Tricon Residential Inc. (NYSE: TCN, TSX: TCN) ("Tricon" or the "Company"), an owner and operator of single-family rental homes in the U.S. Sun Belt and multi-family rental apartments in Canada, announced today its consolidated financial results for the six months ended June 30, 2023.
All financial information is presented in U.S. dollars unless otherwise indicated.
The Company reported strong operational and financial results in the second quarter, including the following highlights:
- Net income from continuing operations was $46.8 million in Q2 2023; basic and diluted earnings per share from continuing operations were $0.17 and $0.16, respectively;
- Core funds from operations ("Core FFO") for Q2 2023 decreased by 17.5% year-over-year to $42.1 million and Core FFO decreased by 12.5% year-over-year to $0.14. Net Operating Income ("NOI") growth of 14.9% was offset by the loss of Core FFO contribution from the U.S. multi-family rental portfolio which was sold in Q4 2022, lower performance fees and higher borrowing costs to support the expansion of the SFR portfolio;1
- Same home NOI growth for the single-family rental portfolio in Q2 2023 was 6.3% year-over-year and same home NOI margin was 68.2%. Same home operating metrics remained strong, including occupancy of 97.5%, annualized turnover of 19.2% and blended rent growth of 7.4% (comprised of new lease rent growth of 9.8% and renewal rent growth of 6.6%);1
- In response to strong resident demand, the Company acquired 805 homes during the quarter at an average price of $326,000 per home (including up-front renovations) for a total acquisition cost of $263 million, of which Tricon's proportionate share was $137 million;
- Positive rent trends continued into the third quarter, with same home rent growth of 7.2% in July 2023, including 8.2% growth on new leases and 6.8% growth on renewals, while same home occupancy was stable at 97.2% and same home turnover was at 21.0%; and
- On July 11, 2023, Tricon closed a new securitization involving the issuance and sale of five classes of fixed-rate pass-through certificates with a face amount of approximately $416 million, a weighted average yield of approximately 5.86% and a term to maturity of five years, secured indirectly by a pool of 2,116 single-family rental homes within SFR-JV2. The transaction proceeds were primarily used to pay down the existing short-term SFR JV-2 variable-rate debt.
"Tricon's solid Q2 reflects our resident-first approach, our focus on operational excellence, and our commitment to providing access to quality rental homes in good neighborhoods as part of the solution to America’s acute housing supply shortage,” said Gary Berman, President and CEO of Tricon. “In Q2 we continued to receive a high volume of applications for our homes and maintained nearly-full same home occupancy of 97.5% while achieving low same home resident turnover of 19.2% and industry leading same home NOI growth of 6.3%. In order to meet this demand for high quality and affordable housing, we continued on our path of responsible growth by acquiring and renovating 805 homes and recently completed a securitization transaction at an attractive cost of financing given the current rate environment."
Gary Berman continued, "As we look ahead to the second half of the year, we expect home prices to remain firm amidst near record low inventory and financing costs to remain elevated. In response to these market conditions, we have decided to moderate our pace of acquisitions to approximately 400 homes per quarter and to complete the investment programs of JV-2 and JV-HD by the end of the year with lower leverage parameters. We continue to see strong demand for our homes, and coupled with our cost containment initiatives, expect to deliver same home NOI growth of 6-7% and Core FFO per share of $0.55 to $0.58 for the full year, consistent with the mid-point of our prior Core FFO expectations.”
