TORONTO–(BUSINESS WIRE)–Tricon Residential Inc. (NYSE: TCN, TSX: TCN) (“Tricon” or the “Company”), an owner and operator of single-family rental homes in the U.S. Sun Belt and multi-family rental apartments in Canada, announced today its consolidated financial results for the fourth quarter and the year ended December 31, 2022.
All financial information is presented in U.S. dollars unless otherwise indicated.
The Company reported strong operational and financial results in the fourth quarter and for the full year, including the following highlights:
- Net income from continuing operations was $55.9 million in Q4 2022; basic and diluted earnings per share from continuing operations were $0.19 and $0.11, respectively;
- Core funds from operations (“Core FFO”) for Q4 2022 increased by 112.2% year-over-year to $96.8 million and Core FFO per share grew by 106.7% year-over-year to $0.31, driven by net operating income (“NOI”) growth in the single-family rental home business, solid operating performance, and the inclusion of performance fees related to the sale of the U.S. multi-family rental portfolio;1
- Same home NOI for the single-family rental portfolio in Q4 2022 grew by 9.7% year-over-year and same home NOI margin increased by 1.8% to a record 69.8%. Same home occupancy increased in Q4 by 0.2% year-over-year to 98.0% and blended rent growth was 7.4% (comprised of new lease rent growth of 11.5% and renewal rent growth of 6.8%). In addition, Tricon’s continued focus on resident retention led to a record-low annualized same home turnover rate of 12.2% in Q4. For the full year, same home NOI grew by 10.4% and same home NOI margin increased by 1.2% to 68.6%;1
- The Company acquired 815 homes during the quarter at an average price of $331,000 per home (including up-front renovations) for a total acquisition cost of $270 million, of which Tricon’s proportionate share was $84 million. For the full year, Tricon acquired a record 7,227 homes, expanding its portfolio by 23.2%;
- Positive trends continued into early 2023, with same home rent growth of 7.3% in January 2023, including 13.9% growth on new leases and 6.6% growth on renewals, while same home occupancy was stable at 97.4% and same home turnover remained low at 16.6%;
- On October 18, 2022, the Company completed the sale of its remaining 20% equity interest in its U.S. multi-family rental portfolio, generating proceeds of $319.3 million, including $99.9 million of performance fees (half of which are payable to participants in LTIP and management co-investment plans); and
- On October 13, 2022, the Company announced that the Toronto Stock Exchange (“TSX”) had approved its notice of intention to make a normal course issuer bid (“NCIB”) to repurchase up to 2,500,000 of its common shares trading on the TSX, the New York Stock Exchange (“NYSE”) and/or alternative Canadian trading systems during the twelve-month period ending on October 17, 2023. During Q4, the Company repurchased 338,100 of its common shares on the TSX and 339,566 common shares on the NYSE under the NCIB for a total of $5.4 million.
In addition to strong operational and financial results, Tricon achieved several significant strategic milestones in the fourth quarter:
- On October 20, 2022, the Company announced an industry-leading Bill of Rights for single-family residents, the first of its kind among single-family rental housing providers in the United States. This measure underscores Tricon’s resident-first approach and highlights the Company’s mission to support the well-being of its residents. The Tricon Resident Bill of Rights outlines the Company’s commitment to providing quality, move-in-ready homes with caring and reliable service; and
- In December, Tricon amended its $500 million corporate credit facility to incorporate Environmental, Social and Governance (“ESG”) targets and convert it to a Sustainability-linked Loan (“SLL”). This credit facility, which was undrawn as of December 31, 2022, provides Tricon with liquidity to pursue the growth of its single-family rental business. The SLL structure links the borrowing cost directly to the Company’s performance in three priority areas of its ESG strategy: (i) increasing the percentage of homes with energy efficiency upgrades in Tricon’s single-family home rental portfolio, (ii) increasing the number of multi-family residential buildings with LEED Gold certification, and (iii) increasing participation in Tricon Vantage, a market-leading program aimed at providing our U.S. residents with tools and resources to set financial goals and enhance their long-term economic stability.
