Tricon Residential Inc

TSX:TCN

Earnings Call Transcript 2021-Q1

[Operator]

Good morning. My name is Tammy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tricon Residential's First Quarter 2021 Analyst Conference Call. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Wojtek Nowak, Managing Director of Capital Markets. Thank you. Please go ahead.

[Wojtek Nowak, Managing Director of Capital Markets]

Thank you, Tammy. Good morning, everyone, and thank you for joining us to discuss Tricon's first quarter results for the 3 months ended March 31, 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 our 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 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 follow by joining our webcast or you can access directly through our website. 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.

[Gary Berman, President, CEO & Director]

Thank you, Wojtek, and good morning, everyone. Thank you for joining us today. I hope everyone is having a safe and healthy start to '21. I'm excited to update you on our progress in what has been a very active few months for Tricon. But before we get into our quarterly overview, I want to first thank our dedicated team members who continue to go above and beyond for our residents. Our team delivered exceptional results despite having to navigate ongoing pandemic challenges as well as extreme cold weather in Texas, Nashville and Indianapolis, which thankfully had minimal impact on our residents and our homes. Our frontline colleagues responded quickly, efficiently, and empathetically to these challenges while displaying tremendous teamwork. They continue to raise the bar when it comes to serving our residents, and I want to acknowledge their efforts. Let's start on Slide 2 and talk about the key takeaways we want to emphasize for you today. First, our business is benefiting from long-term tailwinds to support our Sun Belt middle-market rental strategy. Americans continue to flock to the Sun Belt in search of job growth, better weather, lower taxes, and affordable living options. And our rental homes address the housing needs for America's largest demographic, the millennials. Second, our core single-family rental business continues to deliver solid operating performance. With near record occupancy levels and demand trends like we've never seen before, our single-family rental business is booming. Third, our U.S. multifamily business, which experienced some softness through the pandemic is showing signs of sequential improvement. Fourth, we are on track for the most prolific year of fundraising in Tricon's 33-year history, with $1 billion of third-party equity capital commitments announced year-to-date. These investment joint ventures provide a clear path to growth for Tricon for years to come. And finally, we have not only achieved but also exceeded our deleveraging target and a year ahead of schedule at that. Let's now turn to Slide 3 for a summary of our results. We reported core FFO per share of $0.13 this quarter, an increase of 30% compared to last year. Our net operating income grew a solid 14% year-over-year, while overhead and interest expenses remain relatively stable on the whole, creating strong bottom line growth. This quarter, we also delivered on several important strategic initiatives, including syndicating our U.S. multifamily portfolio, which raised $432 million in gross proceeds, forming a CAD 1.4 billion joint venture with CPP Investments, and launching the $1.5 billion Homebuilder Direct joint venture. We did all of this while reducing our leverage significantly. Moving to Slide 4. In our single-family rental business, we continue to see exceptional growth from new and existing assets as Tricon's proportionate share of NOI increased by 8.3% and same home NOI grew 4.1% compared to last year. Without the impact of the Texas storm, our same home NOI growth would have been 80 basis points higher at 4.9%. We also achieved near record same home NOI margin of 66.7%, driven by strong operating metrics. It is worth noting that our NOI margin would have been 67.1% if we exclude the impact of the Texas freeze and 67.8% if we normalize for the higher bad debt and loss of ancillary income as a result of the pandemic. In U.S. multifamily rental, we are especially encouraged by strong sequential improvement in occupancy, turnover and blended rent growth, which turned positive for the first time in 4 quarters. And finally, fore-sale housing delivered another strong quarter, distributing $12.9 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 have shared with you numerous statistics in recent quarters, such as data for moving truck companies that clearly show these migration trends accelerating during the pandemic. These are not just passing trends, but rather longer-term population shifts that have been in place for many years. The U.S. government recently published its 10-year census data, which shows that the South has been the fastest-growing region in the U.S., more specifically, the states where Tricon operates, have experienced population growth of 11% on average over the past decade, which is 400 basis points above the national average. Clearly, it's not just a pandemic that is bringing people South, it's the attractive combination of warmer weather, lower taxes, strong job growth and affordable living options that has been in place for some time, and we expect we'll continue to drive the Sun Belt migration. On Slide 6, we touch on another one of Tricon's fundamental long-term tailwinds, demographics. 