Tricon Residential Inc. Common Shares

Good day. My name is Karen, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Tricon Residential Third Quarter 2023 Analyst Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. I would now like to hand the conference over to your speaker today, Votek Novak, Managing Director of Capital Markets. Thank you. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us to discuss Tricon's third quarter results for the three months and nine months ended September 30th, 2023, which were 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. This information is subject to risks and uncertainties that may cause actual events or results to differ materially. For more information, please refer to our most recent management discussion and analysis and annual information form, which are available on CDAR, 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 by joining our webcast, or you can access directly through our website. You can find both the webcast registration and the presentation in the investor section of TriconResidential.com under News and Events. With that, I will turn the call over to Gary Berman, President and CEO of Tricon.

Thank you, Wojtek, and good morning, everyone. Before we start, I want to take a moment to thank our exceptional team who play a critical role in the strong results we're presenting to you today. Our team's unwavering dedication to our residents and the communities we serve is fundamental to our culture, and I believe it's one of the key reasons our company continues to perform well quarter after quarter. Let's turn to slide two so 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 6%, NOI margin of 68.5%, occupancy of 97.4%, turnover of 18.8%, and consistently strong blended rank growth of 6.8%. Second, as always, we remain laser focused on driving sustainable long-term shareholder value amidst the volatile capital markets backdrop by recapturing our SFR loss to lease, driving overhead efficiency and advancing our Canadian multifamily developments. Third, we remain disciplined with acquisitions. We acquired 410 homes in the quarter, largely through our capital recycling program, where we're essentially selling at a low 4% cap rate and reinvesting the capital at six caps. I'm also happy to report that we've now substantially completed the investment programs of SFRJV2 and HomeBuilder Direct Joint Ventures and are now gearing up to launch JV3. In terms of guidance, we've maintained our full-year outlook for core FFO per share of $0.55 to $0.58, tightened our same-home NOI growth to 6% to 6.5%, and slightly lowered our full-year acquisitions guidance to 1,850 homes. And finally, we are well positioned to grow with about $60 million of annualized AFFO-less dividends, $433 million of liquidity, and most importantly, strong interest from private institutional capital to invest in SFR. Institutional investors remain enthusiastic about SFR and are increasingly viewing the sector as a core or core plus investment opportunity, which should enable us to raise strategic capital with lower leverage parameters and a higher for longer environment. Turning to slide three, I want to step back for a minute and touch on the compelling fundamentals that underpin our SFR business. While we are clearly operating in a difficult macroeconomic environment at this time, we believe SFR remains one of the most attractive real estate investment opportunities this decade. The story is very simple. Demand for housing is outstripping supply. Demand is being driven by demographics, and right now the millennial demographic cohort is in its prime years of household formation. Millennials represent a larger group than the baby boomers, and they need quality, affordable homes in good neighborhoods as they form their own families. Meanwhile, the supply of new housing is not keeping up with demand. Ever since the great financial crisis, America has been underbuilding homes, and the housing intensity, as measured by housing starts per thousands of persons, remains below prior recessionary levels. As a result of this demand-supply imbalance, homeownership has become less accessible, as shown in slide four. Over the past 20 years, the median price of a home in the U.S. has grown from 3.9 times average household income to a far less affordable 5.2 times average household income today. This increase was mitigated somewhat by ultra-low interest rates over the past few years. but now that's no longer the case as the 30-year mortgage rate has skyrocketed towards 8%. In such a distorted environment for homebuyers, the case for rental is more compelling than ever. In fact, what's astonishing is that owning a single-family starter home today costs $1,000 more per month than renting the same home. This is what makes single-family rental so compelling for many American families. So turning to slide five, it's no wonder that SFR operating fundamentals remain so solid. Some might ask, Why buy when you can rent a professionally managed home for much cheaper? What's interesting is that notwithstanding the turbulent times we are living in, SFR operating performance remains remarkably steady. Key indicators including NOI growth, occupancy, and turnover remain robust and consistent when compared to these same metrics two years ago, when we were emerging from the COVID pandemic and enjoying extremely low interest rate environment. Whereas SFR is steady as she goes, housing affordability has eroded significantly, and the capital markets backdrop has been dismal. The broader U.S. REIT index is down by over 30% in two years, while the U.S. five-year treasury yield has more than quadrupled. In this very dislocated environment, we're doing what we always do, focusing on the things we can control. First on the list is acquisitions. As you can see on slide six, we're being thoughtful with acquisitions and are focusing our efforts on our capital recycling program rather than growing the portfolio. We've been able to sell older homes in less desirable locations at very attractive cap rates near 4%, and recycle the proceeds to acquire newer vintage homes in our core markets that address the growing demand for our renters, require less capex to maintain, and are going in yields of 6%. So far this year, we have sold 533 homes with gross sale proceeds of $191 million, and have in turn acquired 546 homes for a gross investment of $170 million. And by matching dispositions with acquisitions, We expect to save $20 million in tax expenses here through a tax-efficient 1031 exchange program. We remain focused on external growth over the longer term, but won't ramp up acquisitions again until we officially launch our new SFRJV. In a period of slower acquisition growth, we've been able to focus more on the revenue and expense performance of our existing portfolio. A key opportunity in this regard is the embedded loss to lease, which we discussed on slide seven. Our policy of self-governing on renewals coupled with longer resident tenure has resulted in an estimated loss to lease of about 11% across our total proportion portfolio and around 14% in our same home portfolio. Most of that loss to lease is sitting with residents that have been in our homes for three years or more and represents an opportunity of about $40 million in annualized revenue. We haven't captured much of this loss to lease on recent lease tradeouts because these same residents are staying in our homes longer and represent only one-third of our turnover in a given quarter. Our plan to recapture this sizable mark-to-market is to push renewal rent growth, which has been trending up post-pandemic, and to responsibly raise rents above our self-imposed caps in situations where residents have significant loss to lease. We're still being thoughtful in our approach with residents, but are seeking to strike the balance when the delta between existing rent and market rent is large. But more importantly, We believe the loss-to-lease opportunity provides a multi-year runway for sustained rent growth on renewals, which is the key driver of overall revenue and NOI growth for Tricon. Looking at slide 8, I want to point out that the long-term benefits of our resident-friendly approach to revenue management. Over time, our renewals have been below those of our industry peers, but new lease growth has been stronger and turnover has been much lower, resulting in low turnover costs. These factors have combined to produce industry-leading same-home NOI growth over the longer term, which we believe is the crux of what drives sustainable long-term shareholder value. And finally, in thinking about the things we can control, I'd like to share with you on slide nine an update on our Canadian multifamily built-to-core portfolio that continues to evolve and achieve new milestones. I'm delighted to announce that the Taylor achieved stabilized occupancy of over 98% in the quarter and 100% occupancy in October, reflecting its resort quality amenities, exceptional living spaces, and sustainability leadership, among other features. I'm also thrilled to introduce our latest project, the Ivy, which will begin its initial occupancy by the end of the year. And finally, the launch of Maple House continues to be extremely successful, with 30% of the building already pre-leased since launching in Q3. Tricon now has nine projects totaling over 5,000 units in lease-up, pre-construction or active construction, as shown on slide 10. And as this portfolio stabilizes over the next few years, we estimate it will have a gross asset value close to $3.6 billion and annualized NOI of $50 million at Tricon Share, creating a lot of strategic optionality as Canada's premier multifamily portfolio with institutional scale. Moreover, the book value of our stake in this portfolio is expected to double from $0.93 to $1.87 per share upon stabilization, creating meaningful value for all of our shareholders. With that, I'll now turn it over to our CFO with Sam Francis to discuss our financial results.