Tricon Residential Inc.

Thank you, Theresa. Good morning, everyone, and thank you for joining us to discuss Tricon’s second quarter results for the three and six months ended June 30, 2021, 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’s discussion and analysis and annual information form, which are available on SEDAR and our company website. Our remarks also include references to non-GAAP financial measures, which are explained and reconciled in the 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 at 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 supplementary presentation that you can view by joining our webcast or you can access directly through our website.

This will be a useful tool to help you follow along during the call. You can find both the webcast registration and the presentation in the investors section of triconresidential.com under News & Events.

With that, I will turn the call over to Gary Berman, President and CEO of Tricon.

Thank you, Wojtek, and good morning, everyone. We appreciate you joining us today.

Tricon’s momentum continued in the second quarter, strong demand trends coupled with excellent operating performance with the solid financial results for our company. I want to start by thanking our dedicated team members who continue to raise the bar quarter-after-quarter and how we perform and serve our residents.

We’ve had an incredibly productive year-to-date and none of it would have been possible without the dedication and passion that our team brings toward every day. For those listening in, please know, I’m extremely proud of your efforts and what we’re all accomplishing together.

Let’s start on Slide 2 and talk about the key takeaways we want to emphasize for you today. First, our businesses benefiting from long-term tailwinds that support our Sun Belt middle-market rental strategy.

Americans are choosing to live in the Sun Belt because of superior job growth, better weather, lower taxes, more affordable living options and now a heightened preference for space brought upon by the pandemic. And our rental homes address the housing needs of America’s largest demographic the millennials.

Second are core single-family rental business continues to deliver solid operating performance with exceptional demand trends and low supply of available homes. It’s clear that our single-family rental business is booming.

Third, we achieved a record pace of acquisitions this quarter with 1,504 single-family rental homes acquired primarily through organic resale channels. And we expect volumes to accelerate further into Q3.

Third pace of acquisition should silence any questions or concerns about our ability to invest in what is admittedly a very competitive housing market. Fourth, our growth initiatives are supported by $2 billion of third-party equity capital commitments announced year-to-date making this the most prolific year fundraising and Tricon’s 33 year history.

These investment joint ventures provide a clear path for us to double our portfolio to 50,000 homes over the next three years. And finally we’ve achieved all of the above while remaining disciplined with their balance sheet substantially exceeding our de-leveraging target a year ahead of schedule.

Let’s now turn to Slide 3 for summary of our results. We reported earnings per diluted share of $0.72 compared to $0.16 in the prior year.

Our core FFO per share was $0.14 representing a 27% increase when compared to last year. Our consolidated, net operating income growth solid 16% year-over-year while overhead and interest expenses remain relatively stable on the whole create strong bottom line growth.

We also recently achieved a number of strategic accomplishments, including the formation of our $1.5 billion Homebuilder Direct Joint Venture inclusion into the FTSE EPRA Nareit index and subsequent to quarter end the launch of our largest JV today the $5 billion SFR JV-2. We also completed Bought Deal Equity Financing for C$201 million, which helped to reduce our leverage and position us well for continued growth.

Moving to Slide 4, in our single-family rental business, we saw strong growth for new and existing assets as Tricon’s proportionate share of NOI increased by 10% and same home NOI grew 5.5% compared to last year. Without the impact of the Texas storm our same home NOI growth would have been 60 basis points higher at 6.1%.

We also achieved a new record same home NOI margin of 66.6% driven by strong operating metrics, is worth noting that our NOI margin would have been 67% if we were to exclude the impact of the Texas freeze. In U.S.

multi-family rental, we had our best quarter since Q1 2020 with operating metrics, exceeding pre-pandemic levels, including a return of positive NOI growth, as well as solid occupancy turnover and blended rent growth trends that are accelerating further into Q3. And finally for-sale housing delivered another very strong quarter distributing $19.7 million of cash to Tricon.

Let’s now turn to Slide 5 to discuss the fundamental trends supporting our Sun Belt middle-market strategy. We often talk about the great migration to the U.S.

Sun Belt and a shared with you numerous statistics in recent quarters that clearly show these demographic trends accelerating during the pandemic as a suburban and single-family lifestyle becomes even more enticing during a health crisis. These are not just passing trends, but rather long-term population shifts that have been in place for many years.

You can see from the most recent census data that population growth in Tricon’s markets has outperformed the national average by about 400 basis points over the past 10 years, and is expected to continue to outperform in the foreseeable future as growth begets growth. And over the past year, these markets have also seen the fastest rebound in employment growth, exceeding the national average by about 300 basis points.

Population growth and job growth are the key drivers of housing demand. And we believe the attractive combination of warm weather, lower taxes, strong job growth and affordable living offs options has been in place for some time will continue to drive housing demand and the Sun Belt for many years to come.

Let’s turn to Slide 6, which such strong housing demand trends, it’s no surprise that home values continue to appreciate. Tricon’s single-family rental portfolio experienced home price appreciation at 15% year-to-date, which contributes meaningfully to our growth in book value per share.

But at the same time, we’re also seeing market rents continuing to rise, and we’ve been able to increase new move in rank road by a similar 15% year-to-to date. This compelling correlation between home prices and rents as a lot just acquire homes at attractive cap rates and create value for our shareholders quarter-after-quarter.

With such compelling long-term trends in our side, that should come as no surprise that we focused on single-family rental as our core growth strategy. On Slide 7, we have one our asset mix, where you can see that single-family rental now represents 93% of our consolidated real estate assets.