2 demographic shifts are behind the significant demand for single-family housing. The first is the giant millennial cohort, those born between 1980 and 2000 and numbering 72 million people who are entering their primary age of family formation over the next decade. With an average age of head of household of 38 in our SFR portfolio, millennials represent the primary source of demand for our single-family rental homes. The other major cohort is the baby boomers, who number 69 million people and are the second largest demographic. Boomers will remain a significant driver of demographic trends over the next 10 years and are increasingly choosing to age in place rather than moving to a retirement home. By staying put, they increase the length of time Americans stay in their homes, limit the supply of single-family homes available for the younger generation and drive up home pricing. Tricon Residential plays an important market role in addressing this demand supply imbalance by providing maintenance-free single-family rental housing at an affordable price point to millennials who've grown up in the sharing economy and often prioritize experiences over ownership. With such compelling long-term trends on our side, it should come as no surprise that we focused on single-family rental as our core growth strategy. On Slide 7, we outline our asset mix, where you can see that single-family rental now represents 93% of our consolidated real estate assets and is expected to remain above 90% going forward. Residential development is expected to remain near 5% of assets and also includes build-to-rent communities that add to our SFR portfolio. multifamily rental has now been reduced to 2% of assets as a result of the recent syndication and is expected to remain below 5% going forward. Let's now move to Slide 8 to expand on our SFR growth strategy and talk about our various acquisition channels. As you can see, we have a diversified acquisition strategy and have formed complementary joint ventures with third-party investors to help us scale faster across each of these channels. Our largest acquisition program is SFR JV-1, where we acquire homes mainly through the MLS as well as off-market channels and portfolio acquisitions. Over the past year, we've also expanded into development of build-to-rent communities under our joint venture with Arizona State Retirement system. And just a few days ago, we announced the formation of our Homebuilder Direct JV which focuses on buying new scattered homes and completed build-to-rent communities directly from homebuilders. This new venture is very synergistic with our legacy for-sale housing business as it leverages a long-standing relationships with homebuilders to gain access to the newly built homes. On Slide 9, you can see a summary of our various SFR joint ventures. The key takeaway here is that Homebuilder Direct extends our runway to grow our single-family rental portfolio beyond 30,000 homes. And as we fully deploy the capital in SFR JV-1 and work towards closing a follow-on JV-2 this summer, you should expect us to expand our acquisition capacity significantly more. Turning to Slide 10. We'd like to give you some more insight into build-to-rent communities, which are a meaningful growth opportunity for us. And when we say build-to-rent, we're referring to dedicated single-family rental communities that we either acquire once completed or develop in partnership with homebuilders. Today, we own 6 build-to-rent communities with 474 homes in 5 markets. We expect to develop or acquire 10 communities this year and then add roughly 15 communities per year in '22 and beyond, either through acquisition or development. Once the communities are stabilized, it enables us to add 1,200 to 1,800 rental homes per year in addition to over 3,000 homes being acquired each year through MLS and other channels. Build-to-rent communities are a win-win for both Tricon and our residents. For residents, we can offer complete neighborhoods of affordably priced rental homes with a true sense of neighborhood and community. We can also custom design the homes to ensure a highly efficient use of space with light and bright floor plans that live larger than equivalent sized homes. And on the Tricon side, we benefit from a maintenance honeymoon as the homes are newly constructed and come with a warranty coverage. That's expected to result in maintenance and repair costs to be 34% lower than our existing portfolio over 10-year ownership period. Let's flip to Slide 11, where we showcase 4 of our existing build-to-rent communities. What we love about the build-to-rent product is that it provides our residents with the best of all worlds. The privacy and perceived safety of living in a brand-new single-family home as well as the community atmosphere and amenities of multifamily. And the monthly rent of our existing communities is roughly $1 per square foot, which is 30% to 50% cheaper than similarly situated garden-style apartment rents on a per foot basis. To run at the discussion of our growth strategies, I'd like to touch on Canadian multifamily on Slide 12, where we recently announced a CAD 1.4 billion joint venture with CPP Investments to nearly double our platform towards 7,000 units. While Canadian multifamily development is less than 5% of our balance sheet assets, it does represent an exciting source of upside for our shareholders, which could add close to $3 per share to our NAV in Canadian dollars as this portfolio is developed and stabilized over the coming years. Our first project with CPP Investments depicted on Slide 13 is located in Toronto's Downtown East submarket and in close proximity to a future Ontario line subway station. Situated in a fully entitled 1.8-acre site, the planned development consists of 2 towers totaling 870 rental suites and will feature a 0.5-acre park and an extensive list of amenities to give our residents an unmatched downtown living experience. That concludes my opening remarks. I would now like to pass the presentation over to Wissam to discuss our financial results.