Financial Highlights
For the periods ended June 30 | Three months | Six months | ||||||||||
(in thousands of U.S. dollars, except per share amounts which are in U.S. dollars, unless otherwise indicated) | 2023 | 2022 | 2023 | 2022 | ||||||||
Financial highlights on a consolidated basis | ||||||||||||
Net income from continuing operations, including: | $ | 46,768 | $ | 405,604 | $ | 76,169 | $ | 555,728 | ||||
Fair value gain on rental properties | 123,752 | 395,835 | 135,646 | 695,407 | ||||||||
Basic earnings per share attributable to shareholders of Tricon from continuing operations | 0.17 | 1.47 | 0.26 | 2.02 | ||||||||
Diluted earnings per share attributable to shareholders of Tricon from continuing operations | 0.16 | 0.82 | 0.26 | 1.41 | ||||||||
Net income from discontinued operations | — | 11,256 | — | 24,589 | ||||||||
Basic earnings per share attributable to shareholders of Tricon from discontinued operations | — | 0.04 | — | 0.09 | ||||||||
Diluted earnings per share attributable to shareholders of Tricon from discontinued operations | — | 0.03 | — | 0.08 | ||||||||
Dividends per share | $ | 0.058 | $ | 0.058 | $ | 0.116 | $ | 0.116 | ||||
Weighted average shares outstanding - basic | 273,787,761 | 274,598,588 | 273,789,959 | 274,345,001 | ||||||||
Weighted average shares outstanding - diluted | 275,565,254 | 311,913,232 | 275,584,117 | 311,929,796 | ||||||||
Non-IFRS(1) measures on a proportionate basis | ||||||||||||
Core funds from operations ("Core FFO") | $ | 42,053 | $ | 51,009 | $ | 84,209 | $ | 94,044 | ||||
Adjusted funds from operations ("AFFO") | 33,760 | 40,730 | 66,808 | 74,388 | ||||||||
Core FFO per share(2) | 0.14 | 0.16 | 0.27 | 0.30 | ||||||||
AFFO per share(2) | 0.11 | 0.13 | 0.22 | 0.24 | ||||||||
(1) Non-IFRS measures are presented to illustrate alternative relevant measures to assess the Company's performance. For the basis of presentation of the Company’s Non-IFRS measures and reconciliations, refer to the “Non-IFRS Measures” section and Appendix A. For definitions of the Company’s Non-IFRS measures, refer to Section 6 of Tricon's MD&A. | ||||||||||||
(2) Core FFO per share and AFFO per share are calculated using the total number of weighted average potential dilutive shares outstanding, including the assumed exchange of preferred units issued by Tricon PIPE LLC, which were 310,328,235 and 311,929,796, for the three and six months ended June 30, 2023 and 311,913,232 and 311,929,796, for the three and six months ended June 30, 2022, respectively. | ||||||||||||
Net income from continuing operations in the second quarter of 2023 was $46.8 millioncompared to $405.6 million in the second quarter of 2022, and included:
- Fair value gain on rental properties of $123.8 million compared to $395.8 million in the second quarter of 2022, attributable to a moderation in home price appreciation within the single-family rental portfolio given the current climate of higher mortgage rates and economic uncertainty.
- Revenue from single-family rental properties of $197.5 million compared to $155.1 million in the second quarter of 2022, driven primarily by growth of 10.0% in the single-family rental portfolio to 36,767 homes, a 7.3% year-over-year increase in average effective monthly rent (from $1,670 to $1,792) and a 1.0% increase in total portfolio occupancy to 95.6%.
- Direct operating expenses of $65.0 million compared to $50.7 million in the second quarter of 2022, primarily reflecting an expansion in the rental portfolio and higher property tax expenses associated with increasing property value assessments, as well as general cost and labor market inflationary pressures.
- Revenue from strategic capital services (previously reported as Revenue from private funds and advisory services) of $10.8 million compared to $20.4 million in the second quarter of 2022, attributable to lower performance fees earned from the Company's legacy for-sale housing projects, along with lower asset management fees and property management fees earned following the sale of Tricon's remaining interest in the U.S. multi-family rental portfolio in the fourth quarter of 2022.
Net income from continuing operations for the six months ended June 30, 2023 was $76.2 million compared to $555.7 million for the period ended June 30, 2022, and included:
- Fair value gain on rental properties of $135.6 million compared to $695.4 million in the prior year for the same reasons discussed above.
- Revenue from single-family rental properties of $386.0 million and direct operating expenses of $127.1 million compared to $293.9 million and $96.3 million in the prior year, respectively, which translated to a net operating income ("NOI") increase of $61.2 million, attributable to the continued expansion of the single-family rental portfolio and strong rent growth.
- Revenue from strategic capital services of $25.9 million compared to $32.8 million in the prior year, for the reasons discussed above, partially offset by higher Johnson development fees from large commercial land bulk sales in the first quarter of 2023.
Core FFO for the second quarter of 2023 was $42.1 million, a decrease of $9.0 million or 18% compared to $51.0 million in the second quarter of 2022. The change was driven by higher borrowing costs incurred to support the expansion of the SFR portfolio, a loss of NOI and fee income from the disposition of the U.S. multi-family rental portfolio, lower acquisition fees associated with acquiring fewer SFR homes and lower performance fees. These items were partially offset by NOI growth in the SFR business and stronger results from U.S. residential developments. During the six months ended June 30, 2023, Core FFO decreased by $9.8 million or 10% to $84.2 million compared to $94.0 million in the prior period, for the reasons noted above.