And it’s expected to remain above 90% going forward. Residential development is expected to remain near 5% of assets and also includes builds the rent communities that add to our SFR portfolio.

Multi-family rental has been reduced to 2% of assets as a result of the portfolio syndication and is expected to remain below 5% going forward. Let’s now move to Slide 8, to expanding our SFR growth strategy and talk about our various acquisition channels.

As you can see, we have a diversified acquisition strategy and to form complimentary joint ventures with leading third-party investors to help us scale faster. Through these channels, we plan to double our portfolio to 50,000 single-family rental homes over the next three years.

Subsequent to quarter end, we announced SFR JV-2 the successor to SFR JV-1. We will continue to acquire resale homes mainly through the MLS as well as off market channels and portfolio acquisitions.

SFR JV-2 is our largest joint-venture to date and we’ll add approximately 18,000 homes to our portfolio over the next three years alone. During the quarter, we also announced the formation of Homebuilder Direct JV, which focuses on buying new scattered homes and complete built-to-rent communities directly from home builders.

This new venture is very synergistic with our legacy for sale housing business as it leverages our long-standing relationships with home builders to gain access to newly built homes. Over the past year, we’ve also expanded into the development of SFR built-to-rent communities under our joint venture with Arizona State Retirement System.

On Slide 9, you can see a summary of our SFR joint ventures. The key takeaway here is that these complimentary investment vehicles each have a unique acquisition strategy that allows us to grow faster and diversify our portfolio while providing a variety of housing options to our residents at accessible price points.

Turning to Slide 10, we’d like to give you some more insight into how these JVs have allowed us to expand our buy-box and double our acquisition volumes. Our expanded buy-box enables us to buy homes at 21 markets compared to 12 previously under SFR JV-1, including city, such as Phoenix, Las Vegas, and Greenville, South Carolina, while still remaining focused on our middle market demographic.

Our target cap rates have tightened by about 50 basis points to a range of 5% to 5.5%, which reflects the shift to lower cap rate markets where we have in place operations, but did not buy in JV-1 and also the inclusion of new homes under Homebuilder Direct acquisition channel. Interestingly, even with lower going in cap rates are under in returns for JV 2 and Homebuilder Direct are higher than that in JV-1, as we continue to benefit from the incredible attractive debt financing environment and the ongoing institutionalization of the SFR industry.

Let’s shift gears to Slide 11 for an ESG update. Following the release of our inaugural ESG report this quarter, we engage in several initiatives in support of our company-wide commitment to ESG.

We completed our first GRESB submission in June, which positions us to receive our first GRESB rating in 2022 from the most prominent real estate focused ratings agency. Second, construction began in June Ontario’s first purpose-built Indigenous Hub, which is a part of Tricon’s West Don Lands project.

This is something we feel honored to be a part of as the hub will be a gathering place for indigenous people to help support the reclamation of culture and identity at a time when the atrocities of the residential school system are top of mind for all Canadians. The indigenous hub will help me critical healthcare, spiritual employment, training, and family support needs for the community.

And finally, I’m pleased to report the Tricon has met or exceeded commitments to both the 30% Club Canada campaign and BlackNorth Initiative’s CEO pledge to increase gender diversity and black, indigenous and people of color representation at board and senior management levels. Although there’s still lots of work to be done, diversity inclusion and belonging remain a priority for our organization and a key aspect of hiring plans for both leadership and non-leadership positions.

At Tricon, there’s genuine purity in our mission. We care deeply about our employees and the communities in which we operate.

And we know that a diverse organization will position us better to serve our residents and the communities they live in as Dave and Wissam are inherently diverse. That concludes my opening remarks.

And speaking of diversity, I would now like to pass the presentation over to Wissam Francis to discuss our financial results.

Thank you, Gary, and good morning, everyone. First of all, I want to thank our team for the strong results that produce this quarter.

With their efforts we achieved record breaking numbers while launching significant investment vehicles to grow our business, effectively controlling our costs and meaningfully reducing our leverage. Slide 12 highlights our progress against the five key priorities that we set out in 2019.

These include growing our core FFO per share at a compounded annual rate of 10% over three years through 2022. Raising approximately $1 billion of third-party capital over three years, growing our book value per share by reinvesting our free cash flows into accretive growth opportunities producing our leverage and improving our reporting.

As you can see, we are well on our way to achieving and in most cases exceeding the goals we set up well ahead of schedule. Let’s begin with a three-year FFO target.

So far we’ve achieved $0.27 of FFO per share year-to-date. Assuming the current holds, we are confident that we can achieve our FFO target of $0.52 to $0.57 in 2022, even with higher diluted share count caused by our exchangeable preferred share offering last year and our recent equity offering.

In terms of raising third-party capital, it has been a record breaking start to the year. We have raised $2 billion of fee-bearing equity capital so far, which is double the goal we set out in a year ahead of schedule.

This includes our recently announced SFR JV-2. Our single-family rental Homebuilder Direct Joint Venture, our U.S.

multi-family portfolio syndication and our Canadian multi-family joint venture with CPP investments. With regards to reducing our leverage, the target range of 50% to 55% we have exceeded our target ahead of schedule, and now are sitting at 46% net debt to assets.

This translates to 42% net debt to assets on a proportionate basis and gives us ample flexibility to continue growing while keeping our leverage at a prudent level. Our final priority was to improve our reporting, which has substantially completed with our transition from investment entity accounting to consolidated accounting last year.

As well as adopting like MD&A disclosure such as FFO and AFFO per share. We also publish our first annual ESG report in May a major milestone in our journey.