[Wissam Francis, Executive VP & CFO]

Thank you, Gary, and good morning, everyone. Overall, we had a great start to the year with all the groups firing on all cylinders. It was a very busy quarter, and we are proud of what we've accomplished. From our fundraising efforts to our robust financial results, we've made significant progress on all of our key priorities outlined on Slide 14. To refresh everyone, we introduced these 5 key priorities in 2019. These included growing our core FFO per share at a compounded annual rate of 10% over 3 years through 2022, raising approximately $1 billion of third-party capital over 3 years, growing book value per share by reinvesting our free cash flow into accretive growth opportunities, reducing our leverage and improving our reporting. You can see our progress against these goals in the dashboard on Slide 15. I am excited to report that we are on track to achieving or exceeding these goals and in some cases, doing so well ahead of schedule. All while in the middle of a global pandemic. This could not have been achieved without the amazing effort from our people. So I want to thank our team for the endless hours and dedication along this journey. Let's begin with our 3-year FFO target. We had a great start to the year and achieved $0.13 of FFO per share. Assuming the current trend holds, we are confident that we can achieve our FFO target range 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 deleveraging plans. Recall, we set the target prior to even considering an 80% syndication of U.S. MFR. But we are still confident we will achieve it. In terms of raising third-party capital, we achieved a major milestone by raising $1 billion of fee-bearing equity capital a year ahead of schedule. This includes our recent U.S. multifamily portfolio syndication, the single-family rental Homebuilder Direct joint venture, and our Canadian multifamily joint venture with CPP Investments. With more exciting opportunities in the pipeline, we are planning to continue with this momentum as the year progresses. We're focused on beating this target as we continue more third-party capital raising efforts. In terms of reducing our leverage to our target range of 50% to 55%, I am very happy to report that we have exceeded our target ahead of schedule and are now sitting at 49% net debt to assets. This translates to 46% net debt to assets on a proportionate basis. We remain focused on bringing our leverage lower over time, while continuing to grow our business. Our final priority was to improve our reporting, which is substantially completed with our transition from investment entity accounting to consolidated accounting last year as well as adopting REIT like MD&A disclosures, such as FFO and AFFO per share. With ESG as a company-wide priority, we issued our first ESG road map at the beginning of 2020. Turning to Slide 16. I'm thrilled to announce that our first annual sustainability report will be released later this month. ESG has always been a part of Tricon's DNA in how we treat our people and how we treat our residents and also how we operate our business. This report is a major step in our ESG journey and highlights our many sustainability initiatives we have committed to as well as showcasing how we did this past year. Let's talk about the quarter. Let's move on to Slide 17, where we provide highlights of our key metrics. First, our net income from continued operations grew 190% year-over-year to nearly $42 million. This included $66 million of NOI from our rental properties, representing a 14% year-over-year increase. We also had a $112 million sales value gain on rental properties in Q1 compared to $21 million in the prior year, reflecting significant home price appreciation in Tricon's markets. Second, our core FFO per share increased 30% to $0.13 or CAD 0.16. Third, we reported AFFO of $0.10 per share. This translates to CAD 0.13 and provides us with ample cushion to support our quarterly dividend of CAD 0.07 per share, reflecting an AFFO payout ratio of 42%. Moving on to Slide 18, which highlights the drivers that contributed to our FFO per share growth for the quarter. The year-over-year increase of $0.03 or 30% per share was due to strength across several aspects of our business. Our single-family rental portfolio, which makes up over 90% of our real estate assets delivered 8% growth to Tricon's share of NOI. This was driven by a 9.1% increase in the number of homes, coupled with strong blended rent growth of 6.4% and occupancy of 96.3%. Our other businesses also contributed meaningfully this quarter. Residential development performed very well as demand for development lots in our for-sale housing business exceeded our expectations during the pandemic. The business contributed $6.7 million to our FFO this quarter and generated $12.9 million of cash flow for Tricon, which includes performance fees. There was also a $1.1 million increase in private funds and advisory revenue, driven by an increase in development fees earned from our growing portfolio of Canadian residential developments. Likewise, we saw a year-over-year decrease in interest expense due to refinancing activities that have allowed us to benefit from a 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 higher weighted average shares outstanding. Turning to our debt profile on Slide 19. Aside from the significant reduction in leverage that I spoke about earlier, you can see that we also have improved our liquidity position over the past year with $776 million of liquidity, including cash on hand and room on our corporate credit facility. A big part of the improvement was the U.S. multifamily portfolio syndication, which brought in $432 million of gross proceeds. We used that to repay $110 million credit facility outstanding in the portfolio as well as debt outstanding on our corporate revolver. We expect to use most of the remaining cash to partially repay the term loans in our single-family rental portfolio, which mature next year that can be prepaid this year. As we look ahead to 2022, aside from retiring a portion of the debt, we expect to finance the bulk of these maturities with new property debt, including securitization. We see a significant opportunity for interest expense savings in today's low interest environment, given that the blended rate on these maturities is 3%, whereas our latest securitization was done at 1.83%. And so if we could save 100 basis points on our $1 billion of debt, we could translate that to $10 million of interest expense savings annually or $0.03 per share in incremental core FFO. On that note, let me pass the call over to Kevin Baldridge, Chief Operating Officer, to discuss the operational highlights for the quarter.

[Kevin Baldridge, Chief Operating Officer]

Thank you, Wissam, and good morning, everyone. As Gary noted, despite the pandemic and these difficult times, our team continues to rise the occasion and amaze me with their dedication to our residents. The winter storms in Texas, Nashville and Indianapolis were no different. With our teams from across the country coming to each other's aid to prioritize the safety and well-being of our residents. We were fortunate that everyone remains safe and that the overall damage was minimal. And that despite these challenges, our operational performance has never been better. I've been in rental housing for over 25 years, and I've never seen metrics like this. We would dream of times like these. It's crazy. So with that, let's turn to Slide 20 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 4.1% year-over-year, and 4.9%, excluding the impact of the Texas storm. As we dive into the numbers, same home revenue grew by 3.1%. This was driven by an occupancy increase of 80 basis points and higher average rents, which resulted in rental revenue that was 5.1% higher than last year. The offsetting factor was higher bad debt expense of 2.1% of revenue compared to 0.8% the prior year. I'm pleased to report that as we move to the other side of this pandemic, our bad debt expense has declined by 70 basis points since the fourth quarter of 2020. We do believe that things will continue to improve as the effects of the pandemic subside, and we expect bad debt to normalize into 2022. On the expense side, we saw a modest increase of 0.9% compared to last year, reflecting our focus on expense control. Contributing to this was a 7% reduction in repairs, maintenance, and turnover costs, reflecting an 80-basis point decrease in the turnover rate compared to last year to 20.6%. We attribute this with a propensity to stay in place as a result of the COVID pandemic as well as our focus on superior resident service. Property taxes grew by 3.7% year-over-year as our property values appreciated meaningfully. In addition, we saw a 10% increase in property insurance as premiums increased across the industry. Turning to Slide 21. You can see that the exceptional demands and the trends in single-family rental homes have not slowed down. Occupancy remains at all-time highs and has nudged higher in April. Rent growth on new move-ins continue to accelerate and hit an all-time high also at 16.3% growth in April as we harvested the loss to lease that has built up over time with our low turnover rate. Meanwhile, rent growth and renewals is ticking upwards as strong demand for our homes allows us to push that metric up a bit more, but still being sensitive to the challenging economic environment impacting our residents. Now let's turn to Slide 22 to discuss the U.S. multifamily rental business, which was consolidated in our results at 100% ownership throughout the quarter. Compared to last year, the Q1 variance was still negative as NOI decreased by 5%. If we delve into the components of NOI, revenues were down 1.3% relative to last year as a result of lower occupancy, lower average rent, and higher bad debt provisions, offset by higher revenue from new ancillary services. However, of late, concessions have decreased meaningfully, blended rents are improving, which is encouraging to see. Our average concession in March was $63, down from $420 in July of last year. Expenses increased by 4.3% year-over-year, driven mostly by utilities, slight increase in property taxes and marketing expenses. Despite the decrease in NOI compared to last year, we actually saw an increase in FFO contribution from the multifamily portfolio of approximately $300,000 as we benefited from lower interest rates. I'm also encouraged that we're seeing that our NOI has stabilized on a sequential basis. This reflects significant improvement in operating metrics, including a 100-basis point increase in occupancy, lower turnover, and blended rent growth of positive 2.9%. It's the first time in 4 quarters that we've reported positive blended rent growth. We are optimistic that performance will continue to get better from here as local economies open up. We've seen these trends continue into April, which bodes well for strong performance through Q2 and into Q3. I want to thank our operations team for the contribution this quarter to both our single-family and multifamily rental performance. And I look forward to continuing at full speed ahead as the year progresses. Now I'll turn the call back over to Gary for closing remarks.

