Q2 2023 Tricon Residential Inc Earnings Call
Good morning, My name is Sarah and I will be your conference operator today at this time I would like to welcome everyone to the Tracon residential second quarter 2023 analyst conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. 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 simply press Star one again.
And I'd like to hand, the conference over to your speaker today, Wojciech Nowak managing director of capital markets. Thank you. Please go ahead. Thank you operator, good morning, everyone and thank you for joining us to discuss <unk> second quarter results for the three and six months ended June 30th 2023, which worked out 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 that's.
This information is subject to risks and uncertainties that may cause actual events or results to differ materially.
More information please refer to our most recent management's discussion and analysis.
The annual information form which are available on SEDAR, Edgar and our company website.
As well as the supplementary package on our website.
Our remarks also include references to non-GAAP financial measures, which are explained and reconciled in our MD&A.
I would also like to remind everyone that all figures are being quoted in U S dollars unless otherwise stated.
Please note that this call is available by webcast on our website and a replay will be accessible there following the call.
Lastly, please note that during this call we will be referring to a slide presentation that you can follow along by joining our webcast or you can access directly through our website you.
You can find both the webcast registration in the presentation in the investors section of <unk>.
Truck on residential Dot com.
Under news and events.
With that I will turn the call over to Gary Berman, President and CEO of Trigon.
Thank you avoid pack, our very own top gun and good morning, everyone.
During the second quarter, we continued to benefit from exceptional demand for our homes and solid operating performance, which in turn led to strong financial results of our company. These results would not be possible without the efforts of our dedicated employees I want to thank all of you for your commitment to excellence integrity and teamwork in serving our residents and community.
Let's turn to slide two I can share with you our key takeaways for today's call first we delivered another great quarter of operational performance with same home NOI growth of six 3% NOI margin of 68, 3% occupancy of 97, 5%.
Turnover of 19, 2% and consistently strong blended rent growth of seven corporate debt.
Second we remain focused on process improvement and cost containment and successfully reduced our cost to maintain by 5% year over year.
Third we continue to grow responsibly, achieving our target of acquiring 805 homes during the quarter at a high 5% to 6% cap rate.
We also successfully closed the securitization transaction in July at a weighted average yield of five 8%. This represents a relatively attractive cost of financing that is in line with our acquisition cap rate for FSFR homes to the current market environment. The.
The transaction also help to reduce our floating rate exposure and term out our debt maturity profile.
Looking ahead to the second half of the year, we plan to slow acquisition to about 400 homes per quarter in order to complete the investment programs per active joint ventures with lower overall leverage while selectively buying homes at a higher cap rate.
We've also tightened our full year guidance for core as appropriate fair to $55 to 58.
And same home NOI growth of six 7%.
And finally when debt financing conditions do improve we are well positioned to grow faster with about $60 million of annualized <unk> less dividend $462 million of liquidity and most importantly, strong interest from private and institutional and capital investment at the bar.
Turning to slide three let's step back for a minute to put our <unk> business in perspective demand for housing is outstripping supply and with skyrocketing 30 year mortgage rates. The key for rental has never been more compelling.
Owning a single family starter home today costs $1000 more per month than renting the same home, making renting with <unk> on an affordable and attractive opt in for many American families.
We serve the need for rental housing by acquiring single family homes renovating them to a high standard and providing a hassle free lifestyle for our residents.
Our acquisition program in Nash.
And to the demand, we see everyday for accessible housing alternatives.
So, let's now turn to slide four to talk about the acquisition opportunity.
Within our target market prices of homes that meet our buybacks have declined by roughly 4% year over year, while rents have increased by about 1% taken.
Taken together the combination of moderated home prices and slightly higher rents as led to an expansion of cap rates by about 25 basis points compared to last year.
At the same time MLS listing volume in our markets has declined by about 30% compared to last year, given homeowners reluctance to sell and forego their attractively priced in place mortgages.
As a result, the buying opportunity is smaller than it was a year ago, but it's improving seasonally as we get into the summer months list.
Listing volumes have increased by over 90% from December lows, which provides us with ample opportunity to achieve our acquisition targets.
With that being said, we intend to lower pace of acquisitions in the back half of the year to approximately 400 homes per quarter as shown on slide five.
We've made the decision with our joint venture partners to complete the investment programs of JV too and homebuilder direct with overall loan to value target of 55% to 60% rather than 60% to 65% previously.
