Tricon Residential Inc

TSX:TCN

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tricon Residential's First Quarter 2022 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, executive]

Thank you, Emma. Good morning, everyone. And thank you for joining us to discuss Tricon's first quarter results for the 3 months ended March 31, 2022, which were shared in the news release distributed yesterday. I'd 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 Discussion and Analysis and Annual Information form, which are available on SEDAR, EDGAR and our company website as well as the quarterly supplemental package on our website.

Our remarks also include references to non-GAAP financial measures, which are explained and reconciled in our MD&A. I'd like to remind everyone that all figures are being quoted in U.S. dollars unless otherwise stated. And please note that this call is available by webcast on our website and it will be accessible there following the call.

Lastly, please note that during the call, we'll be referring to a slide presentation that you can follow along by joining our webcast or you can access directly through our website. You can find both the webcast registration and 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, executive]

Thank you, Wojtek, and good morning, everyone. We've had a terrific start to 2022, and I'm excited to discuss our Q1 results with you. Let me share with you some of our key takeaways from the quarter on Slide 2. First, we continue to benefit from the strength of our Sun Belt middle market strategy, with insatiable demand for a rental home showing no signs of slowing. Our business has proven to be extremely resilient throughout the pandemic, and we expect it to continue performing well into the future.

Second, our growth plan is on track. We grew proportionate NOI by 23% year-over-year, and we're on pace to acquire 8,000-plus homes this year, with over 1,900 homes acquired this quarter. Third, our single-family rental operations are stronger than ever with record low turnover, record high occupancy and solid rent growth. As we expect these trends to continue, we are pleased to announce an increase in our same-home NOI guidance for the year.

Next, our fee revenue increased meaningful year-over-year, while overhead expenses remained stable from Q4 2021. And finally, we achieved all of this while maintaining a flexible balance sheet with minimal near-term maturities and ample liquidity to fund our growth plans. You can see these and other metrics reflected in the summary on Slide 3. Clearly, our business is booming on all fronts, and we'll dig into the details throughout the call.

So let's move to Slide 4. The public markets are going through a volatile time right now, with a lot of uncertainty surrounding inflation, interest rates and economy. We intentionally built our SFR business to be defensive, and believe it will once again prove itself in the current environment. We think of our business as antifragile after the term coined by the author Nassim Nicholas Taleb. Beyond Taleb's key tenets of resilience and robustness, we expect to thrive under difficult or more volatile conditions for a number of reasons.

First, we remain focused on the hardworking middle-market demographic. Our resilient resident profile has stable jobs and solid household income of $85,000, with a comfortable rent-to-income ratio of 23%. Second, in this time of hyperinflation, our efficiencies of scale allow us to benefit from the national procurement programs that enables us to save money on parts, appliances and material for our homes.

Third, as I like to say, the cure for high prices is high prices. As an inflation hedge, we are exposed to both rising market rents as well as rising home prices on our balance sheet. Moreover, our built-in loss to lease of 20% should provide a long runway for rent growth. Likewise, a strong correlation between home prices and rent growth also allows us to consistently acquire homes at 5% to 5.5% cap rates, making our growth strategy sustainable over the longer term.

And finally, what I love most about what we do is that we're able to provide essential housing in a supply-constrained housing market. The insatiable demand for high quality, professionally managed homes speaks for itself. In any given week, we get over 13,000 leads for only 200 homes available. And as mortgage rates are past 5%, we estimate that the monthly cost of owning a home is 10% to 30% higher than renting a Tricon home.

We're not only confident in our outlook, but also believe strongly that single-family rental plays an essential role in addressing the key challenge of America's housing market, mainly an acute shortage of housing supply at affordable prices. If managed properly and responsibly, we believe strongly that single-family rental is a noble business because it provides safe quality housing for American families, who either can't afford to buy a home or don't want to at an accessible price point. It also provides residents with a turnkey home and a low-maintenance lifestyle to get some time back to focus on what's important to them.

At Tricon, there is purity in our mission, we truly care about our residents, and empower our frontline employees to go above and beyond, so that we can provide outstanding customer service.

