TORONTO–(BUSINESS WIRE)–Tricon Residential Inc. (NYSE: TCN, TSX: TCN) (“Tricon” or the “Company”), an owner and operator of single-family rental homes and multi-family rental apartments in the United States and Canada, announced today its consolidated financial results for the three months ended March 31, 2022.
All financial information is presented in U.S. dollars unless otherwise indicated.
The Company reported strong operational and financial results in the first quarter, including the following highlights:
- Net income from continuing operations increased by 290% year-over-year to $163.5 million compared to $41.9 million in Q1 2021; diluted earnings per share from continuing operations increased by 181% year-over-year to $0.59 compared to $0.21 per share in Q1 2021;
- Core FFO per share increased by 7.7% to $0.14, reflecting overall Core FFO growth of 32% driven by strong operating fundamentals and continued growth in the single-family rental portfolio, as well as higher fees generated from new Investment Vehicles created over the past year, partially offset by a 26% increase in weighted average diluted shares outstanding stemming largely from Tricon’s U.S. public offering in October 2021;1
- Same home Net Operating Income (“NOI”) for the single-family rental portfolio grew by 11.6% year-over-year and same home NOI margin increased by 0.7% to 67.8%. Same home occupancy increased by 0.7% year-over-year to a record-high of 98.0%, same home turnover hit a record low of 14.7% and blended rent growth was 8.7% (comprised of new lease rent growth of 18.7% and renewal rent growth of 6.3%);
- The Company expanded its single-family rental portfolio by 6.5% (32% year-over-year) during the quarter through the organic acquisition of 1,935 homes at an average price of $347,000 per home (including closing and up-front renovations costs) for a total acquisition cost of $671 million, of which Tricon’s proportionate share was $202 million; and
- Positive trends continued into the second quarter, with same home rent growth of 8.6% in April 2022, including 17.9% growth on new leases and 6.5% growth on renewals, while same home occupancy increased to 98.4% and same home turnover remained low at 14.2%. The steady pace of acquisitions is expected to continue and management is on track to reach its target of 8,000 home acquisitions in 2022.
“After a tremendous 2021 highlighted by significant public and private capital raising, Tricon’s management team focused squarely on growth and operating performance to deliver a solid first quarter of 2022 featuring a 22.6% year-over-year increase in the total proportionate NOI. Our acquisition pace of 1,935 homes during a typically slow quarter puts us firmly on track to reach our goal of acquiring over 8,000 homes this year,” said Gary Berman, President and CEO of Tricon. “Meanwhile, our robust rent growth, record-high occupancy and record-low turnover resulted in 11.6% same home NOI growth. The strength we see in our results heading into Q2 gives us the conviction to increase our same home NOI growth guidance by 50 bps, to a range of 7.5% to 9.5% this year. Importantly, we have been able to accomplish these results while doing what’s right for our residents in today’s supply-constrained housing market. This quarter we continued to voluntarily cap rent increases on renewals for existing residents, and rolled out our pioneering Tricon Vantage program with close to 1,400 residents now enrolled in our Credit Builder program. We are off to a great start in 2022, and I want to thank our employees for their unwavering commitment to serving our residents, and our shareholders for their ongoing support.”