This means we will buy a fewer homes, but still invest the same amount of equity.
Slowing the pace of acquisitions, we can be even more selective in pursuing high cap rates without sacrificing our home quality or location.
We have seen that the securitization market is much more receptive to debt instrument that feature lower ltvs, which should translate to lower financing rates and better execution as demonstrated by our latest securitization transaction.
Interestingly with this shift towards the lower leverage model and our JV, we are seeing a convergence between private and public markets appetite for leverage which makes our strategic capital model all the more compelling for public shareholders.
Lastly on slide six I'd like to share with you an update on our Canadian multifamily built a core portfolio that continues to evolve and Steve new milestone.
Our latest project. The Taylor was recently awarded development of the year and recognition with resort quality amenities exceptional living spaces and sustainability leadership. Among other features the building is three months ahead of its original leasing schedule, achieving 89% leased up by the ended June with average monthly rents of $4 63.
Canadian per square foot.
<unk> are fully stabilized building is also performing very well with blended rent growth of 7% this quarter and occupancy of 97, 8%.
I'm also delighted to announce that our latest project with proactive product much needed housing supply both market rate and affordable apartments.
Steve chronic selected <unk> and our partner <unk> group to develop and operate at 725 unit purpose built rental apartment community in Toronto, The Towboat Citycenter neighborhood, which will include 30% affordable unit.
<unk> now has nine projects totaling 5000 plus units in Preconstruction for active construction.
As this portfolio stabilizes over the next few years, we estimate it will have a gross asset value close to $3 2 billion Canadian creating a lot of strategic optionality for Triton. Moreover, the book value of our taken as portfolio is expected to double from 94 to $1 90 per share upon stabilization over the next three or so years.
Creating meaningful value for our shareholders.
With that I'll now turn it over to our CFO with Sam Francis discussed our financial results.
Thank you Gary and good morning, everyone. We delivered another solid quarter of financial results and I want to thank a world class team will continue to focus on process improvement and cost containment across our business, while delivering an exceptional resident experience day in and day out.
Let's kick things off with a review of our key financial metrics on slide seven.
Net income from continued operation was $47 million compared to $406 million last year, which.
Which include $124 million of fair value gains on rental properties against the very strong comp of $396 million last year as home price depreciation has moderated in recent months.
Core <unk> per share was <unk> 14 ton down <unk> <unk> year over year.
<unk> was 11 also down <unk> <unk> from last year, but still providing us with ample cushion to support our quarterly dividend with an <unk> payout ratio of 47%.
Lastly, our <unk> book value stands at $14 nine.
Or $18 64 times in Canadian dollars up almost 7% year over year.
I will note that our book value does not factor in the value of our strategic couple of fifth grade.
Let's move to slide eight and talk about the drivers that contributed to our <unk>.
The year over year decrease of <unk> can be attributed to strong NOI growth in the <unk> portfolio being offset by higher borrowing costs.
Lower performance fees.
And in <unk>, the core <unk> from the U S multifamily portfolio, which was sold in Q4 2022.
Specifically.
Our single family rental portfolio contributed three tenths of incremental <unk>, reflecting NOI growth of 14, 9%.
This was driven by a seven 3% increase in average Brent, 1% higher occupancy and three 6% increase in proportionate rental Hong Kong.
<unk> from fees.
<unk> <unk> negative impact, primarily driven by lower performance fees from the legacy residential development businesses.
A reduction in acquisition fee as a result of fewer at the par acquisition as well as a decrease in property management fees. Following the sale of the U S multifamily portfolio.
Our adjacent businesses added one reflecting strong results in residential development as housing fundamentals remain robust.
This was partially offset by lower <unk> following the sale of the U S multifamily portfolio.
I do want to highlight that both our U S residential development business and our Johnson business are a great read through into the overall housing market and from what we can see housing demand is holding up exceptionally well.
Interest expense was up three.
As we have a higher debt balance to support the growth of our single family rental portfolio, along with higher average interest rates.
Meanwhile, on corporate overhead tax and other items. There was a one time positive impact because of lower compensation related expenses and a favorable tax recovery offset by higher DNA.
Let's turn to slide nine to talk about proportional debt profile.
We have been very proactive with addressing our near term debt maturities as we said we would.