And so, as we turn to Slide 5, I want to provide you some insights into Tricon's decision to selectively engage with media to help spread this message and to shape a positive industry narrative. A recent interview with 60 Minutes is a case in point. There are several misconceptions about our industry that we aim to address. First, we are not Wall Street, we are a housing provider. We are a people-first company and have many programs in place to better the lives of our residents, including our recently launched Tricon Vantage Program, designed to enhance the financial well-being of our residents. Our suite of services ranges from educational tools to our Credit Builder program and other programs to help families buy a home if they so choose.

Second, woven right into our company DNA is our longstanding practice of self-governing on renewal rent increases, with annual rent increases for existing residents typically set at rates below market. We want to prioritize our residents' financial security and peace of mind while they're living in a Tricon home. And finally, we are not boxing out first-time home buyers. Our acquisition program accounts for less than half of 1% of resale volumes in our markets. And we typically buy homes that require renovation to make them more livable. In doing so, we are upgrading the quality of the housing stock and the communities where we own homes.

What's driving up housing prices is the overall lack of supply of existing and new homes. In this regard, we are committed to being part of the solution and we're adding 3,000 new homes to the market by 2024 for our build-to-rent strategy. In short, we are being proactive about solving America's housing challenges, and we see tremendous opportunity for our business to be a platform for doing good.

I would now like to pass the presentation over to Wissam to discuss our financial results.

[Wissam Francis, executive]

Thank you, Gary. And Good morning, everyone. Q1 was another great quarter for us. And I want to thank our dedicated team who continue to execute on our rapid growth while delivering a top-notch resident experience. Despite the tough operating background, geopolitical conflicts, rising interest rates, supply chain shortages and record-high inflation, I am proud to report we remain firmly on track to achieve our ambitious goals we set earlier this year.

On Slide 6, we summarize our key metrics for the quarter. Core FFO was up 32% year-over-year to $43 million. Core FFO per share was $0.14 cents, an increase of 8% year-over-year. AFFO was $0.12 cents per share, which continues to provide us with ample cushion to support our quarterly dividend with an AFFO payout ratio of 43%.

Let's move to Slide 7 and talk about the drivers of Core FFO per share this quarter. Our single-family rental portfolio delivered 23% year-over-year growth in Tricon's proportionate NOI. This was driven by an 11.6% increase in same home NOI and a 12% increase in proportionate rental home count.

Our FFO contributions from fees increase by 103% compared to last year. This is driven by incremental assets and property management fees from newly created joint ventures this past year. In our adjacent residential businesses, a 53% decrease in FFO reflects our 80% syndication of the U.S. multifamily portfolio last year. It also reflects lower results from the U.S. residential development versus a very strong comp in the prior year.

On the corporate side, we had lower interest expense as we reduced our debt significantly, and benefit from lower in-place rates. This was offset by higher corporate overhead expenses as we staffed up for our growth. Of note, overhead expenses were actually down a bit sequentially from Q4, and we expect them to stay around this level. Lastly, the diluted share count this quarter was 26% higher as a result of last year's equity offering to fund growth and reduce leverage.

Let's turn to Slide 8 to discuss our fee revenue and operating efficiencies. Our unique strategy for managing third-party capital allows us to scale faster and run a more efficient business. The fees we earn also allow us to offset a large portion of our corporate overhead expenses. Our current fee streams totaled $19 million in the quarter, up 110% from last year. This includes asset management fees, property management fees, development fees, but excludes performance fees as they tend to be episodic. Together these recurrent fees covered about 60% of our recurring overhead costs compared to 44% coverage in the prior year. Ultimately, we expect our fee revenue to cover the majority of our overhead expenses and allow our shareholders to benefit from strong NOI growth contributing directly to the bottom line.

Let's talk about our balance sheet on Slide 9. We have continued to prioritize deleveraging while remaining focused on growth. We have cut our leverage almost in half since the start of 2020, with net debt to adjusted EBITDA down to 8.1x in the current quarter, and net debt to assets at 36%. Much of this was achieved at our U.S. IPO, prior common equity offering, and preferred equity financing.

Turning to our proportionate debt profile on Slide 10. The key takeaway here is that we remain focused and have minimal near-term maturities. We have a strong liquidity position of $558 million in available cash and credit facilities to fund our growth. Further, I really want to emphasize this. We have minimal exposure to rising rate environment, with 75% of our proportionate debt at fixed rates, following our latest securitization transaction, which closed in April.