This supports showcase our ESG commitments for the coming year while detailing how we performed last year. Now, let’s turn to Slide 13, we will provide highlights of our key metrics for the quarter.

First, our net income from continued operation grew almost four folds year-over-year to $146 million. This included approximately $71 million of NOI from our single-family rental properties representing a 16% year-over-year increase.

We also had a $254 million fair value gain on rental properties in Q3 compared to $33 million in the prior year, reflecting significant home price appreciation in Tricon’s markets. Second, our Core FFO per share increased by 27% year-over-year to $0.14 or $0.17 in Canadian dollars.

And third, we reported AFFO that $0.11 per share. This translates to C$.14 and provides us with ample cushion to support our quarterly dividend of C$0.70 per share, reflecting an AFFO payout ratio of 42%.

Now, let’s move on to Slide 14 and talk about the drivers that contributed to our FFO per share growth this quarter, which relates to our proportionate share of the portfolio. The year-over-year increase of $0.03 per share or 27% can be attributed to the strength across several aspects of our business.

First, our single-family rental portfolio, which makes up 90% of our real estate assets delivered 10% growth in Tricon’s proportionate NOI. This was driven by a 16% increase in the number of homes, coupled with strong blended rent growth of 5.7%.

All this was partially offset by a 1% decrease in occupancy due to our accelerated acquisition pace of vacant homes. Our other businesses also contributed meaningfully this quarter.

Of note, residential development continues to perform exceptionally well as demand for development locked in our for-sale housing business remains chunk. The business contributed $8.3 million to our FFO this quarter and generated $19.7 million of cash flow for Tricon including performance fees.

There was also a $4.9 million increase in private funds and advisory revenue driven by an increase in development fees earned from Johnson lot sales, higher asset management fees earned from our syndicated U.S. multi-family portfolio and Homebuilder Direct Joint Venture as well as substantial performance fees earned from legacy for-sale housing investments.

The offsetting factor was a lower U.S. multi-family rental FFO year-over-year due to the 80% portfolio syndication.

On the expense side, we saw a year-over-year decrease in interest expense due to refinancing activities that have allowed us to benefit from the lower interest rate environment, as well as lower balance outstanding on our corporate credit facility. This was largely offset by higher corporate overhead as we continue to grow our company, as well as highly weighted average diluted shares outstanding from a preferred share equity issuance last year, and our recent equity bought deal.

Turning to Slide 15. Let’s discuss our debt profile.

As we look out to 2022, we expect to refinance the bulk of these maturities with new property levels that including securitizations. We’ll see a significant opportunity for interest expense savings in today’s low interest rate environment given the blended rate on these maturities is approximately 3.1%, whereas the current market is around 2.25% for five to seven year terms.

Moving to our liquidity profile on Slide 16, you can see that our current liquidity position is strong with annual recurring cash flow and projected cash flow sources providing ample funding for our near-term growth initiatives. Our current AFFO run rate net of dividends gives us over $55 million of annual cash flows to reinvest in growth.

And this number continues to grow. We know on the liquidity side, we have approximately $570 million of our current liquidity plus $185 million of net distributions expected from our residential developments over the next several years.

In terms of investments, we have $720 million of cash commitments in the next three years, which gives us strong visibility into our growth profile. In short, we are well-funded for our growth plan and we will aim to calibrate the pace of growth such are our leverage metrics were made at a comfortable level.

On that note, let me pass the call over to Kevin Baldridge Chief Operating Officer to discuss the operational highlights from the quarter.

Thank you very much, Wissam, and good morning, everyone. We had another stellar quarter of operating results.

And I want to acknowledge the efforts of our operations and customer service teams. Each teams, I’m extremely proud to work with and who continue to put our residents wellbeing first.

Let’s move to Slide 17 to review the performance of our core single-family rental business. We continue to benefit from strong demand trends, which drove higher occupancy, rent growth, and resident retention and resulted in same home NOI growth of 5.5% year-over-year with 6.1% excluding the impact of the Texas storm.

Getting into the numbers, same home revenue grew 5.4%. This was driven by a slight occupancy increase of 10 basis points and average rents increasing by 5.4% lease-over-lease.

I’m pleased to report that our bad debt has stabilized representing 1.7% of total revenue this quarter only 10 basis points higher than this time last year and down from a high at 2.7% in Q4, 2020. With that, said over time, we believe in well return to pre-pandemic levels of some 1% [ph].

On the expense side, we saw an increase of 5% compared to last year. This was largely driven by a $500,000 increase in property taxes, representing a 4.8% variance from the prior year as a result of a higher assessed property values.

We also had a $600,000 increase in repairs and maintenance expense, which was about 19% higher than last year, largely driven by the Texas storm. This was partially offset by a $500,000 decrease internal expenses, which are down by almost 37% year-on-year due to lower turnover as we continue to focus on exceptional residence service.

We also returned to ordinary course capital improvements, which resulted in fewer items, being expensed. Turning to Slide 18.

You can see at the strong demand trends in single-family rental continue to expire on all cylinders with exception of demand for our homes and limit the available supply. Occupancy remains near all time highs, while rent growth on new move-ins continue to increase and hit an all time high of 17.8% growth in June.

As we harvested the loss to lease that is built over time with our low turnover rate. Meanwhile, rent growth on renewals is inching up as strong demand for our homes allows us to adjust that metric up a bit more while continuing to be sensitive to our resident’s financial circumstances.

July’s KPIs built and improved on the strong operating performance produced during the first half of 2021. Same home occupancy was 97.5% while blended rent growth printed a new record high of 9.3% based on 20.7% new lease growth and 4.9% renewal rent growth.