“Amidst a period of economic uncertainty, Tricon concluded 2022 with a record year of growth and another strong quarter of operating results. Our key accomplishments included record acquisition volume of more than 7,200 single-family rental homes, growth in proportionate net operating income (NOI) of approximately 24%, and the successful sale of the remaining 20% interest in our U.S. multi-family business. And in the fourth quarter, our robust same home blended rent growth of 7.4%, near record-high occupancy of 98.0% and record-low resident turnover of 12.2% underscore not only the strong demand for our single-family rental homes, but also the acute undersupply of housing in America,” said Gary Berman, President & CEO of Tricon. “As we look ahead to 2023, we remain focused on growing our single-family rental portfolio so we can serve thousands of more families who are in need of high quality, relatively affordable rental housing. Our guidance for 2023 reflects a gradual acceleration of acquisitions over the course of the year, albeit at a slower pace than 2022, as well as strong same home NOI growth largely offsetting the impact of higher interest expense in our FFO profile. We are encouraged by the resilience in our January operating metrics, the emergence of “green shoots” in the debt markets, and stability in the resale housing market that all point to another year of strong operating performance.”
Financial Highlights
|
For the periods ended December 31 |
Three months |
|
Twelve months |
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|
(in thousands of U.S. dollars, except per share amounts which are in U.S. dollars, unless otherwise indicated) |
2022 |
2021 |
|
2022 |
2021 |
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|
|
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|
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Financial highlights on a consolidated basis |
|
|
|
|
|
||||||||
|
Net income from continuing operations, including: |
$ |
55,883 |
|
$ |
110,439 |
|
|
$ |
779,374 |
|
$ |
459,357 |
|
|
Fair value gain on rental properties |
|
56,414 |
|
|
261,676 |
|
|
|
858,987 |
|
|
990,575 |
|
|
|
|
|
|
|
|
||||||||
|
Basic earnings per share attributable to shareholders of Tricon from continuing operations |
|
0.19 |
|
|
0.41 |
|
|
|
2.82 |
|
|
2.07 |
|
|
Diluted earnings per share attributable to shareholders of Tricon from continuing operations |
|
0.11 |
|
|
0.40 |
|
|
|
1.98 |
|
|
2.05 |
|
|
|
|
|
|
|
|
||||||||
|
Net income (loss) from discontinued operations |
|
1,829 |
|
|
16,538 |
|
|
|
35,106 |
|
|
(9,830 |
) |
|
Basic earnings (loss) per share attributable to shareholders of Tricon from discontinued operations |
|
0.01 |
|
|
0.06 |
|
|
|
0.13 |
|
|
(0.04 |
) |
|
Diluted earnings (loss) per share attributable to shareholders of Tricon from discontinued operations |
|
0.01 |
|
|
0.06 |
|
|
|
0.11 |
|
|
(0.05 |
) |
|
|
|
|
|
|
|
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|
Dividends per share(1) |
$ |
0.058 |
|
$ |
0.058 |
|
|
$ |
0.232 |
|
$ |
0.225 |
|
|
|
|
|
|
|
|
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|
Weighted average shares outstanding – basic |
|
274,684,779 |
|
|
268,428,784 |
|
|
|
274,483,264 |
|
|
219,834,130 |
|
|
Weighted average shares outstanding – diluted |
|
311,222,080 |
|
|
270,953,420 |
|
|
|
311,100,493 |
|
|
222,118,737 |
|
|
|
|
|
|
|
|
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|
Non-IFRS(2) measures on a proportionate basis |
|
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|
Core funds from operations (“Core FFO”) |
$ |
96,841 |
|
$ |
45,630 |
|
|
$ |
237,288 |
|
$ |
152,021 |
|
|
Adjusted funds from operations (“AFFO”) |
|
88,694 |
|
|
36,548 |
|
|
|
198,264 |
|
|
121,594 |
|
|
|
|
|
|
|
|
||||||||
|
Core FFO per share(3) |
|
0.31 |
|
|
0.15 |
|
|
|
0.76 |
|
|
0.57 |
|
|
AFFO per share(3) |
|
0.28 |
|
|
0.12 |
|
|
|
0.64 |
|
|
0.45 |
|
|
|
|
|
|
|
|
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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. |
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Net income from continuing operations in the fourth quarter of 2022 was $55.9 million compared to $110.4 million in the fourth quarter of 2021, and included:
- Revenue from single-family rental properties of $180.9 million compared to $124.4 million in the fourth quarter of 2021, driven primarily by growth of 23.2% in the single-family rental portfolio to 35,908 homes and a 9.4% year-over-year increase in average effective monthly rent (from $1,591 to $1,741).
- Direct operating expenses of $58.4 million compared to $41.0 million in the fourth quarter of 2021, reflecting a larger rental portfolio, higher property tax expenses associated with increasing property value assessments, as well as general cost and labor market inflationary pressures.