[Gary Berman, President, CEO & Director]

Thank you, Kevin. I'd like to finish our presentation today with an overview of our private fundraising pipeline and future catalysts. Turning to Slide 23. Private funds and advisory have always been a part of Tricon's core activity over its 33 years of history, and 2021 is gearing up to be the most prolific year of fundraising in our company's history. On this page, we highlight our existing investment vehicles as well as our fundraising opportunities for 2021. While we're still early into the year, we've already raised $1 billion of third-party equity commitments year-to-date, including the U.S. multifamily syndication, Homebuilder Direct and the CPP Investments joint venture. It's been a busy year, indeed, and we're not done yet. Still on the horizon is SFR JV-2, a successor vehicle to SFR JV-1, which we expect to be fully invested by midyear. And secondly, we're working towards a growth vehicle to acquire garden-style multifamily apartment buildings in the U.S. Sun Belt to round out our syndicated portfolio. Overall, we expect the investment vehicles raised this year should contribute $10 million of annualized asset management fees to our top line. And so let's conclude on Slide 24 with an overview of the catalyst that our team has delivered on and ones that you, our shareholders can look forward to. First, we closed the syndication of our U.S. multifamily portfolio in Q1 and which ties to our second point here that upon closing of this transaction, our leverage has been successfully reduced to 46% on a proportionate basis. In terms of growth, we've raised third-party capital across all residential strategies, which I outlined earlier, with more to come. Our own balance sheet investments will remain focused on single-family rental, which will account for over 90% of our real estate assets going forward. Our acquisition program is already back to pre-pandemic levels but will be accelerated further as we layer on Homebuilder Direct and SFR JV-2 later in the year. Meanwhile, our legacy for-sale housing assets remain a very small part of our business that are quietly producing significant cash. We expect to generate over $300 million in next 5 to 7 years, which can be used for deleveraging and to reallocate to our rental housing business. And lastly, north of the border, we continue to construct, develop and stabilize our Canadian multifamily development properties that we think can generate close to $3 per share of value on top of the existing IFRS NAV as we quietly incubate a best-in-class multifamily portfolio. I'm thankful to our team for all the progress we made so far this year. We are very fortunate to emerge from this pandemic in such a strong position and to be able to hit the ground running in 2021 with so much momentum. That concludes our prepared remarks. I will pass the call back to Tammy to take questions. Wissam, Kevin and I will also be joined by Jonathan Ellenzweig, Andy Carmody and Andrew Joyner, to answer questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Matt Logan with RBC Capital Markets.

[Matt Logan, Analyst]

Given the strength in your SFR business in February, March, and April, how should we be thinking about the growth algorithm going forward? Is this now low to mid-teens rent growth with 20% turnover and rent increases of 4% to 6% for sitting tenants?

[Gary Berman, President, CEO & Director]

Well, let's take each component. I mean first of all, we're going to continue to have an occupancy bias. So if you notice our occupancy has been ticking up a little bit over 97.5%. And we're very comfortable operating in that 97% range through this year. So that's something I think we certainly learned by being in the pandemic that we think it makes sense to operate at a higher level. In the past, we would have pushed rents significantly higher, let's say, if we were at 95% or 96%. So we will continue to have an occupancy bias. I think on rent growth, again, we're going to self-govern on renewals. So those renewals are ticking up, but we do have an internal cap, and we will be mindful of that. So I think with that -- the self-governing on renewals, Matt, I think we'll be able to hit blended rent growth of approximately 6%. But I wouldn't guide any higher than that. I mean we're seeing unbelievable re-leasing spreads. I mean, Kevin talked about 16% in April. That's clearly not sustainable. So we don't want you to get focused on 16%. But I think if we can do 6%, that would be outstanding, even though April were 8%, which is just really mind blowing. And we've never seen metrics like this. As I said before, the business is absolutely booming. And then I think on turnover, I think turnover will remain, and maybe Kevin can chime in too. But I think turnover will remain definitely lower all year, but it's probably a little bit artificially low. And as we get out of the pandemic, that will move up a little higher, but probably should stay below where we were in 2019. And look, if turnover does tick up a little bit, obviously, that hurts our R&M on the margin, but it also allows us to capture the loss to lease. So it's probably kif-kif. Kevin, anything you want to add?