In terms of turnover our same home rate was a low 23.2% on a proportional basis in July and compares to 27.9% in July, 2020. Let’s turn now to Slide 19 to discuss our U.S.

multi-family rental business, where I’m pleased to say that we’ve now largely internalized property management of the portfolio. This has been a huge undertaking, which we believe will lead to operating efficiencies and superior resident experience.

Following our 80% syndication in Q2, we reported only our 20% proportionate share of the operating results. With that I’m pleased to report that our NOI, that our same home NOI growth is once again in positive territory, but the 5.9% increase year-over-year.

When we dive into the components of NOI revenues were up 5.7% compared to last year. This was largely due to a 210 basis point increase in occupancy to 95.6% while being partially offset by marginally lower average monthly rent.

Bad debt has generally stabilized and was only slightly higher 2% of total revenue versus 1.8% last year and revenues from ancillary services such as bundled entertainment package increased slightly. In general concessions have almost disappeared while blended rents are improving, driven by our lease trade-out rate of 14.3% in the quarter.

This is arguably off a low base, but rent growth is expected to continue to improve further. On the expense side, there was an increase of a $100,000 or 5.5% year-over-year for Tricon's proportionate share driven mostly by expenses returning to pre-pandemic levels, including the third maintenance activities that occurred in the quarter.

All in all, this has been an incredibly strong start to the year with the most compelling demands, transit I’ve seen in almost 30 years in this business. I want to thank our operations team again for their contribution this quarter and our unwavering dedication to our residents.

I know we say this again and again, but it really is because of their genuine commitment to our residents that we’re able to continue to deliver these exceptional results. Now, I’ll turn the call back over to Gary for closing remarks.

Thank you, Kevin. I’d like to spend a minute on Slide 20 with an overview of the value creation opportunities beyond our core SFR business.

Our investments in U.S. and Canadian multi-family rental and residential developments represent less than $3 of book value per share in Canadian dollars today.

And we see a path to doubling that value over the next few years. As you’ve heard from Kevin our U.S.

multi-family portfolio is starting to show significantly better operating results at a time when cap rates are compressing meaningfully, assuming Sun Belt multi-family cap rates of 4%, which may still be conservative given how fast valuations are moving. We think the portfolio is actually worth much more than our balance sheet suggests.

Second our Canadian multi-family development portfolio is on course to triple in value as we complete and stabilize the projects over the coming years there by capturing the value creation that comes from developing to an untrended yield of 4.75% in a market where qualitative buildings are valued at approximately 3.5%. And lastly, our U.S.

residential developments are expected to deliver about a two times return on book value with a robust for-sale housing market, providing constructive backdrop for this business. Taken together, these investments could be worth over $6 per share in Canadian dollars when fully realized.

And so let’s conclude on Slide 21 with an overview of what we believe makes our story unique and compelling for our shareholders. We believe that SFR may be the best business in real estate and as a golden decade ahead with over 16 million single-family rental homes across the U.S., but only 2%, of these homes being institutionally owned, there was a phenomenal opportunity to roll up a fragmented industry and provide more American families with badly needed professionally managed rental housing.

With our recently announced joint ventures, we have a clear path to doubling our portfolio of 50,000 homes and strengthening our position as a leader in SFR industry, which is still in the early innings of institutionalization. We also have the unique opportunity to manage strategic capital for some of the largest and smartest third-party institutional investors in the world, which enables us to become a larger and more efficient operator, pursue developing activities, largely our balance sheet and overtime generate a higher return on equity for our shareholders.

And last but not least, we’ve established an industry-leading operating platform, which allows us to deliver consistently strong results while offering superior service to our residents. Our people first culture and focus on innovation our competitive advantage that we believe makes us a leading operator and also a good corporate citizen.

That concludes our prepared remarks. I will, pass the call back to Teresa to take questions Wissam, Kevin and I will also be joined by Jon Ellenzweig, Andy Carmody and Andrew Joyner to answer your questions.

Thank you. And good morning,

Good morning, Matt.

Gary. You’ve done a great job of setting the business wealth with new joint ventures and significant progress on the balance sheet.

Can you talk about your key priorities over the next three years and how you define success over this period?

Well, thank you. Thank you for the kind words.

I mean, we’ve done a ton of heavy lifting over the last year or two, and now the big opportunity over the next four years is simply not to execute on what we deliver it. I mean, we have all the capital in place now not to grow our portfolio or single-family rental portfolio from 25,000 homes to 50,000 homes.

And so we just need to put our heads down and inquire roughly 1,500 homes to 2,000 homes per quarter and get those joint ventures invested with really high quality homes so we can offer more options to our residents. So that’s by far and away the biggest score.

I’d also like to see us make progress in all our developments where we’re building a burgeoning built-to-rent business that will deliver about 2,500 homes over the next two or three years. And so we’d like to get that off the ground and not again, provides another option to our residents with brand new high quality housing.

And then in Canada north of the border over the next few years, I’d love to see a stabilize – largely stabilize our portfolio create substantial value for our shareholders and potentially give ourselves an opportunity to lift that portfolio and create even more value. So those are the big things we’re going to work on over the next three years.

Great color. And maybe a question for Wissam, really appreciate the proportionately consolidate disclosures this quarter.

And then we tally those up certainly there were some sizeable marks in Q2, but over the past year, they seem global wide the case several index up perhaps a bit. Can you talk about what region drove the fair value gains in Q2?

And if you think there’s potential for further fair value gains over the next couple of quarters.