AFFO for the three and six months ended June 30, 2023 was $33.8 million and $66.8 million, respectively, a decrease of $7.0 million (17%) and $7.6 million (10%) from the same periods in the prior year. This change in AFFO was driven by the decrease in Core FFO discussed above, partially offset by lower recurring capital expenditures as a result of disciplined cost containment and scoping refinement when turning homes and the absence of recurring capital expenditures from the U.S. multi-family rental portfolio following its sale.
Single-Family Rental Operating Highlights
The measures presented in the table below and throughout this press release are on a proportionate basis, reflecting only the portion attributable to Tricon's shareholders based on the Company's ownership percentage of the underlying entities and excludes the percentage associated with non-controlling and limited partners' interests, unless otherwise stated. A list of these measures, together with a description of the information each measure reflects and the reasons why management believes the measure to be useful or relevant in evaluating the underlying performance of the Company’s businesses, is set out in Section 6 of Tricon's MD&A.
For the periods ended June 30 | Three months | Six months | ||||||||||
(in thousands of U.S. dollars, except percentages and homes) | 2023 | 2022 | 2023 | 2022 | ||||||||
Total rental homes managed | 37,162 | 33,587 | ||||||||||
Total proportionate net operating income (NOI)(1) | $ | 77,198 | $ | 67,187 | $ | 151,800 | $ | 130,478 | ||||
Total proportionate net operating income (NOI) growth(1) | 14.9% | 24.3% | 16.3% | 23.5% | ||||||||
Same home net operating income (NOI) margin(1) | 68.2% | 68.4% | 68.8% | 68.5% | ||||||||
Same home net operating income (NOI) growth(1) | 6.3% | N/A | 6.2% | N/A | ||||||||
Same home occupancy | 97.5% | 98.0% | 97.4% | 97.9% | ||||||||
Same home annualized turnover | 19.2% | 18.9% | 17.7% | 17.5% | ||||||||
Same home average quarterly rent growth - renewal | 6.6% | 6.3% | 6.6% | 6.3% | ||||||||
Same home average quarterly rent growth - new move-in | 9.8% | 18.0% | 10.0% | 17.8% | ||||||||
Same home average quarterly rent growth - blended | 7.4% | 8.4% | 7.3% | 8.4% | ||||||||
(1) Non-IFRS measures are presented to illustrate alternative relevant measures to assess the Company's performance. For the basis of presentation of the Company’s Non-IFRS measures and reconciliations, refer to the “Non-IFRS Measures” section and Appendix A. For definitions of the Company’s Non-IFRS measures, refer to Section 6 of Tricon's MD&A. | ||||||||||||
Single-family rental NOI was $77.2 million for the second quarter of 2023, an increase of $10.0 million or 14.9% compared to the same period in 2022. The growth in NOI was primarily attributable to a $13.6 million or 14.4% increase in rental revenues as a result of a 7.3% increase in the average monthly rent ($1,792 in Q2 2023 vs. $1,670 in Q2 2022) and 3.6% portfolio growth (Tricon's proportionate share of rental homes was 21,656 in Q2 2023 compared to 20,910 in Q2 2022), and a 1% increase in occupancy (95.6% in Q2 2023 compared to 94.6% in Q2 2022). This favorable growth in rental revenue was partially offset by a $3.4 million or 10.6% increase in direct operating expenses reflecting incremental costs associated with a larger portfolio of homes, higher property taxes from increased assessed property values, increased homeowners' association (HOA) dues and higher other direct costs associated with smart-home technology and higher utility rates.
Single-family rental same home NOI growth was 6.3% in the second quarter of 2023, compared to the same period last year. This favorable change was driven by a 6.6% increase in rental revenue as a result of a 6.7% higher average monthly rent ($1,733 in Q2 2023 compared to $1,624 in Q2 2022), an improvement in bad debt (0.9% in Q2 2023 compared to 1.8% in Q2 2022) and slightly lower occupancy (97.5% in Q2 2023 compared to 98.0% in Q2 2022). Same home operating expense increased by 7.2%, attributable to a 9.9% increase in property taxes, partially offset by lower turnover, repairs and maintenance expenses through effective cost containment efforts.