Financial Highlights
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For the three months ended March 31 |
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(in thousands of U.S. dollars, except per share amounts which are in U.S. dollars, unless otherwise indicated) |
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2022 |
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2021 |
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Financial highlights on a consolidated basis |
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Net income from continuing operations, including: |
$ |
163,457 |
$ |
41,904 |
|
|
|
Fair value gain on rental properties |
|
299,572 |
|
112,302 |
|
|
|
|
|
|
||||
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Basic earnings per share attributable to shareholders of Tricon from continuing operations |
|
0.59 |
|
0.21 |
|
|
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Diluted earnings per share attributable to shareholders of Tricon from continuing operations |
|
0.59 |
|
0.21 |
|
|
|
|
|
|
||||
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Net loss from discontinued operations |
|
— |
|
(67,562 |
) |
|
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Basic loss per share attributable to shareholders of Tricon from discontinued operations |
|
— |
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(0.34 |
) |
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Diluted loss per share attributable to shareholders of Tricon from discontinued operations |
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— |
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(0.35 |
) |
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Dividends per share(1) |
$ |
0.058 |
$ |
0.056 |
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Weighted average shares outstanding – basic |
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274,064,375 |
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194,898,627 |
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Weighted average shares outstanding – diluted |
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276,763,567 |
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196,327,468 |
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Non-IFRS(2) measures on a proportionate basis |
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Core funds from operations (“Core FFO”) |
$ |
43,035 |
$ |
32,522 |
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Adjusted funds from operations (“AFFO”) |
|
33,658 |
|
25,817 |
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Core FFO per share(3) |
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0.14 |
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0.13 |
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AFFO per share(3) |
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0.11 |
|
0.10 |
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| (1) Dividends are issued and paid in U.S. dollars. Prior to November 8, 2021, dividends were declared and paid in Canadian dollars; for reporting purposes, amounts recorded in equity were translated to U.S. dollars using the daily exchange rate on the applicable dividend record date. |
| (2) 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” and Appendix A. For definitions of the Company’s Non-IFRS measures, refer to Section 6 of Tricon’s MD&A. |
| (3) 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 was 311,843,796 and 248,103,423 for the three months ended March 31, 2022 and March 31, 2021, respectively. |
Net income from continuing operations in the first quarter of 2022 was $163.5 million compared to $41.9 million in the first quarter of 2021, and included:
- Revenue from single-family rental properties of $138.8 million compared to $99.4 million in the first quarter of 2021, largely as a result of a 32% expansion in the single-family rental portfolio to 31,032 homes and a 9.6% year-over-year increase in average effective monthly rent (from $1,483 to $1,625), partially offset by a 2.5% decrease in occupancy driven by an accelerated pace of acquisition of vacant homes.
- Direct operating expenses of $45.5 million compared to $33.2 million in the first quarter of 2021, primarily driven by the growth of the rental portfolio, higher property tax expenses associated with increasing property values, and elevated repairs and maintenance expenses as a result of an increased number and scope of work orders, and general inflationary pressures reflecting a tighter labor market and rising material costs.
- Revenue from private funds and advisory services of $12.4 million compared to $8.9 million in the first quarter of 2021, largely driven by property management and asset management fees from the U.S. multi-family portfolio after its syndication and the internalization of its property management functions, as well as higher development fees generated from Johnson communities.
- Fair value gain on rental properties of $299.6 million compared to $112.3 million in the first quarter of 2021 attributable to higher home values for the single-family rental portfolio. The appreciation in home prices reflected a number of factors, including strong population and job growth in the U.S. Sun Belt markets and a relatively low supply of existing and new homes for sale.
Core funds from operations (“Core FFO”) for the first quarter of 2022 was $43.0 million, an increase of $10.5 million or 32% compared to $32.5 million in the first quarter of 2021. The increase in Core FFO was driven by significant NOI growth from the single-family rental business and higher fees earned by the Company’s Private Funds and Advisory business from new Investment Vehicles.
Adjusted funds from operations (“AFFO”) for the three months ended March 31, 2022 was $33.7 million, an increase of $7.8 million (30%) from the same period in the prior year. This growth in AFFO was driven by the increase in Core FFO discussed above, partially offset by higher recurring capital expenditures associated with a larger single-family rental portfolio, inflationary cost pressures for both materials and labor, as well as a larger scope of work performed on properties as non-essential repairs and maintenance activities were deferred or foregone in the comparative period due to the pandemic.
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.
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For the three months ended March 31 |
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(in thousands of U.S. dollars, except percentages and homes) |
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2022 |
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2021 |
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Total rental homes managed |
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31,146 |
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23,535 |
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Total proportionate net operating income (NOI)(1) |
$ |
63,291 |
|
$ |
51,627 |
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Total proportionate net operating income (NOI) growth(1) |
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22.6 |
% |
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8.3 |
% |
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Same home net operating income (NOI) margin(1) |
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67.8 |
% |
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67.1 |
% |
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Same home net operating income (NOI) growth(1) |
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11.6 |
% |
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N/A |
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Same home occupancy |
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98.0 |
% |
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97.3 |
% |
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Same home annualized turnover |
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14.7 |
% |
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21.2 |
% |
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Same home average quarterly rent growth – renewal |
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6.3 |
% |
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4.0 |
% |
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Same home average quarterly rent growth – new move-in |
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18.7 |
% |
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12.3 |
% |
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Same home average quarterly rent growth – blended |
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8.7 |
% |
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6.5 |
% |
| (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” 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 $63.3 million for the three months ended March 31, 2022, an increase of $11.7 million or 22.6% compared to the same period in 2021. The favorable variance in NOI was mainly attributable to a $14.7 million or 19.7% increase in rental revenues driven by a 9.6% increase in the average monthly rent ($1,625 in Q1 2022 vs. $1,483 in Q1 2021), growth in the portfolio size (Tricon’s proportionate share of rental homes was 20,253 in Q1 2022 compared to 18,091 in Q1 2021, an increase of 12.0%) as well as a decrease in bad debt expense as collection rates improved. Other revenue also increased by $1.9 million or 63.4% as ancillary services such as smart-home technology and renters insurance were provided to more residents. This favorable change in revenue was partially offset by a $5.0 million or 19.0% increase in direct operating expenses due to incremental costs associated with a larger portfolio of homes, higher property taxes and higher repairs and maintenance expense caused by wage and material price pressures and a deferral of non-essential activities in the same period in 2021 due to the pandemic.