[Kevin Baldridge, Chief Operating Officer]

I think you said it perfectly. The only thing I would add is, as people start moving out maybe because of the pandemic getting behind us, we'll also see our collections improve. And while turnover may go up a little bit, we'll also see our collections improve and offset each other.

[Matt Logan, Analyst]

When you think about the type of tenants that you're attracting today versus, say, a year or 2 ago, like has there been any change? And do you think the demand is reflective of kind of pent-up demand through the pandemic? Or are we starting to see more structural changes in people moving from north to south or from kind of urban to suburban as the vaccine rollout progresses?

[Gary Berman, President, CEO & Director]

Kevin, I'll let you to start, and then I'll continue.

[Kevin Baldridge, Chief Operating Officer]

Yes. I'd say we have stayed very disciplined from the very beginning with our underwriting. And we're right now, we still have, I'd say, our household income to rents are in the 22%, 23%. And we've really kind of stuck to our knitting and made sure that we were being disciplined. And during the middle of the pandemic, we actually also were asking right before somebody moved in, we then did another check to make sure they still have a job. And so we have found that the resident profile that has been with us throughout the pandemic and even the people that were -- have jobs, all have very good qualifications. So it's something we continue to work on and believe that our bad debt is going to continue to improve. Before the pandemic, we were at 0.8%, and we're confident we'll get back there into 2022.

[Gary Berman, President, CEO & Director]

And I'm going to talk more about the migration trends, Matt, but I think just on the bad debt, I mean, we really view the bad debt, which is obviously elevated right now, but it's not a big factor in driving our results. But we just view it as a cost of doing business. It's really an artificially high number in the pandemic because we are not evicting generally for nonpayment of rent. There is significant demand, as you know, for our product. So this -- so the higher bad debt, just so you're aware, it's not an indication of really of the economy. It's just more of our ESG approach and being sensitive during this time and trying to keep people in the homes and work with them. That's the only reason that the bad debt is elevated. But as Kevin said, we believe that it will start normalizing into '22. On the migration, look, the demand for this business is incredibly strong going into the pandemic. And we really view the pandemic as an accelerant of a lot of the trends that were taking place before, right? So this great migration that we've talked about was there. It's just continuing for many factors. But what the pandemic layer on top of that was this feeling of this want for deurbanization and dedensification, prioritization of safety and then obviously, the work from home trends. And we think those are going to continue. It's not to say, by any means that we think office is dead. We're investing in our own office space. We believe in building culture. But on the margin, we think more and more people will be working from home. There will be more flexible work arrangements. And all of that favors the Sun Belt because it's -- if you're going to live anywhere, it makes sense to live in a place where it costs less, you have lower taxes and better weather. So we think we're set up really well. We don't think this is -- these are short-term or passing trends, as we said in our prepared remarks. This very much could be a decade of really strong growth. We think these tailwinds are going to be with us for a long, long time, and we're incredibly well set up.

[Matt Logan, Analyst]

Completely agree. I appreciate the color. Maybe one last one for me. Just in terms of your 2022 FFO guidance, can you remind us of the key assumptions in terms of organic growth, third-party capital and SFR acquisitions?

[Gary Berman, President, CEO & Director]

Yes. So we assume on SFR acquisitions that we would complete JV-1 and acquire roughly 800 homes per quarter. We assumed same-store NOI growth in SFR of 4% to 5%. We're right on track for that. We assumed about 3% for multifamily. Obviously, we're behind there, but it's become a very small part of the portfolio. But I would say, we're going to catch up significantly. It wouldn't surprise me at some point at the end of the year, if the same-store growth in multifamily is higher than SFR, because we're seeing a really big resurgence there and really strong trends into the stronger leasing season. And then on the third-party capital, we assume that we'd raise $1 billion of equity of fee-bearing equity, and we've already done that. So we feel very confident about hitting the $0.52 to $0.57 range. But please keep in mind, as Wissam mentioned, when we set those targets, we didn't anticipate deleveraging as fast as we have, and we're already below our targets, significantly below the target. We also didn't anticipate syndicating an 80% interest of the U.S. multifamily portfolio. I think at that time, it was only about 50%. And that's short-term dilutive is something, obviously, you need to take into account, certainly next quarter, but we'll be long-term neutral. And then also the Blackstone preferred stock deal, obviously, we didn't take into account. So all of those things -- and then the last thing I would say is that, as you know, at one point, we're erroneously, including our multifamily Canadian investment income into that FFO calculation, which we shouldn't have been doing. And so we actually set that 52% to 57% target without any of those factors. And so the fact that we still think we can hit it just shows how strong we're growing.

[Operator]

Your next question comes from the line of Dean Wilkinson with CIBC.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Just a couple of quick ones for Wissam, one's tax, one's accounting. Wissam, have you been able to sort of dissect that proposed tax deductibility app, federal budget and how that could impact you guys? And are there ways to deal with that, if you do bump up against those 40% and 30%?