- Revenue from private funds and advisory services of $14.8 million, compared to $17.7 million in the fourth quarter of 2021, driven by no performance fees being recognized in the quarter as well as a decrease in property management fees following the sale of Tricon’s remaining interest in the U.S. multi-family rental portfolio during the quarter.2
- Fair value gain on rental properties of $56.4 million compared to $261.7 million in the fourth quarter of 2021, attributable to a moderation in home price appreciation within the single-family rental portfolio given the current climate of rising mortgage rates and greater economic uncertainty.
Net income from continuing operations for the year ended December 31, 2022 was $779.4 million compared to $459.4 million for the year ended December 31, 2021, and included:
- Revenue from single-family rental properties of $645.6 million and direct operating expenses of $209.1 million compared to $445.9 million and $149.9 million in the prior year, respectively, which translated to a net operating income (“NOI”) increase of $140.5 million, attributable to the continued growth of the single-family rental portfolio and strong rent growth.
- Revenue from private funds and advisory services of $160.1 million compared to $50.7 million in the prior year, driven primarily by $100 million of performance fees earned from Tricon’s investors in respect of the sale of the U.S. multi-family rental portfolio.
- Fair value gain on rental properties of $859.0 million compared to $990.6 million in the prior year as a result of a moderation of home price appreciation experienced in the latter half of the year.
Core FFO for the fourth quarter of 2022 was $96.8 million, an increase of $51.2 million or 112% compared to $45.6 million in the fourth quarter of 2021. The increase in Core FFO was driven by NOI growth from the single-family rental business, as discussed above, and higher performance fees earned from Tricon’s investors in respect of the sale of the U.S. multi-family rental portfolio (these performance fees were earned and contributed to net income in the third quarter, but were recognized as part of Core FFO upon receipt in the fourth quarter). The performance fees related to the U.S. multi-family portfolio sale contributed $99.9 million of Core FFO from fees for a net positive impact of $50.3 million to Core FFO ($0.16 Core FFO per share) after deducting LTIP and performance fee payments to management. During the twelve months ended December 31, 2022, Core FFO increased by $85.3 million or 56% to $237.3 million compared to $152.0 million in the prior year, for the reasons noted above.
Adjusted funds from operations (“AFFO”) for the three and twelve months ended December 31, 2022 was $88.7 million and $198.3 million, respectively, an increase of $52.1 million (143%) and $76.7 million (63%) from the same periods in the prior year. This growth in AFFO was driven by the increase in Core FFO discussed above.
Single-Family Rental Operating Highlights
The measures presented in the table below and throughout this press release are on a proportionate basis, reflecting only the portion attributable to Tricon’s shareholders based on the Company’s ownership percentage of the underlying entities and excludes the percentage associated with non-controlling and limited partners’ interests, unless otherwise stated. A list of these measures, together with a description of the information each measure reflects and the reasons why management believes the measure to be useful or relevant in evaluating the underlying performance of the Company’s businesses, is set out in Section 6 of Tricon’s MD&A.
|
For the periods ended December 31 |
Three months |
|
Twelve months |
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|
(in thousands of U.S. dollars, except percentages and homes) |
2022 |
2021 |
|
2022 |
2021 |
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|
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Total rental homes managed |
|
|
|
|
36,259 |
|
|
29,237 |
|
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|
Total proportionate net operating income (NOI)(1) |
$ |
73,744 |
|
$ |
59,354 |
|
|
$ |
275,543 |
|
$ |
221,655 |
|
|
Total proportionate net operating income (NOI) growth(1) |
|
24.2 |
% |
|
17.6 |
% |
|
|
24.3 |
% |
|
12.2 |
% |
|
Same home net operating income (NOI) margin(1) |
|
69.8 |
% |
|
68.0 |
% |
|
|
68.6 |
% |
|
67.4 |
% |
|
Same home net operating income (NOI) growth(1) |
|
9.7 |
% |
|
N/A |
|
|
|
10.4 |
% |
|
N/A |
|
|
Same home occupancy |
|
98.0 |
% |
|
97.8 |
% |
|
|
98.1 |
% |
|
97.6 |
% |
|
Same home annualized turnover |
|
12.2 |
% |
|
15.3 |
% |
|
|
15.0 |
% |
|
20.6 |
% |
|
Same home average quarterly rent growth – renewal |
|
6.8 |
% |
|
5.7 |
% |
|
|
6.5 |
% |
|
4.9 |
% |
|
Same home average quarterly rent growth – new move-in |
|
11.5 |
% |
|
18.6 |
% |
|
|
16.8 |
% |
|
17.0 |
% |
|
Same home average quarterly rent growth – blended |
|
7.4 |
% |
|
8.9 |
% |
|
|
8.2 |
% |
|
8.3 |
% |
|
(1) Non-IFRS measures are presented to illustrate alternative relevant measures to assess the Company’s performance. For the basis of presentation of the Company’s Non-IFRS measures and reconciliations, refer to the “Non-IFRS Measures” section and Appendix A. For definitions of the Company’s Non-IFRS measures, refer to Section 6 of Tricon’s MD&A. |
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Single-family rental NOI was $73.7 million for the fourth quarter of 2022, an increase of $14.4 million or 24.2% compared to the same period in 2021. The higher NOI was mainly driven by an $18.6 million or 22.1% increase in rental revenues as a result of a 9.4% increase in the average monthly rent ($1,741 in Q4 2022 vs. $1,591 in Q4 2021) and 8.9% portfolio growth (Tricon’s proportionate share of rental homes was 21,464 in Q4 2022 compared to 19,707 in Q4 2021). This favorable change in rental revenue was partially offset by a $4.3 million or 14.4% increase in direct operating expenses reflecting incremental costs associated with a larger portfolio of homes, higher property taxes attributable to increased assessed property values and growth in property management costs reflecting a tighter labor market.