On slide 11, I'm happy to present to you our updated, guidance which includes a 50 basis point increase to same home NOI growth in 2022. This increase is driven by strong revenue growth, which we see continuing in April, but also reflects some moderation for the balance of the year relative to our very strong Q1 print. This is partly offset by expenses tracking towards the higher end of our prior guided range as a result of higher property taxes and inflationary pressure on controllable expenses. However, we reiterate our FFO per share guidance as the strong same home trends may be offset somewhat by higher expected rates on future debt financing this year. And our expectations of acquiring 8,000-plus homes remain unchanged.

On Slide 12, we reiterate our long-term targets as part of our 3-year performance dashboards. The 2024 targets include growing our Core FFO per share at a compounded annual rate of 15%, expanding our portfolio in the SFR space to 50,000 homes, maintaining stable leverage at 8 to 9x net debt to EBITDA, and improving our overhead efficiency such that 90% of our recurring overhead will be covered by fee revenue. Although rising interest rates are headwind for our FFO targets, the target was set with increasing rates in mind. Moreover, the strong NOI growth we are seeing also provides us with a buffer, which makes us comfortable with the outlook.

And to give you more insight on the drivers of the NOI growth, I'll turn the call over to the man with the tan, our Olympic surfer, Kevin Baldridge.

[Kevin Baldridge, executive]

Thanks, Wissam, and good morning, everyone. Our strong first quarter performance is without question a testament to the depth and breadth of our dedicated team, a resident-first approach, and our best-in-class operations, all of which continue to fuel growth. I'm incredibly proud of what we've achieved. And I want to thank our team for going above and beyond every day.

Let's start with our portfolio growth on Slide 13. In the past year, we've extended our portfolio by 32% in aggregate or 12% on a proportionate basis. We are off to a great start this year with over 1,900 homes acquired in Q1, putting us well on track towards our target of acquiring 8,000 homes in 2022, through resale and new home channels. Q1 is typically a seasonally slower acquisition quarter, so we expect the pace to accelerate in Q2 and Q3. As home prices have increased, so have average rents, which allows us to continue buying at our targeted cap rates of 5% to 5.5%.

Second aspect of our growth is same home NOI, which expanded by 11.6% compared to last year. Let's dig into the components on Slide 14. Same home revenue growth of 10.4% was driven by rental revenue increasing 9.6%. This is made up of a 7.2% increase in average rent, a 70 basis point uptake in occupancy and roughly 150 basis points decrease in bad debt to below 1%. This was partially helped by outsized government rental assistance received during the quarter. Going forward, we anticipate bad debt moving back towards 1% to 1.5% in the near term.

Our rent growth remains healthy with blended rents increasing by 8.7% during the quarter, underpinned by an 18.7% increase on new move-ins and a 6.3% increase on renewals. Our renewals reflect our policy of self-governing, which maintains rent growth below market levels for existing residents, and in turn, keeps our turnover low. As we moved into April, we saw a continuation of this strong rent growth trend. Finally, our other revenue also grew meaningfully, up almost 32% from last year, as we increased take-up rates in our ancillary services and resumed late fees after putting them on pause during the pandemic.

We see a path to increasing other revenue by over 16% per home over the next couple of years as we continue to roll out current programs, such as same home technology and renter's insurance, and introduce new value-add ancillary services to enhance the resident experience, like, telecom partnerships, solar panels or discounted cleaning services.

A key driver of our expected rent growth going forward is the embedded loss to lease in our portfolio, which you can see on Slide 15. Our policy of self-governing on renewals coupled with long resident tenure has resulted in an estimated loss to lease of 20% across our portfolio. We recapture this on new leases, which have similarly been increasing by close to 20%. We expect this loss to lease to provide a multi-year runway for rent growth in our portfolio.

Let's now turn to Slide 16 to discuss same home expenses. The same home expense growth of 8.1% was driven by property taxes increasing 11.5% from last year. We expect that year-over-year variance to come down a bit in future quarters as we comp against higher prior year numbers, but regardless, property taxes are up meaningfully and reflect a significant home price appreciation in our markets. Repairs and maintenance expenses were also elevated this quarter as we return to a higher level of maintenance calls post COVID.

Our work order volume was up 12%, while labor and materials causing an increased scope of repair work added about 13% to the cost of each work order, even with the benefit of all purchased accounts. On the other hand, the turnover expense was down considerably, as our turnover rate decreased by 650 basis points from last year to a record low 14.7%, thanks to our occupancy bias and focus on our customers along with a greater proportion of costs being capitalized, given the more extensive work being done on homes with longer resident tenure.