Single-family rental same home NOI growth was 11.6% in the first quarter of 2022, primarily driven by revenue growth of 10.4% reflecting a 7.2% increase in average monthly rent ($1,589 in Q1 2022 compared to $1,482 in Q1 2021) coupled with a 70 basis point improvement in occupancy to a record-high 98.0%, ancillary revenue growth of 31.7% and lower bad debt expense. This favorable growth was partially offset by an 8.1% increase in operating expenses attributable to higher property taxes, higher repairs and maintenance expense as explained above, and additional costs incurred to provide ancillary services to more residents.
Single-Family Rental Investment Activity
The Company continued to expand its single-family rental portfolio through the acquisition of an additional 1,935 homes during the quarter, bringing its total managed portfolio to 31,032 rental homes. The homes were purchased at an average cost per home of $347,000, including up-front renovations, for a total acquisition cost of $671 million, of which Tricon’s share was approximately $202 million. Tricon plans to purchase over 2,000 homes in the second quarter of 2022.
Adjacent Residential Businesses Highlights
Quarterly highlights of the Company’s adjacent residential businesses include:
- Tricon’s share of U.S. multi-family rental NOI was $3.8 million compared to $3.2 million for the same period in 2021, a $0.6 million or 17.5% increase on a same-property basis. The growth in NOI is primarily attributable to a $0.7 million or 12.8% year-over-year increase in revenue driven by a 10.7% year-over-year increase in average monthly rent, aided by a 0.9% year-over-year improvement in occupancy to 95.5%. Total operating expenses moderately increased by $0.2 million to $2.5 million attributable to increased usage and rising prices of third-party contract services, partially offset by a decline in marketing and leasing costs due to stronger leasing demand;
- In the Canadian multi-family business, The Selby experienced a surge in leasing activity, with occupancy increasing 14.3% year-over-year and blended rent growth of 9.4%, resulting in year-over-year NOI growth of 24.2%;
- Across Tricon’s Canadian residential developments portfolio, construction continues to progress on schedule, with the majority of projects under construction being funded by construction loans. Of note, Queen & Ontario and the Canary Landing (West Don Lands) – Block 20 projects are on schedule to begin construction in Q2 2022, and The Taylor and Canary Landing (West Don Lands) – Block 8 projects are on schedule to achieve their first occupancy by the end of 2022;
- The Company and Canada Pension Plan Investment Board (“CPPIB”) successfully closed on their second joint venture investment (“Symington”), a 1.95 acre development site in the Junction, one of Toronto’s character neighborhoods undergoing rapid gentrification. Once complete, the project will be a 17-story, 341-unit rental apartment community; and
- Tricon’s investments in U.S. residential developments generated $11.9 million of distributions to the Company in Q1 2022, including $0.7 million in performance fees.
Change in Net Assets
As at March 31, 2022, Tricon’s net assets grew by $160.2 million to $3.2 billion compared to $3.1 billion as at December 31, 2021. The increase was largely driven by reported net income of $162.3 million for the quarter (including fair value gains of $299.6 million on the single-family rental portfolio or $215.4 million on a proportionate basis). Accordingly, Tricon’s book value (net assets) per common share outstanding also increased by 5% sequentially to $11.77 (C$14.71) as at March 31, 2022 compared to $11.22 (C$14.22) as at December 31, 2021.
Balance Sheet and Liquidity
Tricon’s liquidity consists of a $500 million corporate credit facility with approximately $415 million of undrawn capacity as at March 31, 2022. The Company also had approximately $143 million of unrestricted cash on hand, resulting in total liquidity of $558 million.