I am pleased to report that as of today, we have repaid or extended all remaining 2023 maturity.
This includes the <unk> joint venture to subscription line, which was used to fund acquisition.
We have fully repaid by calling JV capital commitment.
As well as a bank term loan with an extension option that we have exercise in order to extend this loan by another year.
Subsequent to quarter end, we also used the proceeds of our latest securitization to repay the $124 million of floating rate debt that was temporarily used to fund acquisitions within as of <unk> <unk>.
We extended this maturity out to 2028.
Although I will dive more into the transaction on slide 10 on July 11th we closed a $416 million to <unk> transaction at 586% interest rate, which is an attractive cost of financing and in line with our acquisition cap rate for single family rental homes.
The securitization generated strong demand from 26 investors, which included four new investors to try com and was three five times subscribed.
A key reason behind the strong demand and attractive pricing was the loan to value of 57%, which is relatively low compared to our prior offerings and underscore our fifth towards a lower leverage model with our JV partners.
Of note. The proceeds of this transaction helped to reduce our floating rate debt exposure by an additional 300 basis points from 29% in Q2 to 26% of total debt on a pro forma basis.
Let's move to slide 11 to discuss our capital allocation plan for the rest of the year.
Over the remaining two quarters, we plan to allocate capital towards the acquisition of around 800 homes.
This represents a $125 million investment for <unk> Com and will include 500 homes for the joint ventures, and 300 on balance sheet homes as part of our capital recycling program to replace older noncore homes and less attractive market.
With newer and higher quality homes in our core markets that our residents can enjoy.
We are finding that we can dispose of homes at mid four cap and reinvest the proceeds into those homes at a high five to six cap, which makes for a compelling opportunity to recycle capital, while maintaining a stable balance sheet portfolio.
The acquisition program will be fully funded with a total of $130 million from operating cash flow and non core dispositions.
Note that we also have available liquidity of $462 million on top of all this.
I'll end here with slide 12 to note that we have updated our 2023 guidance this quarter.
This reflects a slower pace of acquisition.
And tightening of the expected range of our same home metrics.
This leaves to attaining the core <unk> per share and maintaining the midpoint of <unk> per share guidance.
Either guidance for same home metrics reflect a continued trend of low resident turnover, which lead to slightly lower rent growth as well as lower ancillary revenue such as early lease termination fees.
On the flip side, we benefit from lower turnover expenses and are finding success in reducing our controllable expenses.
This was partly offset by continued pressure on non controllable expenses, such as property taxes insurance and HOA.
In terms of our core <unk> per share guidance the midpoint remains unchanged.
Bringing up the lower end of the guidance is driven by strong <unk> and Brookdale housing fundamentals underpinning both U S residential development in our Johnson land development business.
The tightening on the upper end of the range to reflect the lower acquisition expectations.
By reducing our acquisition pace down to 2000 homes versus the prior midpoint of 3000 homes.
As we head into the second half of the year, we remain laser focused on cost control balance sheet flexibility and prudent capital allocation, while keeping an emphasis on creating the best resident experience possible.
And now to give you more insight into our same home metrics I'll turn the call over to the man who had me at Hullo, Our Chief operating officer, Kevin Ball grid.
Thank you with them and good morning, everyone I want to start today by recognizing the incredible effort of our operations and customer service teams, who delivered another exceptional quarter I continue to be blown away by our team's unwavering commitment to resident service and operational excellence and how they.
Raising the bar.
Let's move to slide 13 to talk about the drivers of our same home NOI growth of six <unk>.
3% for the quarter.
The top line revenue growth was driven by a six 7% increase in average monthly rent that was partially offset by a 50 basis point decrease in occupancy as we shifted slightly towards our rent growth bias into the spring.
Our rent growth remained healthy with blended rents increasing seven 4% during the quarter underpinned by nine 8% growth on new move ins and six 6% on renewals.
Our renewals reflect our policy of the self governing with typically maintained rent growth below market levels for existing residents, helping them stay in their homes longer and as a byproduct keep our turnover low.
As we moved into July we saw sustained levels of demand and rent growth coming in at a healthy eight 2% on new leases six 8% of renewals and seven 2% on a blended basis.
Our bad debt expense, which is embedded in the revenue number has continued to inch down due to successful collection effort and is now near our pre pandemic levels at 0.9% versus one 8% in Q2 of last year.