Single-family rental same home NOI growth was 9.7% in the fourth quarter of 2022, primarily attributable to revenue growth of 6.9%, driven by a 7.7% increase in average monthly rent ($1,680 in Q4 2022 compared to $1,560 in Q4 2021), along with a 20 basis point increase in occupancy to 98.0%. This favorable growth in rental revenue was partially offset by a reduction in other revenue and a 0.8% increase in operating expenses reflecting higher property taxes and property management expenses, offset primarily by lower turnover, repairs and maintenance expenses.
Single-Family Rental Investment Activity
The Company expanded its single-family rental portfolio by acquiring 815 homes during the quarter, bringing its total managed portfolio to 35,908 rental homes. The homes were purchased at an average cost per home of $331,000, including up-front renovations, for a total acquisition cost of $270 million, of which Tricon’s share was approximately $84 million.
Adjacent Residential Businesses Highlights
Quarterly highlights of the Company’s adjacent residential businesses include:
- In the Canadian multi-family business, The Selby’s occupancy remained strong at 98.0%, supported by an improved annualized turnover rate of 24.0% and blended rent growth of 11.4% (reflecting a combination of higher market rents and the removal of substantial leasing concessions prevalent during the COVID-19 pandemic). These factors resulted in a year-over-year NOI growth of 35.0%;
- In Tricon’s Canadian residential development portfolio, The Taylor’s occupancy rates are tracking ahead of plan, with 41% of the building leased up at average monthly rents of C$4.42 per square foot. Construction at The Ivy and Canary Landing (West Don Lands) – Block 8 continue to progress, with first occupancy anticipated by mid-2023. Meanwhile, the Symington project is on track to commence construction in early 2023. Although the portfolio experienced pressures on construction timelines and costs associated with the current inflationary environment, the Company leveraged its strong trade relationships to minimize construction delays and reduce the impact of cost increases; and
- Tricon’s investments in U.S. residential developments generated $5.4 million of distributions to the Company in Q4 2022.
Change in Net Assets
Tricon’s net assets were $3.8 billion at December 31, 2022, relatively consistent compared to September 30, 2022 and increasing significantly on a year-over-year basis. Tricon’s net assets grew by $36 million and $736 million when compared to $3.8 billion and $3.1 billion as at September 30, 2022 and December 31, 2021, respectively. These increases were primarily attributable to fair value gains of $32 million and $760 million for the three and twelve months ended December 31, 2022 (on a proportionate basis). Accordingly, Tricon’s book value (net assets) per common share outstanding also increased by 24% year-over-year to $13.89 (C$18.81) as at December 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 which was undrawn and available to the Company as at December 31, 2022. The Company also had approximately $204 million of unrestricted cash on hand, resulting in total liquidity of $704 million.
As at December 31, 2022, Tricon’s pro-rata net debt (excluding exchangeable instruments) was $2.7 billion, reflecting a pro-rata net debt to assets ratio of 34.9%. For the three months ended December 31, 2022, Tricon’s pro-rata net debt to Adjusted EBITDAre ratio was 4.3x. When excluding the performance fees earned in respect of the sale of the U.S. multi-family rental portfolio, Tricon’s pro-rata net debt to Adjusted EBITDAre ratio was 7.2x.3,4
Full Year 2023 Guidance
The following table highlights guidance for the Company’s Core FFO per share, same home metrics and acquisitions for the upcoming fiscal year. Given the ongoing dislocation in the capital markets, whereby the high cost of financing has negatively impacted investment returns on most acquisitions, Tricon has elected to reduce its pace of acquisitions in 2023 and expects to acquire approximately 400 homes in the first quarter of 2023, and to moderate external growth for the remainder of 2023.