As at March 31, 2022, Tricon’s pro-rata net debt (excluding exchangeable instruments) was $2.5 billion, reflecting a pro-rata net debt to assets ratio of 35.7%. For the three months ended March 31, 2022, Tricon’s pro-rata net debt to Adjusted EBITDAre ratio was 8.1x.2
On April 7, 2022, SFR JV-2 closed a new securitization transaction involving the issuance and sale of six classes of fixed-rate pass-through certificates with a face amount of approximately $530 million, a weighted average coupon of 4.32% (including servicing fees) and a term to maturity of five years, secured indirectly by a pool of 2,484 single-family rental homes. The transaction proceeds were used to refinance existing short-term SFR JV-2 debt and net proceeds of $29.9 million were returned to SFR JV-2 to fund future acquisitions of rental properties.
2022 Guidance Update
As a result of the strong operating performance during the first quarter, the Company updated its guidance for the Core FFO per share and same home metrics for the current fiscal year as follows:
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For the year ended December 31 |
Current |
Previous |
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Core FFO per share |
$ |
0.60 |
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– |
$ |
0.64 |
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$ |
0.60 |
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– |
$ |
0.64 |
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Same home revenue growth |
|
7.5 |
% |
|
9.5 |
% |
|
7.0 |
% |
– |
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9.0 |
% |
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Same home expense growth |
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7.0 |
% |
|
9.0 |
% |
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6.5 |
% |
– |
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8.5 |
% |
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Same home NOI growth |
|
7.5 |
% |
|
9.5 |
% |
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7.0 |
% |
– |
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9.0 |
% |
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Single-family rental home acquisitions |
8,000+ |
8,000+ |
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| Note: Non-IFRS measures are presented to illustrate alternative relevant measures to assess the Company’s performance. Refer to the “Non-IFRS Measures” and Section 6 of the Company’s MD&A for definitions. See also the “Forward-Looking Information” section, 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 May 10, 2022, the Board of Directors of the Company declared a dividend of $0.058 per common share in U.S. dollars payable on or after July 15, 2022 to shareholders of record on June 30, 2022.
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, May 11, 2022 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 pm ET on May 11, 2022 until midnight ET on June 11, 2022. 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 months ended March 31, 2022, 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 filed Form 6-K. The financial information therein is presented in U.S. dollars.
The Company has also made available on its website supplemental information for the three months ended March 31, 2022. For more information, visit www.triconresidential.com.
About Tricon Residential Inc.
Tricon Residential Inc. is an owner and operator of a growing portfolio of approximately 39,000 single-family rental homes and multi-family rental apartments in the United States and Canada with a primary focus on the U.S. Sun Belt. Our commitment to enriching the lives of our residents and local communities underpins Tricon’s culture and business philosophy. We strive to continuously improve the resident experience through our technology-enabled operating platform and innovative approach to rental housing. At Tricon Residential, we imagine a world where housing unlocks life’s potential. For more information, visit www.triconresidential.com.
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, anticipated home acquisitions, the single-family rental unit acquisition and development pipeline and the benefits to the Company of such factors. 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 conditions, its business plans, and its prospects. If unknown risks arise, or if any of the assumptions underlying the forward-looking statements prove incorrect, actual results may differ materially from management expectations as projected in such forward-looking statements. Examples of such risks include, but are not limited to the Company’s inability to execute its growth strategies; the impact of changing economic and market conditions, increasing competition and the effect of fluctuations and cycles in the Canadian and U.S. real estate markets; changes in the attitudes, financial condition and demand of the Company’s demographic markets; fluctuation in interest rates and volatility in financial markets; developments and changes in applicable laws and regulations; and the impact of COVID-19 on the operations, business and financial results of the Company. Accordingly, 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 disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.
Certain statements included in this press release, including with respect to 2022 guidance for Core FFO per share and same home metrics, are considered to be financial outlook for purposes of applicable securities laws, and as such, the financial outlook may not be appropriate for purposes other than to understand management’s current expectations relating to the future of the Company, as disclosed in this press release. These forward-looking statements have been approved by management to be made as at the date of this press release. Although the forward-looking statements contained in this press release are based upon what management currently believes to be reasonable assumptions (including in particular the revenue growth, expense growth and portfolio growth assumptions set out herein which themselves are based on, respectively: assumed ancillary revenue growth and continuing favorable market rent growth; increased internalization of maintenance activities and improved management efficiencies accompanying portfolio growth; and the availability of homes meeting the Company’s single-family rental acquisition objectives), there can be no assurance that actual results, performance or achievements will be consistent with these forward-looking statements.
Contacts
Wissam Francis
EVP & Chief Financial Officer
Wojtek Nowak
Managing Director, Capital Markets