Single-Family Rental Investment Activity
The Company expanded its single-family rental portfolio during the quarter by acquiring 805 homes (247 wholly-owned homes for $81.3 million and 558 homes owned through joint ventures for $181.4 million) bringing its total managed portfolio to 37,162 homes. The homes were purchased at an average cost per home of $326,000, including up-front renovations, for a total acquisition cost of $263 million, of which Tricon's share was approximately $137 million.
During the quarter, Tricon also disposed of 201 homes for a total of $70.1 million (193 wholly-owned homes for $67.7 million and eight homes owned through joint ventures for $2.4 million), at an average price of $349,000 per home. Tricon's proportionate share of dispositions was approximately $68.4 million. Tricon expects to continue disposing of non-core homes as a means of recycling capital towards acquisition of newer homes in its core markets.
Adjacent Residential Businesses Highlights
Quarterly highlights of the Company's adjacent residential businesses include:
- In the Canadian multi-family business, The Selby's occupancy and annualized turnover remained stable at 97.8% and 32.0%, respectively, buoyed by supportive demand fundamentals. Blended rent growth moderated to 7.0% during the quarter, in part driven by a reduction in the number of leases being renewed that had low pandemic-era rents or lease incentives in place. Overall leasing activity remained steady and new-lease rent growth remained robust;
- In Tricon's Canadian residential development portfolio, The Taylor continued to approach lease-up stabilization, with 89% of the building leased at an average monthly rent of C$4.63 per square foot. Construction at The Ivy and Maple House (Block 8) continued to progress, with first occupancy anticipated in the latter half of 2023;
- The City of Toronto selected a joint venture between Tricon and its partner, Kilmer Group, to develop a 29-story, 725-unit purpose-built rental apartment community ("KT Housing Now") in Toronto's Etobicoke City Center neighborhood. This apartment community, which will be built to meet zero-carbon sustainability standards, will offer 70% of its units at market rental rates and 30% at rents set at 80% of the City of Toronto's average monthly rent, adding much- needed affordable housing supply for workforce families. The project is eligible for the Canada Mortgage and Housing Corporation's ("CMHC") Rental Construction Financing Initiative, which provides attractive financing terms to rental housing projects that meet certain affordability criteria; and
- Tricon's investments in U.S. residential developments generated $4.1 million of distributions to the Company in Q2 2023.
Change in Net Assets
Tricon's net assets were $3.8 billion at June 30, 2023, increasing by $44 million when compared to $3.8 billion as at March 31, 2023. Tricon's book value (net assets) per common share outstanding increased by 1% sequentially or 7% year-over-year to $14.09 (C$18.66) as at June 30, 2023.
Balance Sheet and Liquidity
Tricon's liquidity consists of a $500 million corporate credit facility with approximately $342 million of undrawn capacity as at June 30, 2023. The Company also had approximately $120 million of unrestricted cash on hand, resulting in total liquidity of $462 million.
As at June 30, 2023, Tricon’s pro-rata net debt (excluding exchangeable instruments) was $2.8 billion, reflecting a pro-rata net debt to assets ratio of 36.2%. For the three months ended June 30, 2023, Tricon's pro-rata net debt to Adjusted EBITDAre ratio was 8.3x.1
2023 Guidance Update
The Company updated its guidance for the current fiscal year, including tightening the range of expected same home metrics and Core FFO per share, while maintaining the midpoint of Core FFO per share guidance. The Company also updated its acquisitions guidance to reflect a smaller number of homes to be acquired in 2023 but with a similar equity contribution as previously expected, to allow for completion of the investment programs of SFR JV-2 and JV-HD with lower overall leverage parameters.