Finally, other revenue decreased by seven 8% from last year. This was driven by lower late fees as our collection efforts have improved coupled with more conservative provisioning for resident recoveries to reflect actual collection rather than build amounts. This was partially offset by revenues earned from the <unk>.
<unk> and enhanced our resident experience.
Like smart home and renters insurance with the increased.
<unk> adoption year over year.
Over time, we do see a path to increasing other revenue as we continue to focus on rolling out additional services that add value to our resident experience.
Let's now turn to slide 14 to discuss the same home expense growth of seven 2%.
Horizon expenses was driven by property taxes, which were up nine 9% from last year, reflecting meaningful home price depreciation in our markets, we expect property taxes to be up around 10% for the full year, and possibly higher which is above our original forecast of 8% to 9%.
This forecast is based on assessments that have come in for key markets, including Texas, and Atlanta, which together represent 50% of our same home tax bill.
In Texas, we feel good about the prospect of capturing some relief on millage rates.
But Atlanta is unknown at this time.
If we do achieve relief on millage rates, we could end up at the low end of our expense guidance for the year.
Moving to other expenses repair and maintenance expense was down this quarter by three 9% and.
In addition to experiencing a lower volume of work orders than in the comparable period, we drove cost savings by managing scope undertaking more work orders in house and achieving price reductions on numerous materials enterprise book.
Turnover expenses are also down due to cost containment initiatives, such as focusing on repairs versus replacement.
Compressing the delegation of authority to put more eyes on scope, including increasing centralized reviews of larger jobs.
Next homeowners association costs increased by 36%, reflecting and placed in an HOA dues as well as a heightened level of violations imposed by HOA is coming out of the pandemic, which drove higher penalties.
And finally other direct expenses increased primarily from our monthly cost of providing same home technology to more residents and increase in utility costs.
With this I wanted to walk through our proactive approach to managing cost maintained on slide 15.
I am pleased to report that we achieved a 5% reduction in cost to maintain year over year.
While continuing to deliver an outstanding resident experience with an industry, leading Google score of four six stars.
We really think of three main areas of savings first our natural procurement program, where we focused on negotiating price reductions on materials to help offset inflationary pressures.
Next our scope management, where we actively refine and manage work scope, we aimed to repair versus replace where were possible and we focused on the 80 20 rule driving down the cost of the top 20% of turns that account for about 80% of the total cost.
And finally, our internalization efforts, whereby we use our in house team to undertake a higher number of work orders versus using outside vendors.
We have about 75% of our work or completed in house and are on track towards our goal of 80% by the end of the year.
Our <unk> cost per work order is about $400 or 45% cheaper than using a vendor for similar kinds of work.
Not only are we reducing the cost to maintain but we are also seeing a stabilization in the mix between capitalized and expense items.
Call that over the past few quarters, we have seen a higher mix of capex compared to the prior year.
Given the more extensive work required to turn and maintain homes.
Was driven by longer average resident tenure and people spending 24 hours a day in their homes during the pandemic, which created more wear and tear.
We are now lapping those comps and so the mix of Capex versus opex should be less of a driver of expense variance going forward.
Turning to slide 16, Im thrilled to give an update today on crank on vantage and the amazing progress we've made controlling out this novel industry leading program we.
We are really walking to walk on this one.
Strike on vantage as a cornerstone program aimed at providing our U S residents with a suite of tools to set financial goals and enhance the long term economic stability.
Since launching just over a year ago, we have made some exciting progress in every aspect of the program.
A few highlights include our financial literacy program, where we offer free access to workshops coating and other resources.
To help residents achieve their financial goals.
One thing we have provided over 263, one on one coaching sessions.
Our credit builder program, which has already helped over 'twenty 100 residents improve their credit score by an average of 53 point.
And finally, our down payment assistance program.
Does awarded 11 residents a cash grant of up to $5000.
Towards the purchase of their very own homes.
All in all of these programs are meaningful and impactful to our residents.
<unk>, we are a housing provider that puts our resident first.
And their wellbeing is at the core of how we operate.
Now I will turn the call back to Gary for closing remarks.
Thank you, Kevin and closing it was a solid quarter and I want to acknowledge all of the outstanding efforts of our World class operations team, who continued to deliver unmatched resident experience while containing cost.
