Tricon Residential

Tricon Residential told analysts rising interests rates were fueling demand for their rental homes

Tricon Residential CEO: “the demand for our high-quality professionally managed rental homes remains incredibly strong.” “GARY BERMAN, PRESIDENT, CEO & DIRECTOR: Thank you, Wojtek. Good morning, and welcome, everyone. I hope you’re all doing well. Let me start by saying that we are living through some unprecedented times with geopolitical and financial experiments that have yet to run their course. But from where we sit today, this looks a lot more like a Wall Street recession than a Main Street recession. I would never suggest that we are a mean to macro-economic trends. But as we’ve seen in the past and continue to see, the demand for our high-quality professionally managed rental homes remains incredibly strong. Our business continues to be resilient and defensive, and I’m pleased to report that we delivered another solid quarter.” (Q3 2022 Tricon Residential Inc Earnings Call, 11/9/2022)

Tricon Residential: “in today’s high mortgage rate environment is more compelling than ever to rent versus own a home.” “GARY BERMAN, PRESIDENT, CEO & DIRECTOR: Let me share with you some of our highlights on Slide 2. We continue to see exceptional demand for our homes. And in today’s high mortgage rate environment is more compelling than ever to rent versus own a home. This is evident in our results as we delivered another operational quarter with single-family rental same home NOI growth of 10.2%, record high NOI margin of 68.5%, occupancy remaining close to 98%, turnover remaining at a low of 18.6% and blended rent growth consistently strong at 8.4%.” (Q3 2022 Tricon Residential Inc Earnings Call, 11/9/2022)

Tricon Residential’s CEO: “Housing affordability in the U.S. is a significant problem, and that has been amplified by higher mortgage rates and chronic underbuilding with no end to sight to the supply shortage.” “GARY BERMAN, PRESIDENT, CEO & DIRECTOR: Let’s move on to Slide 5 to talk about what we’re seeing out there in the rental housing market. So far this year, market rents are up 6% nationally compared to last year, but with mortgage rates breaching 7%. It has never been more affordable to rent versus own a home. In fact, when we look at the national data, it costs about $700 more per month to own an entry-level home versus renting one. Housing affordability in the U.S. is a significant problem, and that has been amplified by higher mortgage rates and chronic underbuilding with no end to sight to the supply shortage. We take pride in knowing that providing quality rental homes at accessible price points and adding new construction to our build-to-rent program, we’re helping to be part of the solution.” (Q3 2022 Tricon Residential Inc Earnings Call, 11/9/2022)

Tricon was slowing acquisitions of homes in preparation for more opportunities as the market declines further

Tricon Residential’s CEO said the company was slowing acquisitions “so we can buy new and existing homes at higher cap rates in the future and to position ourselves to buy larger portfolios at discounted prices.“ “GARY BERMAN, PRESIDENT, CEO & DIRECTOR: We remain committed to growing our business over the long term in a strategic and responsible way. At this time, that means slowing the pace of our acquisitions until it makes sense to accelerate once more. To be clear, we are slowing down today so we can buy new and existing homes at higher cap rates in the future and to position ourselves to buy larger portfolios at discounted prices, and we do foresee such opportunities becoming available. The great part about our model is that we can scale our acquisition program up or down very quickly depending on market conditions, and we now have nearly $3 billion of dry powder, including liquidity on our own balance sheet and third-party unfunded equity commitments. We will lean in and deploy that capital when the time is right.” (Q3 2022 Tricon Residential Inc Earnings Call, 11/9/2022)

Tricon Residential’s CFO: “ we’ve also decided to reduce our pace of acquisitions in order to preserve capital for more attractive opportunities in the future.”  “WISSAM FRANCIS, EXECUTIVE VP & CFO: As Gary mentioned earlier, we’ve also decided to reduce our pace of acquisitions in order to preserve capital for more attractive opportunities in the future. As a result, our acquisition guidance moves from 8,000 homes down to 7,300 homes for the year. As we look ahead to the current year and beyond, we know that we have excluded our 2024 targets from this deck. We opted to withdraw these targets in light of the uncertain interest rate environment and economic outlook as well as our intent to be flexible with acquisitions. We aim to stay within our target leverage range of 8 to 9x debt to EBITDA and could potentially get an AFFO per share of $0.83 to $0.88 in 2024. But this is much more contingent on strong acquisition volumes, lower rate environment and launching a follow-on SFR joint venture.” (Q3 2022 Tricon Residential Inc Earnings Call, 11/9/2022)

Tricon Residential’s CEO: “no one’s buying as many homes as we are in the country.”  “GARY BERMAN, PRESIDENT, CEO & DIRECTOR: And by the way, we have more — we have better data than almost anyone. I mean, virtually, no one’s buying as many homes as we are in the country. So we’ve got very good data on home prices. But again, they barely come off the peak. And into next year, our team thinks maybe a little bit more softening, maybe they come down another 5%, maybe, but we’re not anticipating anything significant, right? And if they do come down 5%, by the way, that’s an opportunity for us because it means like on a 6% cap rate, again, we get another 30 basis points positive on the spread, which is good. But we’re not — we’re expecting things to be fairly steady, maybe down a little bit next year.” (Q3 2022 Tricon Residential Inc Earnings Call, 11/9/2022)

Tricon’s CEO expressed surprise that despite rising interest rates, limited supply was still pushing up home prices

Tricon’s CEO: “ what I’d tell you is that it’s really surprising that with mortgage rates moving up from the 2s to over 7% in a matter of months that home prices have been so stable… There’s just no supply.  “GARY BERMAN, PRESIDENT, CEO & DIRECTOR: Jade, thanks for the question. I got to tell you, I’ll do my best, but I think if I could truly predict HPA and interest rates probably wouldn’t be sitting here, although I think we’re doing okay. I’ll try my best. Look, what I’d tell you is that it’s really surprising that with mortgage rates moving up from the 2s to over 7% in a matter of months that home prices have been so stable. It truly is. And I think Kevin just talked about it, it’s an indication of how tight the supply is in the market. There’s just no supply.” (Q3 2022 Tricon Residential Inc Earnings Call, 11/9/2022)

Tricon Residential’s CEO: “we’ve probably only seen home prices drop 3%, maybe 5% from the peak in our 21 markets.”  “And in this type of environment, when mortgage rates move that fast, the market gets shocked and people stay in place. They’re not going to sell their homes, right? Because why would they sell their home if they’ve got a 2% or 3% mortgage. They’re not going to take on a 7% mortgage that just doesn’t make any sense. So you end up getting a lot less listings and less supply and that keeps prices steady. And so you end up getting a lot less listings and less supply and that keeps prices steady. And so we’ve probably only seen home prices drop 3%, maybe 5% from the peak in our 21 markets. That’s it.” (Q3 2022 Tricon Residential Inc Earnings Call, 11/9/2022)