[Wissam Francis, Executive VP & CFO]

We have not fully dissected that. We're still waiting for more information and come out more specific information. But just -- we have a strategy in place already from a tax perspective, both in Canada and the U.S., whereby, we have more, we shift expenses between countries, and we have the ability to look at tax achievable areas, both in Canada and the U.S. So we have not looked at it in detail yet, but we have strategies in place to account for it if it does come through.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. Would you be up against those limits right now based upon where your current leverage is? I haven't done the math.

[Wissam Francis, Executive VP & CFO]

No, we're not.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. So it's probably a moot point. And then the second question is just a quick accounting one. The 2020 FFO was recast to make it comparable. Will we see a similar recasting in Q2, Q3 and Q4 as you roll those forward? Or do you have those numbers already?

[Wissam Francis, Executive VP & CFO]

No. We will not see -- you will not see a similar recasting. One of the items that we've fixed was the Canadian multifamily. In Q1 of 2020, we included that in our FFO. And then we stripped it out. So Canadian development was stripped out. And we didn't -- we never took any further FFO gains on that in Q2, Q3 and Q4.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. So -- perfect. Those will be a pure comp.

[Operator]

Your next question comes from the line of Lorne Kalmar with TD Securities.

[Lorne Kalmar, Associate]

On the SFR acquisition pace, I think you guys said with the Homebuilder Direct now, you'll be up to about 1,000, and you expect that to increase further with the JV-2. How do you see the quarterly acquisitions trending, moving ahead?

[Gary Berman, President, CEO & Director]

Trending up. That's the short answer. We're -- yes, that's the guidance we can give you on trending up. Look, we've been doing 800 a quarter through SFR JV-1 and now that we layer Homebuilder Direct on top, we could probably go to 1,200 and then if we're able to enhance our buy box and then raise JV-2 -- SFR JV-2, I think is a long-term stretch goal, we could probably get to 1,500 per quarter. So almost a doubling of kind of where we've been over time, not immediately, but that would be the longer-term goal. So we're super excited. We have an opportunity with these fundraisers to significantly ramp up, increase our scale, become more and more efficient. So this is a really exciting story of growth and efficiency at the same time. Obviously, we'll be generating more third-party fee income as well, which will come to play. The only other thing I would add, Lorne, is that on Homebuilder Direct, it will be somewhat cyclical, right? It does depend on us entering into contracts with builders. It will ebb and flow a little bit. There'll be times where we'll be more acquisitive and others less depending on the builders' appetite. And in some cases, even though we put homes under contract, they might not actually close for many months or even until the next year. And we only record the purchase or acquisition when it does close. So just be mindful of that. But over time, though, I mean, I think if we look at all the programs together, SFR JV-1, eventually JV-2, Homebuilder Direct and the joint venture with Arizona State, you're going to see significantly higher acquisitions going forward.

[Lorne Kalmar, Associate]

Okay. And then maybe just switching gears, one of the things we've been hearing, I think, for a little bit now is the rise of construction costs. It didn't look like the cost or expected costs really increase much quarter-over-quarter, but how do you see those sort of trending? And do you think that demand in the market rents will be able to keep up to let you guys get your desired yields?

[Gary Berman, President, CEO & Director]

Yes. I mean the answer to your second part of your question is, absolutely. We are seeing home prices, rent growth, stay on pace and, in some cases, exceed the cost increases. But maybe to answer your first part of the question, I'll turn it over to Andy Carmody, who oversees our build-to-rent program and give you a little bit more color on inputs and homebuilding costs.

[Andrew Carmody, Managing Director of Investments]

Sure. Lorne, this is Andy. On the cost side, we're certainly seeing a spike in construction costs right now. And through the first part of this year, costs in aggregate risen about 10% with certain commodities, we've all heard and read about lumber up considerably more. And that's a pretty aggressive rise on the cost side, construction cost side in such a short period of time. And probably a little more importantly, as many of you know, land is a necessary component for new construction and development. And the land market for near-term availability is really tight right now. Land prices have gone up between 10% to 40% in some prime locations. So that's definitely putting pressure on our development activities. But as Gary mentioned, so far, we're seeing the ability to offset that with better rents and on the for-sale side with better home prices. But I'm not sure that's going to hold up and we'll probably put a little more pressure on our growth in the development side. And may temper the pace here, until the market equalizes a little bit from a construction cost standpoint.

[Lorne Kalmar, Associate]

Okay. And maybe in the same vein, what about on the Canadian multifamily front?

[Gary Berman, President, CEO & Director]

Yes. On the Canadian, it's same. I mean it's a similar trend in Canadian multifamily where we're seeing higher input costs. Even during the pandemic, I mean residential construction or construction, as you know, has largely been ongoing. It's been considered to be an essential service. So there's been no abatement in construction. It's continuing. We're seeing higher commodity prices, less labor in many cases. So all of that continues to put pressure on construction and the cost. But it hasn't done it to an extent where we aren't able to hit our untrended development yield. So to give you a sense, the project we just closed on -- very exciting project in Downtown East. We underwrote that to a mid-4.5% cap rate or development yield. That's untrended based on today's costs and today's rents, right? So we think that's a really attractive yield given where underlying financing rates are and cap rates. And would you like that -- Andrew, would you like to add to that?