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For the years ended December 31 |
|
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|
(in billions of U.S. dollars, except per share amounts which are in U.S. dollars, unless otherwise indicated) |
2022 Recent guidance |
2022 Actual |
2023 Guidance |
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|
Core FFO per share |
$ |
0.75 |
|
– |
0.77 |
|
$ |
0.76 |
|
$ |
0.54 |
|
– |
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
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|
Same home revenue growth |
|
8.0 |
% |
– |
9.0 |
% |
|
8.3 |
% |
|
6.0 |
% |
– |
|
7.5 |
% |
|
Same home expense growth |
|
4.5 |
% |
– |
5.5 |
% |
|
4.1 |
% |
|
6.0 |
% |
– |
|
7.5 |
% |
|
Same home NOI growth |
|
10.0 |
% |
– |
11.0 |
% |
|
10.4 |
% |
|
6.0 |
% |
– |
|
7.5 |
% |
|
Single-family rental acquisitions (homes)(1) |
7,300+ |
|
7,227 |
|
|
2,000 |
|
– |
|
4,000 |
|
|||||
|
Single-family rental acquisitions ($ in billions)(1) |
|
|
N/A |
|
$ |
2.6 |
|
$ |
0.7 |
|
– |
$ |
1.4 |
|
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|
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|
(1) Single-family rental acquisition costs include initial purchase price, closing costs and up-front renovation costs. These acquisition home counts and costs are presented on a consolidated basis and Tricon’s share represents approximately 30%. |
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Reconciliation of Core FFO per share – 2022 results to 2023 Guidance mid-point
|
For the years ended December 31 |
|
||
|
|
|
||
|
2022 Core FFO per share |
$ |
0.76 |
|
|
U.S. multi-family portfolio disposition(1) |
|
(0.20 |
) |
|
2022 Core FFO per share excluding U.S multi-family portfolio disposition |
|
0.56 |
|
|
|
|
||
|
Change attributed to: |
|
||
|
Same home NOI growth |
|
0.05 |
|
|
Non-same home NOI growth |
|
0.08 |
|
|
Corporate overhead efficiencies |
|
0.03 |
|
|
Interest expense |
|
(0.12 |
) |
|
Income tax expenses and other |
|
(0.03 |
) |
|
Total change |
$ |
0.01 |
|
|
|
|
||
|
2023 Core FFO per share guidance midpoint |
$ |
0.57 |
|
|
|
|
||
|
(1) Includes impact to Core FFO from fees, Core FFO from U.S. multi-family rental, and corporate overhead expenses attributable to the U.S. multi-family business. |
|||
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 Canadian 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 February 28, 2023, the Board of Directors of the Company declared a dividend of $0.058 per common share in U.S. dollars payable on or after April 15, 2023 to shareholders of record on March 31, 2023.
Tricon’s dividends are designated as eligible dividends for Canadian tax purposes in accordance with subsection 89(14) of the Income Tax Act (Canada), and any applicable corresponding provincial and territorial legislation. Tricon has a Dividend Reinvestment Plan (“DRIP”) which allows eligible shareholders of the Company to reinvest their cash dividends in additional common shares of the Company. Common shares issued pursuant to the DRIP in connection with the announced dividend will be issued from treasury at a 1% discount from the market price, as defined in the DRIP. Participation in the DRIP is optional and shareholders who do not participate in the plan will continue to receive cash dividends. A complete copy of the DRIP is available in the Investors section of Tricon’s website at www.triconresidential.com.
Conference Call and Webcast
Management will host a conference call at 11 a.m. ET on Thursday, March 2, 2023 to discuss the Company’s results. Please call (888) 550-5422 or (646) 960-0676 (Conference ID #3699415). The conference call will also be accessible via webcast at www.triconresidential.com (Investors – News & Events). A replay of the call will be available from 3 p.m. ET on March 2, 2023 until midnight ET, on April 2, 2023.
Contacts
For further information:
Wissam Francis
EVP & Chief Financial Officer
Wojtek Nowak
Managing Director, Capital Markets
Email: [email protected]