Yes. Thanks, Matt.

We do a number of our – the way we calculate our fair value is really backwards looking. So, we always take a full quarters rolling, and we are very conservative of that.

And it’s actually catching up over the past several quarters of seen home price appreciation, increased significantly across a lot of the areas that we’re in. So it’s not just one area specifically to across the entire region that we’re in, in the Sun Belt.

We do expect fair value pickups to continue going forward and we’d expect the same amount to continue over the next several quarters going forward. I remember if you evaluated on a cap rate basis, we’re still very, very conservative from that perspective.

So, we do expect fair value pickups to continue.

And Matt and maybe I could just add to that. If you look at, even with the big fair value increase this quarter if you look at our SFR portfolio on in-place NOI, it’s about a 5% implied cap rate.

If you use, run rate or – sorry, if I should say we use in places 4.8%, and if we use run rate it’s about a 5% cap rate, so extremely conservative. And again, as Wissam said because logging nature and methodology of how we determine the fair value.

So, that we’re not seeing any portfolios trade anywhere near those levels and so there’s substantial opportunity for more fair value increases going forward.

I agreed. And maybe one last one for me.

If I look at your subscription facility, it would appear that the Homebuilder Direct JV has started deploy capital? Can you give us a flavor for the initial acquisitions in terms of region, home size, and maybe talk about a Tricon has any input in developing the home construction?

Jon, you want to take that?

Sure. And good morning, Matt, and thanks for asking that question, as you recall, we closed Homebuilder Direct midway through this quarter, and we ended up closing on 105 homes in that vehicle during the quarter.

And I think as we’ve discussed before we expect it might take a couple of quarters for the acquisition volume in HD to really ramp up, because in many cases, what we’re doing is actually ordering homes from builders in advance. And so if we place an order today, for example, for a 100 homes in the community, we may not start receiving deliveries, deliveries until Q1 or Q2 of next year.

And in terms of the product, as you ask in a home sizes are not that dissimilar from our existing portfolio, they’re slightly larger because most new homes being built are a little bit larger than resale homes. So call it closer to 1,900 to 2,100 square feet whereas our standard portfolio is a little bit smaller than that.

And home prices are towards the higher end of our range, simply because of the cost of new construction. And then lastly, if you discuss the market we’re seeing strong supply coming online in places like Dallas, San Antonio, and Houston and Austin.

In Texas, we’re also acquiring homes in Phoenix, Atlanta, Charlotte. So not too dissimilar to our broader portfolio, but there’s going to be some more concentrations as we, place orders for entire communities in certain markets.

Really appreciate the color. Thanks everyone.

I will turn the call back.

Thank you.

Hi, good morning.

Good morning Mario.

Just maybe you wanted to touch on the expense growth this quarter. I recognized in Texas freeze played a role, but these are 5% of hiring what we’ve seen in the last couple of years, how should we think about that expense growth if somebody show in the second half of this year, and then going to 2022, given that there could still be further scaling opportunities within the business?

Well, okay. So it’s a better than noisy quarter on the expense side.

And one of the reasons for that is the Texas freeze. If you isolate or remove the Texas freeze on the expense growth for the first six months of the year is about 2%, 2.5%.

So, that I would say I’m more normalized number Mario. The other issue is that in the height of the pandemic Q2 of last year and in Q3 really deferred non-essential maintenance in CapEx.

And so that also is creating a bit of a kind of, yes, it’s also creating some noise in the numbers. So, I would say the numbers because of that are higher than they normally would be, but to be fair we are an inflationary environment, right?

We’re seeing, wages material costs or supply chain issues creating pressures on all of our expenses. Property taxes are going to move up with higher home prices.

Insurance premiums have moved up. So all in all, we are in an inflationary environment and I think we should expect higher expense growth, but I would say that the business is so strong.

The fundamentals are so compelling that we still should be able to drive our revenues faster than our expenses and therefore I grow our margin.

Okay. And then I guess some questions.

I know the direct expenses are recorded under SFR with $2.5 million up over the $1 million kind of per quarter on average with past five quarters. So is that explained by the noise, Gary, that you either as well, or is something close to $2.5 million on the direct cost a decent run rate going forward?

Indirect expenses under SFR.

Yes.

Yes. I mean, I think some of that – some of this noise there’s also if we’re talking about the same line, Mario, I’m just going to take a look at that.

Yes. Other direct expenses yet, the other issue, the other thing to keep in mind there, as we are rolling on our smart home technology.

And so the expense associated with that is a gross out. So, we showed that the revenue in the fee, in the revenue item fees and other revenue, but then we show the expense associated with that, other direct expenses.

So that, that part of the increase in the other direct expenses associated with the rollout of the smart home technology program.

Got it. Okay.

And then just maybe focus on the top-line, either Gary, for you or for Kevin kind of rolling on all cylinders here in terms of the rent growth you occupancy extremely high rent or lease still below where home prices in the U.S. that should be across most regions.

When you sit back, what do you think is the biggest risk or the thing that takes up the most mind share for you in terms of continuing this really strong top-line revenue?

Well, I mean, we’re actually, we’re holding back and it it’s – and it’s one of the things I think Kevin and I are and the organization we’re most proud of. And the fact is that we are self-governing or limiting on renewals.

And if we weren’t doing that, if you look at our renewal growth, I mean, it has that job, it’s in the high 4% range now. But if we weren’t limiting growth on renewals, we could see a renewal increases in many markets close to 10%.