[Andrew Carmody, Managing Director of Investments]

Yes. Sure. Yes. Thanks, Gary. Lorne, it's a fair question. And I think the ultimate big difference too between Canada and the U.S. is timber has been the headline inflationary item. And we have very little wood in what we build up here in Canada. So there's no question there's some upward pressure, but we've been trying to be thoughtful and deliberate, too, about leveraging our scale, bulk contracts, including caps in our contracts. And we have seen land move in our direction a little bit. And so that's helped us maintain our yields as well.

[Operator]

Your next question comes from the line of Mark Rothschild with Canaccord.

[Mark Rothschild, MD & Real Estate Analyst]

A lot of my questions have been answered already. And Gary, you definitely spoke about this earlier, the target range of $0.52 to $0.57 stands and all that's happened since then that wasn't necessarily in that original target. Going forward, with all this capital that's raised and the accelerating pace of acquisitions, are you more focused on pushing that number higher versus strengthening the balance sheet more and reducing leverage? Or would either one be a clear focus?

[Gary Berman, President, CEO & Director]

We're trying to strike the balance because, I mean, look, we could -- I mean on an FFO per share basis, I mean, we could -- I mean we could crush it if we weren't focused on the balance sheet. But we know it's important for our shareholders to maintain our discipline on the balance sheet and the debt. And so now that we've got our leverage down below 50% debt to assets, we want to keep it there. And so that ultimately becomes the anchor and so therefore, we have to keep that in mind as we're targeting the growth. But I think what I would say is, we're really fortunate. It's very difficult for most real estate companies, as you know, Mark, to both grow, and you can see that our FFO per share year-over-year grew 30%, and at the same time, drop our leverage by about 1,000 basis points. I mean that's almost unheard of, right? And it just goes to speak to -- it speaks to how strong the fundamentals are for our rental business, particularly our single-family rental business right now and for-sale housing, which is also booming, we've just almost never seen conditions like this. And we're taking advantage of it, right, to get the leverage lower and then to drive growth. But I think once we get through, this is a period -- it's always a little bit painful when you delever, as you know, and we're going through that right now, but still putting -- posting very good FFO numbers. Once we get through that, it's possible that our FFO per share growth could be much stronger.

[Operator]

Your next question comes from the line of Cihan Tuncay with Stifel.

[Cihan Tuncay, Director]

Just a couple of quick questions from me. Just with respect to the rent growth, obviously, 16% plus is very strong and not sustainable long term. But Gary and team, maybe can you talk about which areas you're seeing geographically, the best kind of strength demand fundamentals? And second part to that question, as vaccine rollouts have proliferated through the U.S., has there been any difference at all between the areas that are more along the path of vaccination versus areas that are less along the path? Or just any general comments on the demographics that would be great.

[Gary Berman, President, CEO & Director]

Yes. I mean I'll let -- I'll take the first part of the question, the easy part, and then I'll pass the more difficult part on to John to give his perspective on the vaccine rollout, since he's in the U.S. So look, I mean, overall, in the re-leasing spreads, I mean, we did 16% in April, the range is about 10% to 20% depending on the market, right? So no matter, even in the lower markets, which tend to be the Texan markets like San Antonio or Houston, we're still seeing unbelievable demand. The strongest markets actually are our biggest markets like Phoenix, Atlanta, Charlotte, those markets are just absolutely booming. So across the board, it's true we're just in such a fortunate position. There's so much demand for this rental housing, but it's pretty strong everywhere. With certain markets even stronger. John, you want to talk about a little bit more. Are we seeing any differences depending on approach to the pandemic and COVID?

[John English, Head of Development]

Sure. And thanks for the question. And look, with regard to the vaccine rollout, we're starting to see real strength almost across our entire portfolio, and that's because we're in largely similar markets across the Sun Belt. Politically, there may be some differences, but we are starting to see the U.S. push the vaccine through essentially all of our markets. Vaccination rates might vary a little bit. But those are really due to personal preferences, I would say, and it's not changing people's demand or leasing habits. So whether you're in Texas or California, you're still seeing strong demand regardless of politics, let's say. And again, the vaccine is becoming quite readily available or is readily available here, and you're getting the points in many of our markets where there's more vaccines available than are demand.

[Gary Berman, President, CEO & Director]

I will say -- I mean, Cihan, I will say, just sitting up here in Toronto that, it's without question that the fact that the U.S. has been able to roll out that vaccine much faster than we have up in Canada. And that certainly in the Sun Belt, they've taken a more pro-business approach has made a huge difference. And you can see that in the numbers between what we're doing in rental housing across the entire Sun Belt versus Toronto, let's say, which is relatively weak. So it's striking how different they are at this point in time. It's almost like on a different planet. But certainly, the pro-business approach and getting those vaccines out quickly has made a very big difference, and it's benefiting us tremendously.

[Cihan Tuncay, Director]

Appreciate the color there. And I think everyone on the call would agree, we can only hope that we can catch up to our U.S. counterparts for rollout. But maybe just one last question for me. With respect to CapEx, the -- with the impact of the Texas storms on NOI and stuff like that, was there any impact on the CapEx side of things? Was it a little bit lower than it really should have been? And can we expect to see that trend higher for some catch-up over the next couple of quarters?