For the year ended December 31 | Current 2023 Guidance | Previous 2023 Guidance | Update Drivers | ||||
Core FFO per share | $0.55 | - | $0.58 | $0.54 | - | $0.59 | Tightening of prior guidance range to reflect strong operating fundamentals partly offset by lower acquisition fees |
Same home revenue growth | 6.0% | - | 7.0% | 6.0% | - | 7.5% | Tightening of prior guidance range to reflect:
|
Same home expense growth | 6.0% | - | 7.0% | 6.0% | - | 7.5% | |
Same home NOI growth | 6.0% | - | 7.0% | 6.5% | - | 7.5% | |
Single-family rental acquisitions (homes)(1) | ~2,000 | 2,000 | - | 4,000 | Slower pace of acquisitions to allow for completion of JV-2 and JV-HD investment programs with lower leverage parameters | ||
Single-family rental acquisitions ($ in billions)(1) | ~$0.7 | $0.7 | - | $1.4 | |||
(1) Single-family rental acquisition costs include initial purchase price, closing costs and up-front renovation costs. These acquisition home counts and costs are presented on a consolidated basis and Tricon's share represents approximately 30%. | |||||||
Note: Non-IFRS measures are presented to illustrate alternative relevant measures to assess the Company's performance. Refer to the “Non-IFRS Measures” section and Section 6 of the Company's MD&A for definitions. See also the “Forward-Looking Information” section of this press release, as the figures presented above are considered to be “financial outlook” for purposes of applicable securities laws and may not be appropriate for purposes other than to understand management’s current expectations relating to the future of the Company. The reader is cautioned that this information is forward-looking and actual results may vary materially from those reported. Although the Company believes that its anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information. The Company reviews its key assumptions regularly and may change its outlook on a going-forward basis if necessary.
Quarterly Dividend
On August 8, 2023, the Board of Directors of the Company declared a dividend of $0.058 per common share in U.S. dollars payable on or after October 15, 2023 to shareholders of record on September 30, 2023.
Tricon’s dividends are designated as eligible dividends for Canadian tax purposes in accordance with subsection 89(14) of the Income Tax Act (Canada), and any applicable corresponding provincial and territorial legislation. Tricon has a Dividend Reinvestment Plan (“DRIP”) which allows eligible shareholders of the Company to reinvest their cash dividends in additional common shares of the Company. Common shares issued pursuant to the DRIP in connection with the announced dividend will be issued from treasury at a 1% discount from the market price, as defined in the DRIP. Participation in the DRIP is optional and shareholders who do not participate in the plan will continue to receive cash dividends. A complete copy of the DRIP is available in the Investors section of Tricon’s website at www.triconresidential.com.
Conference Call and Webcast
Management will host a conference call at 11 a.m. ET on Wednesday, August 9, 2023 to discuss the Company’s results. Please call (888) 550-5422 or (646) 960-0676 (Conference ID #3699415). The conference call will also be accessible via webcast at www.triconresidential.com (Investors - News & Events). A replay of the call will be available from 2 p.m. ET on August 9, 2023 until midnight ET, on September 9, 2023. To access the replay, call (800) 770-2030 or (647) 362-9199, followed by Conference ID #3699415.
This press release should be read in conjunction with the Company’s Interim Financial Statements and Management’s Discussion and Analysis (the "MD&A") for the three and six months ended June 30, 2023, which are available on Tricon’s website at www.triconresidential.com and have been filed on SEDAR (www.sedar.com) as well as with the SEC as part of the Company’s annual report filed on form 40-F. The financial information therein is presented in U.S. dollars. Shareholders have the ability to receive a hard copy of the complete audited Financial Statements free of charge upon request.
The Company has also made available on its website supplemental information for the three and six months ended June 30, 2023. For more information, visit www.triconresidential.com.
About Tricon Residential Inc.
Tricon Residential Inc. (NYSE: TCN, TSX: TCN) is an owner and operator of a growing portfolio of approximately 37,000 single-family rental homes in the U.S. Sun Belt and multi-family apartments in Canada. Our commitment to enriching the lives of our employees, residents and local communities underpins Tricon’s culture and business philosophy. We provide high-quality rental housing options for families across the United States and Canada through our technology-enabled operating platform and dedicated on-the-ground operating teams. Our development programs are also delivering thousands of new rental homes and apartments as part of our commitment to help solve the housing supply shortage. At Tricon, we imagine a world where housing unlocks life’s potential. For more information, visit www.triconresidential.com.
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Forward-Looking Information
This news release contains forward-looking statements pertaining to expected future events, financial and operating results, and projections of the Company, including statements related to targeted financial performance and leverage; the Company's growth plans; the pace, availability and pricing of anticipated home acquisitions; anticipated rent growth, fee income and other revenue; development plans, costs and timelines; and the impact of such factors on the Company. Such forward-looking information and statements involve risks and uncertainties and are based on management’s current expectations, intentions and assumptions in light of its understanding of relevant current market cond