So if anything, we’re really protecting our residents, we’re giving them more, visibility and stability with their own finances, but we’re also building in more and more loss to lease in our portfolio. And that explains why our new lease spreads are hired in the industry.

And it accelerated it, 20% now into July, which is just unbelievable. The part of that is because we are self-governing on renewals.

So, we’re not really concerned about anything on the top-line at this point in time. And I think the way we’re running our business just gives us a much longer runway.

Got it. And new lease start would that be a fair indication of where you can make the mark-to-market and your portfolio is on the [indiscernible].

Maybe a little high, 20% seems high to me, but it wouldn’t shock me if the loss of lease was in that kind of 15% range that was similar to where we comp the portfolio a quarter or two ago against the yellow. So for me, 15% sounds more reasonable.

But obviously we continue to build more and more lost lease every quarter as we, again hold back in renewals.

Okay. My next question is more of a high-level question.

On you 2020 Investor Day in Florida, you kind of laid out various initiatives and you’ve achieved pretty much all of them sooner than anticipated. So the question is somewhat similar to an earlier one, but, looks like over the next three years, that’s really kind of keep your head down and focus on.

What’s been announced in terms of initiatives? If we look out at call it three to five years, what are some of the things today that the organization is focused on that may not necessarily be material such as the key multi-family development completion over the next three years and may not be material, but it’s like the new, interesting thing that organization looking at that you think could have a very material impact on call it three to six to seven years old.

Well, I think if we keep on looking further outlook. So high level we’re going to – and this is the big thing that everyone should focus on.

We’re going to go from 25,000 homes to where we are today to 50,000 homes in three years. And after that, if all goes according to Ohio and we do a good job, there’s no reason why we can’t raise another round of joint ventures that will ultimately allow us to go from 50,000 to a 100,000 homes.

So that’s, that’s ultimately what we’re focused on, and it’s absolutely achievable. We need to observe the natural speed limit of our business and not grow too fast because then we might have operational hiccups, but, we’re able to go from now 800 homes to 1,500 homes, to 2,000 homes, a quarter without skipping a beat.

And so we have this incredible, runway ahead to grow the portfolio. And as we do that we’re going to become more efficient.

As an operator our overhead efficiency will continue to improve. We’ll become more innovative than will be a – offer, more options.

And, and ultimately I think services to our residents, our residents, as we ultimately build out you know, a state-of-the-art resident. So that’s something that, you know, we’re going to be working on.

I think we’re just scraping the tip of the iceberg in terms of ancillary revenues, but long-term, if you think five or 10 years, I always say to our team, and, this is not, it doesn’t necessarily need to be taken literally, but why couldn’t we potentially rent an autonomous car to our residents by the hour by the day, but that’s just to give you a sense of what ultimately can be done if you control the rooftops with ancillary revenue. So there’s a lot of exciting times ahead, I think on that and on innovation.

And then in other parts of our business, which don’t get as much attention, like all the development the built-to-rent we’re building a, state-of-the-art built-to-rent portfolio. Andy Carmody is running that.

And up in Toronto, Andrew Joyner is running what is going to be the unique and highest quality multi-family apartment business, certainly in Canada, but maybe anywhere and will be an opportunity for us to create real value for our shareholders. And the other thing I would just say is we’re, we’re incredibly focused on ESG.

ESGs, I think it’s still early days for the real estate industry right now. It’s maybe only focused on environmental impact, but we think that with the events through the pandemic, investors have really allowed us to prioritize the social factors, which we think really allows us to run a much better business as we prioritize our employees and then our residents.

And you’re going to hear more and more about that. So, we’re going to be unveiling programs for both our residents and our employees that we think are incredibly exciting and will make us a better and better company over time.

Got it. Just on the SFR, over the long period of time, given what you’ve learned and developed in the U.S., there’s the potential in new tuck-ins to export that model into other developed countries across the world, or there’s simply enough more than enough growth in the U.S.

to not even to [ph] couple of times.

I mean, absolutely it could be extrapolated to other markets. I just don’t think we’re focused on that today, because it’s just such a deep market.

The U.S. housing market is the largest asset in the world.

I mean, it’s, it’s depending on how you measure it, it’s, $40 trillion to $50 trillion asset class. The single-family rental business based on 16 million or 17 million units is a $4 trillion to $5 trillion asset class.

Right? So it’s bigger than all of the entire Canadian housing market, it is so big and institutions like us only own about 2%.

So, there’s this massive opportunity to roll up a fragmented industry. And that’s why I would say that single-family rental, maybe the best business in real estate, because you have this incredible roll-up opportunity that you don’t typically have another asset class.

Is it maybe reminds me a little bit of where storage was 20 years ago. But this is – it’s there’s incredible runway ahead in the U.S.

We don’t need to look further afield.

Great. Okay.

And congrats on executing on the strategy that you laid out. Thank you.

Thank you, Mario. Thank you.

Thanks, good morning. Are you guys still looking at doing a U.S.

department, Sun Belt joint venture?

We are. We are in significantly advanced on creating what we call a growth vehicle.

That growth vehicle will probably be announced with a deal, and this is not going to be a major it’s not going to be a major fund. It’s really a growth vehicle that will allow us to really round out our portfolio and just kind of build on it on the margin.

Right? Some places, for example, we might only have one or two assets, and there’s an opportunity to really kind of round that out for our institutional partners.

And so that’s something you should expect later in the year probably in Q4.

Okay. that’s helpful.

And then just on Slide 12, and just so I understand it, because it does sound through previous questions that, that you guys are with, I guess with the exception of the department, JV pretty much done with third party capital raisings until you get a good chunk deployed. But it still shows a $1 billion 2022 target.