[Gary Berman, President, CEO & Director]

Well, so look, I mean, the Texas storm was a big event. I mean a lot of our team on the ground and people in place described in some cases, being worse than a hurricane. It was a big event. It affected a lot of our homes, more than 600 single-family rental homes, about 10 multifamily properties. But on the whole, the damage was light, and we're very fortunate that our -- obviously, our residents and our team are safe. So at the end of the day, between single-family and multifamily, Cihan, the entire damage is about $5 million. About 80% of that is going to be covered by insurance. Our out-of-pocket is only about $1 million. And we expensed some of that in Q1. We'll expense a little bit more probably in Q2. But otherwise, it's really de minimis. It's not going to have a big impact on our CapEx or anything above the line in expense either way. So I think we've been very fortunate there. I think the other thing you might notice when you look at our results, if you look at our cost to maintain, which covers all the costs of maintaining a home, the cash cost, those are lower meaningfully year-over-year. And that, I think, speaks partly to the lower turnover that Kevin's talked about, but also, we just keep on getting more and more efficient on the way we maintain and manage the CapEx program in our rental business. So that's a really positive trend for us. And it's able to offset the uncontrollable expenses of higher property taxes and insurance.

[Operator]

[Operator Instructions] Your next question comes the line of Tal Woolley with National Bank Financial.

[Tal Woolley, Research Analyst]

Just wanted to talk about the Canadian multifamily business for a bit. Just looking at your development schedule, you've got a lot in the hopper construction wise. What should we be thinking about for your share of the development spend over the next few years? In terms of like...

[Gary Berman, President, CEO & Director]

For the next few -- Wissam, do you want to take that?

[Wissam Francis, Executive VP & CFO]

Yes. Absolutely. So one thing to note is we -- a lot of the projects that are under development and are active construction today we have purchased them a few years ago. And we have put in construction loans and we put in the equity component already. So we're hitting -- most of them we're hitting construction loans. So there's very little cash requirement from Tricon's portion going forward. A lot of it is going to be in construction loan financing that is nonrecourse to Tricon.

[Gary Berman, President, CEO & Director]

Tal, one thing I'll add, there will be obviously some incremental spend on new projects like the project we just announced in Downtown East, there will be an incremental spend there. And we are planning to add, maybe a project or 2 per year. So that does need to get taken into account. But the good news is that because with our venture with CPP, we're only 30% of the equity, it's really not a large drain on cash, right? This is not a big cash user for us, and we're able to scale this business very, very efficiently.

[Tal Woolley, Research Analyst]

Yes. I think I was trying to get a sense of what the debt draw would be like, 2 as well. Just like, what's the -- like how the remaining unfunded amounts like are getting -- how we should think about how much will get spent each year, that's all.

[Wissam Francis, Executive VP & CFO]

Yes. If you want to guesstimate number, it will be around, let's assume $50 million a year of expenditures going forward. And that covers everything from all the projects and all of our equity commitments. So if you want to map out something, $50 million is a good number to use going forward of actual cash. That includes all the new projects and our projected 2 projects that we're looking to buy as well.

[Tal Woolley, Research Analyst]

Okay. That's perfect. Just you're talking about accelerating the single-family rental purchase rate. And I guess with multiple joint ventures and also your own accounts involved to, like when we think about like 1,000 to 1,200 units a quarter like how many fall into which -- how many should we expect to fall until which bucket?

[Gary Berman, President, CEO & Director]

Okay. So on the traditional acquisition of buying from MLS or iBuyers or small portfolios, we're currently doing about 800 per quarter. Right. And then Homebuilder Direct, like I said before in answering another question, it is cyclical. It will ebb and flow. You can think of it as being lumpy, but it's possible that moves up to about 400 on top, right? It won't be 400 every quarter. It could be 100. It would be kind of another quarter where we have much more. It's going to move around. But if you think about it over time, it might be about 400. So you've got 800 plus 400, that's 1,200. And then if we're able to open up the JV buy box in JV-2, meaning that we can buy slightly lower cap rates, buy in more markets, which would have lower cap rates. Then it's possible we could add another few hundred on top of that. So like I said, the stretch goal could be going from 800 today to about 1,500.

[Tal Woolley, Research Analyst]

Okay. That's great. And then obviously, like you guys have achieved a lot of the targets you've laid out for yourselves or you're on your way to achieving most of those agenda items you've laid out over the last couple of years. And in the past, Tricon has been very comfortable shifting its asset mix to chase interesting opportunities. And everything is running well right now. I'm just wondering, should investors expect or are you contemplating any other shifts in asset mix going forward right now?

[Gary Berman, President, CEO & Director]

No. Short answer to that is no. We found our groove. It took a long time to get to this point. We were always playing chess, always playing a couple of steps ahead to get to this point where we are today. At times, it was a little bit messy, doing everything in the openness of the public market to kind of shift the mix and shift, obviously, transforming the business to be rental housing, but we've achieved what we set out to do. And the asset mix we showed you is a very good -- gives you a very good template of what we're looking to do going forward. We absolutely still believe in the synergies we could obtain between single-family and multifamily rental. And we're excited to take over the -- get ready to take over that multifamily rental portfolio later in the year. But at the end of the day, the vast majority of growth is going to be on single-family rental. And that's what our shareholders and investors should expect. And the reason for that is simply, we're just seeing better metrics, right, in almost all respects. And we're also able to -- when we do third-party capital raising, we're also able to get better terms. So we're very much focused on single-family rental, and that's what investors should expect going forward.

[Operator]

There are no further questions at this time. I'll turn the call back over to Gary Berman, President and CEO of Tricon Residential.

[Gary Berman, President, CEO & Director]

Thank you, Tammy. I would like to thank all of you on this call for your participation. We look forward to speaking with you again in June at our annual meeting and in August to discuss our Q2 results.

[Operator]

This concludes today's conference call. You may now disconnect.