As we head into the second half of the year. We're excited for what's ahead as demand remains extremely strong for professionally managed homes I will now pass the call back to the operator to take questions with that Kevin and I will also be joined by John <unk>, Andy Carmody, Andrew Joyner to answer your question.
Thank you at this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.
One question one follow up.
Per analyst limit. Please we'll pause for just a moment to compile the Q&A roster.
Yeah.
Your first question comes from the line of Eric Wolfe with Citi. Your line is open.
Hey, Thanks for taking my questions.
It looks like Youre expecting seven 3% same store revenue growth in the back half and I'm just trying to understand why same store revenue would accelerate from the $6. Six you did in the second quarter. So can you just help us bridge that.
So the question is from what six 6% Youre, saying in the first half to seven 3%.
Well I think you had five seven in the first half. So just the math would say on a year to get to $6 five mid point you need 73.
In the back half that you put up $6 six.
In the second quarter and you show your drivers here lower occupancy lower other revenue.
So I guess I'm trying to understand what changes in the back half of the year to kind of see that acceleration from the six 6% in the second quarter to seven 3% on that yes, yes, yes.
Okay, I understand higher so I think one key thing is clearly bad debt write about the bad debt is stabilizing and I think we see that as really being a tailwind as we as we get into the second half of the year. Our collections through 30 days now are very close to where they were pre <unk>.
<unk> at 60 days, I would say, they're at or even better than pre pandemic. So we've made significant progress on bad debt.
And that will act as a tailwind as we get into the second half of the year.
If you look at kind of where we were in 2022 bad debt was as high as 2%.
This quarter it was 1% we're expecting it to be in the low ones, but again that provides some of the difference and I think the tailwind in the second half.
Okay.
And then I know you've been asked this question in the past, but the 8% new lease you saw in July again, why that would be lower than your 15% Mark to market. If it's mainly driven by units mark to market last year, So youre not youre not getting into some of those longer <unk> residents, but I guess I would also think that if you look at those longer duration tenants.
You know that the mark to market would have to be continuing to grow there. So maybe you could just tell us for that call it 80% of tenants that arent turning over.
How long are they staying on average how has that changed and what is the mark to market is just continuing to build there.
Will the loss to lease in the portfolio is 15% so it's staying pretty.
Constant at the same time, we're renewing close to 7%. So I think we think that that's really positive.
But I think.
You should never look at one month, I think that makes a trend.
Right because it really comes down to what the mix of the residents that are turning and in July we had a majority of those residents turning with tenors less than 24 months and we don't have the same loss to lease on let's say tenders under 24 months. So thats why youre really seeing a new lease growth only at about 8%.
And it's going to vary really from month to month, but what hasnt changed is the loss to lease and so we continue to feel confident about new new lease growth and that kind of 8% to 10% range, but it might be closer to eight again.
Again, depending on the mix.
Yeah.
Your next question comes from the line of Handel St. Just with Mizuho. Your line is open.
Hey, good morning team.
Alright.
Hey, there.
So maybe more on the decision to slow the home buying here in the past I know you've talked about.
The cap rates are cost of capital, even with the tight spread being good enough to hit the target IRR for your JV partners today.
Today's call, you're clearly changing the messaging a bit here slowing the pace wanting higher cap rate. So can you talk a bit more about the the shift why the shift now and where cap rates and IRS would need to be for you to be a bit more.
Thanks.
Yes, yes for sure I mean look we're just trying to be cautious I mean, we're operating in a very volatile environment, where interest rates in the benchmark rates are really oscillating pretty significantly from kind of week to week or quarter to quarter right. So what we really don't like is negative leverage we're allergic to negative leverage we want to make sure that we can.
Buy at cap rates that are at or above where we can finance and obviously, what we've seen in the last few weeks as those benchmark rates have moved up since we did the last securitization, which was extremely successful so to the extent that changes.
Then we are in a position again to go faster.
And I think the other decision that we've really made with our joint venture partners is let's complete the investment programs for both JV too and homebuilder direct but let's do it with lower leverage lower leverage parameters. We put the same amount of equity out we obviously buy less homes, but we do it with less leverage we think that makes sense because you really don't get paid to take on leverage above 60% today.
We're seeing one of our private peers to securitization at 72% and the cost of that incremental debt from 60 to 72 was closer to 10%. We just don't think that makes sense.
