talk about how we think about leverage in the context 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 whipsawing 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 it's an 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 and what they really want and certainly from an A-trunch bigger is better. 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've got to pick a window. But that's the kind of environment we're in. John , over to you to talk about why would we...

I guess the question is, you know, why would we buy, would 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. 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 it 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 a vehicle life, and you're going to see as Gary mentioned before, let's say four to five percent and a wide growth every single year. Over time, you certainly get those benefits of leverage. So, you know, going in on an unlever basis, you might expect a nine or 10 percent IRR, but if you're adding, you know.

50% leverage at or around 5.5 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 unlevered 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 AAAs and maybe into some of the lower rated securities. Yeah, the answer to that is yes.

Okay. Thank you very much for taking the questions and look forward to speaking with you soon.

Okay. Thank you very much for taking the questions and look forward to speaking with you, Shen. Thanks, J.

Your next question comes from a line of tell woolly from National Bank Financial. Your line is open. Hi, good morning. Just wanted to start on the fundraising side. 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. Thank you.

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's 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 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 into beds and sheds and a lot of investors are underweighted or have virtually no allocation of single-family rentals. That's going to be intoveruffle.

So that's a tremendous long-term opportunity for our industry and certainly Tricon to be much, much bigger and for us to raise a lot more third-party capital. In the short term, for some pension funds, there is a denominator effect issue. So as the value of equities comes down, they have to adjust the real estate allocation. So for some, there's some short-term pressure.

But for others, they're just underweighted to one real estate and certainly underweighted to 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!

Okay, that's helpful. And then I guess just lastly, a market selection in the single family rental business. Are there markets now where you're kind of like, apacize 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 in Atlanta, we're just in a fraction of the size of where we think the opportunity is. So there's no market right now, or even sub-market within those larger markets where we reach any kind of concentration

Within the markets where we do, I'm sure there are certainly places where we're seeing stronger performance and 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.

We're seeing some softening in particular in Phoenix and Vegas. And 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 slower rent growth there. So we're biasing 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 what they saw as the impact of single-family rental in the city. This is going to be an ongoing question, I'm sure, for the next few years. Are you seeing any—

on property rights actually is detrimental and leads to lower supply and higher rent. 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 a 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 think that's incredibly important as the industry matures. So that's starting to happen. And it's going to protect residents. It's going to make our industry stronger. And really, we have to get the message out there, Tal, that there's a lot of families.

And to be precise, it's about 35% in the US that either can't buy a home because they don't have the 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 neighbourhoods 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. Got it. Thanks for that, Gary, appreciate it. I may just add one piece to that, and that is we have created a government relations arm or group within the company, and we've identified, we've gone through the process of identifying, we're starting to reach out to key local, state, and federal government officials, even media, third party allies, to educate everybody about the benefits of this industry, and especially how we're running our real estate and 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. Great, thank you very much, everyone. Your next question comes from a line of Dean Wilkinson from CIBC. Your line is open. Thanks, afternoon, everybody. I'm a fan. Fantastic. I hope you are too. I don't know if this question is for Gary or it is 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 Joyner is here, so he may want to chime in a little bit on the detail, but I think the short answer Dean is no, we're in very very good shape. The vast vast majority of our costs are locked in.

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 couple more, 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 and using it to grow SFR pay down debt.

Right, makes sense. Get a sense of how much if you were to pencil that project, those projects out today, how much that 2.2 billion could inflate to? In terms of what the value of the gross value the portfolio is, the way I think about, 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 tri-consproportionate shares. We've got about 200 million invested. I think the fair value that's about 250. That's not about right. We think that's going to easily be worth 400, 500. That's pretty significant value creation over time. We're already seeing that on the tailor. The tailor's 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. Great, that's it for me. Thanks, guys. Big day.

Your next question comes from a line of Jonathan Keltcher from TD Callin. Your line is open. Good afternoon. Just on going back to the regulatory front, how much does regulatory risk factor into your your buy box on where you're looking to buy and are there any markets where you're maybe looking to?

of lower exposures to. Across the board, it really doesn't. It's a non-factor. There's a lot of noise around it, and we talked about before that in an environment where home prices and rents are moving up a lot. There's going to be more noise. It's going to ebb and flow. But obviously, in an environment, there's more deflationary of 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...

approving our portfolio and recycling some capital, that would be the one market where we would think about doing it. Yeah, thanks, I agree. This is a market where there are still on-going moratoriums, rental Australians for residents living in the county, making it really difficult. Now, fortunately for us, most people are responsible, they're paying the rent the church paying their research.

There is a small cohort of people taking advantage of it or you're going to wait it out until the more corns end. So it makes it a little bit more difficult to operate here. And so it's a long area as Gary mentioned when we're probably going to hold off on the vaccine anymore and going into the future. So the 400 homes you're looking to sell this year that they'd be sprinkled basically across here portfolio.

No, they'd largely be Southeast Florida and LA County. Okay, and then lastly, just on the corporate overhead, just say you're looking to have that down three cents this year. It's the starting point for that. Does that exclude the 50 million in all tip from 2022?

floor and alley county. Okay and then lastly just just on the corporate overhead just say you're looking to have that down three cents this year what it's the starting point for that does that exclude the 50 million in in all tip 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 made a discussor K1 results. This concludes today's conference call. Thank you for your participation. You may now disconnect.