Is that how should I think about that?

That was our – so what we’re doing on this performance dashboard is setting up targets, right. Long-term goals that were basically put in place in 2019.

So the 2019 target was $1 billion by 2022. And we doubled that already in 2021.

So, we’re double where our target is. That’s all it is.

Yes. Okay.

Just double checking on that. And then the, the second question, I have is how should we it’s like very good for-sale housing quarter and the performance because obviously helped your quarter?

How should we think about both of those lines for the back half of 2021?

Yes. So, I mean, look, the for-sale housing business is booming, right?

And this is where I think when we set some of our targets, we didn’t expect such a strong market in for-sale housing, the pandemic just with all the urbanization and densification trends work from home. It’s really, it’s created an unbelievable backdrop for all type – all things housing in the U.S.

certainly for-sale housing. And so everything in that business for us today is on fire that is coming through in our investment income.

As we use discounted cash flow analysis and appraisals cash flows coming in sooner, home prices and law prices are moving up. And so the numbers are higher than where we thought they would be.

I would say where we typically think they should be on the for-sale housing so probably be half of where they’re coming in this quarter. We would typically target, high single-digit unlevered returns on invested capital.

And they’re –right now, they’re double that. So, I would say those are – they’re quite a bit higher than where we would expect.

On the development fee side, I think this is a strong quarter, but I would say we think the development fees are probably pretty stable going forward. Although I will say that, Johnson is benefiting from this really strong environment, as home builders start to limit their releases, which they’re doing, we may see a lot feels slowed down a bit.

But other than that I mean, look, Houston and Texas are extremely strong. So, I would say the development fee line is pretty stable, but we had a strong quarter.

Okay. So for-sale housing should continue elevated for, I guess, the rest of this year.

And the other one was on the performance fees, which are obviously very lumpy, but you have that line of sight for the backup.

Yes, I would say it – look they’re extremely episodic and lumpy, as you said. We do not – we cannot predict them quarter-to-quarter.

So I’m not going to predict them quarter-to-quarter for you except to say that there’ll be significant performance fees over time, but I would expect probably quieter back half of the year.

Okay. Thanks all.

I’ll turn it back.

Okay.

Thank you. Good morning guys.

Hi, Steve.

Hi. Lots of great color on the call.

So, thank you. I just wanted to focus in on your goal to double the size of these single-family rental portfolio.

Could you just give a little bit of color around the pace to get there? I assume as it is, it’s fairly even over the next three years?

And then secondly to that, how do you see margins evolving as you double the size of the portfolio? Are there any mix impacts?

And then I guess, thirdly, you’ve obviously invested a lot in the infrastructure to support the single-family business that we’ve seen at some of the Investor Day, which is impressive. What the size portfolio does the infrastructure support or cannot support without anymore – more investments along the way?

So, Jon, do you want to start on a pace and then maybe I’ll fill in on the margin, and maybe then Kevin can chime it out there.

Yes, sure. And Stephen, that is a great question.

I think, as we indicated earlier on the call, this quarter we acquired just to hear over 1,500 homes. We think that this coming quarter Q3 we’re on track to acquire 2,000 plus homes, but recall also there is some lumpiness in seasonality in acquisition volume and in particular Q3 tends to be our highest of the year.

So it’s likely to drop down a little bit into Q4. But all in all, if you think about the acquisition volume, 6,000, 7,000 plus acquisitions a year, and if you multiply that by three years, 6,000 times three is 18,000 to 20,000, that gets you to that 45,000 home target that we indicated earlier.

Okay Jon.

And in terms of mix story, I’ll talk on that and Gary can speak on margin. Now, that we’ve been able to expand our joint venture, that our joint ventures across all of our markets and even add a few more, we think that the mix improved actually a little bit.

When you think about the margins in some of these markets, for example, Phoenix, where we’re now buying in meaningful volume, it’s typically been a higher margin market for us, which is certainly helpful in the offset. Some of the drags that we see and some of the slightly lower margin markets without with higher property taxes.

But Gary, I’ll let you talk to me about the total margin of that.

Yes. So, and again, just to add little bit more color on the pace.

So, we’re going to pro – I think if Jon has his way, we’re going to go in front of that, 6,000 home pace, annual pace to 8,000, right, over time. And if we can get it to 8,000, then obviously we go from 25,000 to roughly 50,000.

But then the other thing is you also have to remember that we have to built-to-rent program and that’s going to deliver about 2,500 units over the next several years. And then if all goes, according to plan, we’ll probably raise another built-to-rent fund, which will allow us to grow even faster.

So, we’re very confident about our ability to go from kind of 25,000 to 50,000 over the next few years. And then – so on the margin, yes, absolutely so many west coast markets do have higher margins, new homes, the Homebuilder Direct will be favorable to the margin, because all of the things being equal, because when we buy new homes, they have lower repairs and maintenance in the early years.

So that’s favorable to the margin. And then I think in terms of giving some kind of commentary on where the margin could go, we’re roughly – we’re at about 67% a day, if you exclude the impact of the Texas freeze.

And again, I think there’s still quite a bit of opportunity in the portfolio, obviously you’ve seen the releasing spreads, which is a major opportunity. I think we can probably push our occupancy higher, prevent 97.5 there’s no reason why we couldn’t push that hard in 98.

The bad debt is elevated and will start to come down probably next year. And so that alone could bring us as we normalize all of that could bring us from 67% to 68%.