So really at the end of the day, we want to keep the leverage from what we can see today at or below 60% and then and in doing so it makes sense to go slower, but I think I think the good news handle is that we're on track to complete the investment program for both by the end of the year.
We think we're going to have still very solid returns and those funds are investment partners are very happy with the progress, we're making they're very supportive of a new fund and re upping.
And so as soon as it makes sense to go faster I can assure you we will be going faster.
I appreciate the color there and unsecured <unk> since you mentioned it had a follow up on that front.
Talk a bit more about the decision to do a five year term here versus maybe longer term and potential appetite for more than what you're seeing in the market. Obviously, you're looking at that piece of securitization debt maturing next year and wondering.
Whats the plan I'm, assuming another securitization, but maybe some comments around the market what youre seeing in a decision to do shorter securitization universal locally. Thank you.
Yes, no problem. Thanks for thanks for the question.
The reason why we did that specific securitization as it was related to JV too and we have to time to securitization to the maturity of the joint venture. So the five years. The most we could have done in that specific case, because it just timing maturity.
Our own securitization potential transactions I know, we have 2017 Dodge two maturing early next year, we would look to do longer than that obviously because that is all balance sheet homes, and therefore, we would potentially be looking at longer term maturities.
The idea is also spreading our maturity schedule and really moving stuff subsea.
Subsequent to 2028 and moving stuff over to there we don't want any maturity in a single year. So obviously, we're going to be focused on that.
But for the joint ventures, yet coupled with the timing of the joint venture.
Your next question comes from the line of Brad Heffern with RBC capital markets. Your line is open.
Hey, Thank you good morning, everybody. Another question on the guidance this quarter, both the acquisition and the NOI guidance moved lower it didn't look like any other guidance items that you provided would've provided a tailwind. So I'm curious what the offset was to those two items that kept the midpoint of the guidance from decreasing.
So youre, asking where that where the tailwind.
Well I mean, I think I mean on the expense side, we're doing a great job controlling costs right. So we really we really expect at this point for controllable expenses to be roughly flat year over year, which is a really pretty incredible year I think given the environment. We're in so we feel really really good about that.
Focusing on what we can control the lower turnover has been persistently lower and that might sound negative. It is actually a real positive because if we can keep our residents in our homes for longer that's really what we want to do but that lower turnover, obviously means lower expenses. It means lower revenue too, but it does mean lower expenses and I think those are those are the <unk>.
<unk> I think the question really at the end of the day and I think the major factor, which will determine how we do on the same home NOI is property tax rate, that's obviously, 50% of our expense.
In Q2, we exceed 10% to really hit the lower end of the expense range, we needed to be at about 10% for the year.
If it's going to be 11, or 11, 5%, which is possible then.
We're going to be at the higher end of the of the expense range right. So that's really the question.
We're trying to be conservative there thats. Another reason why I think we've tightened the guidance because we have some concern.
Based on the assessments, we've seen to date that the property taxes could be higher than 10% and we know we're going to get relief in taxes on millage rates.
We're hoping we get relief in some of the other markets, but until we get that relief. We don't know right. So it's just rather we'd be a little bit more conservative.
Yes, Brad if I can add a little bit I think what youre asking is why do we bring up the low end of <unk> guidance and what might be helping us. Another thing to note is the for sale housing business is doing tremendously well. We went into this year thinking we were going to have a housing recession caused by high interest rates that hasnt happened. So for sale housing is doing well Johnson is doing.
You can see that in the numbers and we expect that to continue to be a tailwind.
Okay got it thanks for that.
And then on the next JV use can you just talk about how those conversations have been going and should we also read this lower leverage strategy into what's likely to happen with those.
Yes, I mean, the conversations have been really positive.
All of our existing partners are excited about their investments.
We're under allocated I think single family rental.
They see it as a kind of core part of their portfolio going forward. So I think we feel great about our partners re upping and creating a new fund.
We expect to be able to launch that by the end of this year or maybe early into next year and I think on leverage.
I think that remains to be seen but I think if we're in the current environment, Yes, we're more likely to have leverage parameters at 60% or lower as opposed to 60 or 65% and we're fine with that I mean, we've always said, we're agnostic to leverage.
If it makes sense to use lower leverage in the funds, we will do that and obviously, we like it from a public market perspective, because it creates more conversions with the with the leverage metrics.
Your next question comes from the line of Adam Kramer with Morgan Stanley . Your line is open.
Hey, yeah. Thanks for the time guys just wanted to ask about insurance expense.
I guess more.
Typically around kind of your insurance renewal for 2023, just remind us kind of when that was how much of a premium one off and then also if you adjusted your kind of your coverage levels deductible as well.
Adam I'm going to pass it on it Kevin.
Sure. Thank you Adam.
Our insurance at the end of the year December one is when we did it for 2023, we think it gives us a little bit more visibility by that time the.
The hurricane season is behind US there is a lot more things that are there are known I think it helps us a little bit with.
With our costs.
Compared to others and we did in fact, we did adjust our deductible a bit.
Which helped.
And then we brought down a little bit.
All through the assurance was brought down to compensate for that.
I think one of the reasons, we've done well so far.
We are very proactive in our communications with our insurance companies, especially during weather events, we were on the phone early and often.
We also brought them into our offices, we toured them around.
How we engage technology, how we go through all of our processes. We're also we're buying newer homes for our own portfolio.
And have put water sensors and so all of those things are really helping I think with our pricing.
We've found that half of the increase was due to home values going up and the other half due to rate increases.
Got it that's really helpful. And then just I guess it ties a little bit back to <unk> kind of initial question, but just thinking about.
So you gave us some with central revenue drivers and I guess, specifically double clicking on bad debt.
Wondering kind of what it looks like it kind of moves a lot year over year, I think it moved quarter to quarter.
For the quarter as well and I think part of that may be driven from the kind of rental assistance that you received a year ago.
120 to 122.
<unk> to 'twenty, two maybe just remind us if you have those numbers handy the rental assistance.
And $1 22, and <unk> 22, just so we can kind of get a better sense for kind of a year over year comp on bad debt.
Yes, so Adam first of all I think on bad debt I mean, we only got about 500000 rental assistance this quarter and I think we got about $3 million in the previous period. So that's a big difference and that's the thing I just caution you on Im looking at some of the comps not just for us, but the peers. It's really noisy when you go back and look at the pandemic because.
The amount of rental assistance that was received and it can really differ from quarter to quarter and then there might've been different approaches to collection processes during that time too. So I think we're now getting to a point, where we're starting to see a stabilization and I talked about that earlier in terms of kind of looking at delinquency after 30, or 60 days or how much rent. We collect so I think we're in a really I think we're in a really good spot but.
Thats, explaining I think some of the noise.
In bad debt and again I think the overall message is collections are going back to normal.
And so we're able to pay and rental assistance is burning off.
Which is again, creating noise in the comp, but overall, we're in really good shape. One other thing I would just tell you on insurance so insurance.
Is up 12% in our same home.
But it's only up about 10% on the total portfolio and a difference just in the same home as we've got a little more exposure to Texas and California. So that just to complete the answer to your last question.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from the line of Keegan call with Wolfe Research. Your line is open.
Yes. Thanks for the time guys. So first one here just what was the blended rate increase <unk> for August and how should we think about your trajectory of blend blended spreads throughout the balance of the year.
Hey, Kevin you want to take that.
Sure, Yes, we're looking.
Much like July is we're keeping the same level that we're in July we're really looking at kind of high high single digits for new leases.
We're trending towards that six 9% to 7% on renewables going forward that will probably fall off a little bit as we get into the winter, but for the next couple of months, we're going to be in the same same range.
Got it that's fair yes.
I'll just add to that I think turnover on turnover, we're looking at probably about 20% for the year. Its obviously ticked up a little bit in July .
But that 20% is kind of lower than where we thought it would be we thought it'd probably be between 20 and 25%.
That's really driving the blended rent spreads to be closer to seven or in the low sevens.
Yes, and also an assurance on rates.
Our demand is still really strong our leads per available home or per marketed home. We're up over what we were pre pandemic on a quarter to quarter, we're up over 30% in leads per available home and that remained in the July and we're seeing the same strength into August so demand is super strong.
Uphold our occupancies and rent growth.
Got it and then on the speaking of demand and just kind of curious what sort of level of financial health are you seeing your new applicant.
New applicants and how does that compare to a year ago.
I'm sorry, Kevin over to you talking about the demographics like the financial health of our residents.
Yes, no your new applicant specifically the people that are applying now sort of where does where does the rent coverage ratio stood at and how does that compare to a year ago.
Interestingly the rent coverages remains static its at 23% rent to income.