And then I think, look, if we can be in an environment where revenues are going to grow faster than expenses, there is a path to getting to a seven handle on the margin. So, that’s probably not a short-term goal, Steve, but probably over the mid-term mid to longer-term.

There’s no reason why we couldn’t ultimately get to 70%.

That’s great. That sounds very encouraging.

And then maybe just finally with respect to the capacity around the investments that you’ve made, what’s – what size portfolio can the infrastructure currently support?

Yes, sorry. We didn’t get to that part.

Yes, the organization has definitely been built to manage a much larger portfolio, that that’s one of the things that’s so exciting. We could do a lot more with the team we have in place.

And so we should see real efficiencies in our overhead as we deploy the capital and go from 25,000 to 50,000 homes. So that’s a really exciting opportunity, I think, to become more efficient and that will drive our FFO per share growth over the next few years.

But in the field though, as you add more homes, you do need to add more – add more bodies. Right.

So that is that the synergies really will come more in the centralized office and corporate. But as we go from 25,000 to 50,000, we’re obliviously going to need to add a lot more maintenance tax.

Yes, yes. Right.

Okay. Well, that’s great.

All my other questions have been answered. Thank you and congrats on the performance.

Thank you. Steve.

Hi, good morning everybody.

Hi, Tal.

I wanted to talk about the Canadian platform for a second, the Taylor you’re going to be finishing construction towards the end of this year. When should we expect you guys to start pre-leasing and what do you think your expectations of net rents are going to be?

Have you had an idea, like unstablization what your expected yield is going to look like?

Yes. So, we are going to complete the building in March.

We’re a little bit behind, but that’s a – it’s a much better opportunity I think to lease the building in March than maybe December, January. We will start pre-leasing around that time, maybe a little bit before.

And I think in terms of lease expectations it’ll clearly be $4 per foot plus, right. Is where we’re going to lease.

And I would say that and this is, I think for the Taylor, but it’s a commentary probably for the entire portfolio. We’ve seen pressure on the rents during the pandemic, but I would really view it as a disruption.

It is really kind of a temporary disruption and we’ll ultimately probably be back on target for our underwriting. And it’s – and we’re seeing them on the Selby.

I mean, it’s unbelievable how fast the market’s moved over the last few months. We’ve gone from 82% occupancy that we’ll probably be closer to 97% in a month or so.

So, you can see how fast we’re going to be going back to pre-pandemic rents and then growing from there. And so we typically view the pandemic that really is a disruption.

And given how tight the market is, is everything opens up and the border opens and we get more foreign students coming back. We’ll be back to where our underwriting is.

And I think on the Taylor, we’re expecting a trended development yield of closer to like 5.5%, maybe even as high as 6%, but 5.5% to 6%. So certainly above the 4.75% we’ve been guiding to in terms of how to think about the valuation of the portfolio, the Taylor should be quite a bit ahead of that.

Okay. And you’re talking about your leasing experience at the Selby too.

Any lessons you’ve learned from there that you could take to the other projects?

I’m going to hand that question over to Kevin. Kevin, any questions, any lessons learned on the Selby that we could apply and then the Andrew you welcome to chime in.

Yes. I think that it’s really having the staff trained and ready and to be nimble and learning, understanding what the market is, understanding what our competitors are doing constantly looking to see, what is being advertised and then being nimble listening to the resonance are coming in.

And we’ve brought in and we started using Yieldstar [ph] at the property that’s helping us set rents. So, compared to the market that also it’s our own property, and it’s just looking at how long a unit sits on the market, and whether we need to move the rents up or down.

And then just making sure that the property is presented themselves and that they’re completely –it’s inviting, it’s, well-maintained, it’s groomed making sure that more than experience is unsurpassed. And what we’ve noticed with Selby was – the quality of the construction on the amenities that were delivered are second to none.

And we were in the pandemic and it was hard to use the amenities, but as we started to open up, we’d seen how people just gone back in. So the humanity package like I know we’re doing the same with Taylor and on the other projects are going to be remarkable.

And then the, what we’ve learned too, is just really engaging with our residents. So having a good social media presence and having in the property, having all the different events, and even if they’re virtual events, we had a lot of people that were taking part in those events and they were spreading that.

And as the economy started open up that word of mouth and really brought in the resident base and the prospects, and which has helped us to move back in and really good up to stabilization.

Okay. And then just my last question.

On the residential development income that you booked this quarter, I apologize if I’ve missed this somewhere in the MD&A, but is it possible to get just a little bit of clarity on the composition of that income? Like if that predominantly lot sale income is it realized unrealized gains on the value of the investments.

Yes, we can, I mean, we can probably take that offline for you. But I would tell you it’s really the way that income is determined Tal, is through largely we talked about this earlier in the call, is it through a discounted cash flow analysis and appraisals.

And so this all being essentially for-sale housing, it’s all for-sale housing. So it’s mainly lots, lots sales, but in some cases we’re also selling homes to consumers, but essentially if you’re an environment where lot prices and home prices are going off and you’re selling faster from a discounted cash flow perspective, you’re going to have higher income and that that’s essentially what’s happening.

So that’s why the income is quite a bit higher than what we would have forecast. We said earlier that we typically expect, an unlevered yield on the invested capital in the high single digits.

And we’re probably double that rate today. And that again is a reflection of just how strong that the U.S.

housing market is. But the entire makeup of that is essentially lots in home sales.

Okay. Sorry, I cut a double question.

I’m triple that this hours. Okay.

Thanks Gary.

Thank you, Theresa. I would like to thank all of you on this call for your participation.

We look forward to speaking with you again in November, discuss our Q3 results.