On the left.
The household income has grown as rents have grown.
Same ratio, so where we are like 90 596000 on average on the portfolio in the last couple of months.
<unk> seen applicants out of 100000 per.
For household so they're there.
<unk> increased by.
<unk> scores have also increase where the average is around 650 654 were in the 670 672 for the current applicants. So we see strength continuing strengthening in the applicant pool.
Okay.
Your next question comes from the line of Jade Rahmani with <unk>. Your line is open.
Hi, This is Jason <unk> on for Jade with.
With respect to third party equity under management in your view what areas will drive terms over the coming years.
What will drive the growth in third party capital strategic capital Yes.
Over the next year.
Yes, I mean, it's going to come from the launch of JV III right. So we feel really good about that as I talked about in previous Q&A.
Started having conversations with our existing investors.
They've all given us positive signs or indicators that they'd like to re up.
And so we're really anticipating a launch that fund at the end of this year early next year, and obviously that will drive.
A fairly meaningful increase and in the third party AUM.
Got it got it thank you and Rick.
<unk> to the ancillary businesses.
Are you seeing any acceleration in what could drive a decision to potentially monetize earlier.
Well the for sale housing business.
<unk> is being monetized naturally as we sell lots and homes and that business is going exceptionally well we talked about how we were worried about that coming into the year.
But the business is doing better than we than we thought and it's certainly providing a tailwind to our core <unk> earnings. So we feel great about that we had really strong contribution from this quarter.
And that's just going to naturally wind down over the next few years as we just liquidate the remaining portfolio, but we only have it if you look at the for sale housing business, we probably only have about 90 or $100 million left on balance sheet.
So that is just winding down.
The other business being our Canadian multifamily is also doing exceptionally well we talked about some of the operating parameters at the Salve in the Taylor.
We're hitting all the development milestones in the construction projects. So we think within the next few years, we're going to have a significant.
Portfolio thats going to be unique very valuable and stabilized and I think there is an opportunity at that point to consider different options I don't know what those are going to be.
But I will tell you that if we wanted to lift it or do or monetize that we would have that opportunity. We just remain confident that we know we're going to create a real a lot of value and harnessing that portfolio, one way or the other.
Yeah.
Your next question comes from the line of Jonathan Culture with TD Securities. Your line is open.
Thanks, Good morning first question.
You guys seem to be more active in terms of buying homes on your own balance sheet for both this quarter and your guidance for the rest of the year, maybe you could give us a little bit of color on that.
Yes, Hi, John Yeah for sure I mean look we've gone a little more leeway from our partners too.
To buy homes on the balance sheet, because we are disposing homes that are wholly owned right and we think it's just a great use of capital right now to sell homes wholly owned homes, where we can sell those at low four mid four cap rates and then take that capital and replace it and recycle it into homes that are closer to a six cap. So that's essentially what we're doing.
We are also high grading the portfolio.
As we do that because we're exiting southern California in southeast, Florida, where we have an older portfolio of those homes have a higher capex burden and we're able to rotate that capital back into other areas in the country.
That are with newer homes and lower Capex. So we think it makes a ton of sense, we're going to continue that in the second half of year. That's why we're saying of the 800 homes roughly 300.
Those acquisitions are going to be wholly owned.
Largely be funded by dispositions.
If I could just add to that Jonathan as well as part of the disposition proceeds also we benefit from the 1031 exchange.
We could use the we can save on the taxes on the wholly owned portfolio of homes that we sold so we could take that and put it in new homes as well.
Okay. That's helpful. And then just secondly on the on the Taylor.
I guess, you're leasing it up at around $4 63, a square foot is that is that market rent or are you going a little bit under just to get the building bullet.
So renewals next year.
I would say that slightly under market.
Because obviously when youre doing when youre doing a lease up and we are using some concessions were using up to four weeks.
But I would say markets, probably closer to four and three quarters or $5 in that in that location. So it's a little bit low.
So we're building a little bit of loss to lease in there, but I think over time, we'll capture that.
There are no further questions at this time I will turn the call back over to Gary Berman, President and CEO of Tracon residential. Thank you operator, I would now like to thank all of you on the call for your participation. We look forward to speaking with you again in November to discuss our Q3 results.
This concludes today's conference call. Thank you for joining you may now disconnect your lines.
Okay.
Yeah.