On the property management side, we've seen the benefits of scale to offset inflation as we're managing 32% more homes compared to last year, using our centralized and tech-enabled platform, which results in a lower cost per home. Lastly, other direct expenses were up due to the incremental costs of providing value-enhancing services to our residents, including smart home technology and renters' insurance. Put it another way, our non-controllable expenses, which include property tax, HOA and insurance were up 10% whereas our controllable expenses of R&M, turnover, property management, marketing, and other direct expenses were up only 5.5%, as we concentrate on efficiencies and cost containment to counteract inflation pressures.

We are focused on the things we can control to offset inflation where possible, like, managing our national procurement program and driving efficiencies through technology and operational improvement, all the while keeping an emphasis on creating the best resident experience possible.

Now, I'll turn the call back over to Gary for closing remarks.

[Gary Berman, executive]

Thank you, Kevin. Let's conclude on Slide 17. If there's one thing I can leave you with today is that the factors that have driven our performance and value creation over the past year continue to be in place. As we said throughout this presentation, our focus is steadfast on growth. By partnering with leading global real estate investors, Tricon has a clear path to increasing its SFR portfolio to 50,000 homes by the end of 2024. We have the balance sheet, operating platform and third-party capital in place to achieve this target with confidence. And we believe that favorable tailwinds in our industry should drive strong operating performance for years to come.

Our growing portfolio coupled with strong same home results should also translate into meaningful NAV appreciation for shareholders. And of course, let's not forget about our adjacent businesses, which account for about 6% of our balance sheet, but represent a meaningful source of upside and potential cash flow to supercharge our SFR growth. These include our Canadian multifamily build to core business, a 20% interest in a high-quality multifamily portfolio located in the Sun Belt and legacy for-sale housing assets. These businesses are all benefiting from a robust housing market, and we believe they could ultimately be worth 2x our IFRS carry value and represent $1.1 billion of value for our shareholders.

Should we monetize these assets over time, we would use the proceeds to pay down debt or grow SFR portfolio, and in the process, simplify our business. That concludes our prepared remarks. We acknowledge that these are tough times filled with uncertainty, but what hasn't changed is the demand trends in our business, which are rock solid. And because of that, we remain confident in our outlook.

I'm humbled by the entire Tricon team who put their heart and soul into serving our residents and communities while continuing to drive forward our ambitious growth plans. We've built an incredible platform to do good, to elevate the lives of our residents, while empowering our team to be the best they can be. And in doing this, hopefully, we can inspire the broader industry to do the same.

I will now pass the call back to the operator, to Emma, to take questions. Wissam, Kevin, and I will also be joined by Jon Ellenzweig and Andy Carmody to answer questions.

[Operator]

[Operator Instructions] Your first question today comes from the line of Chandni Luthra with Goldman Sachs.

[Chandni Luthra, analyst]

Could you talk about what are you seeing in the homebuying market in general now that market rates have crossed 5.25%? How has buyer behavior shifted given how precipitatiously rates have risen in these last couple of weeks and months, and how do you think about the ability to maintain your own cap rates in such an environment, especially given that you have a particular box size in mind?

[Gary Berman, executive]

Chandni, good to talk to you. It's Gary. I'm trying to think-- I'm going to try to unpack that for you. I think when we think about buying homes, we're buying at a 5% to 5.5% cap rate, right? And so that still provides us with sufficient spread. The spread is obviously narrowed. We did a lot securitization at 4.2%, 4.3%. Today, that would probably be about 4.7%. But what we're continuously doing is we're reevaluating our buy box. We can make tweaks. We make tweaks daily, weekly. We can think about, for example, cutting out the lowest band of cap rates and thereby increasing our cap rate target. We could think about narrowing our market coverage and maybe moving out of some markets that have lower cap rates.

Our goal ultimately is to maintain a positive spread. We're allergic to negative leverage, and so there's things we can do to keep on going. But what I will tell you is that all other things being equal, even with this higher interest rate curve, it's more creative for us to buy more homes than less homes. With respect to the homebuying environment, it's still extremely strong, right? But our guess is that, as mortgage rates continue to move up or the market gets used to these much higher rates, we will start to see that stabilize or peter out a little bit. That's our best guess.

We're not clairvoyant. If you look back at previous cycles, every single time that mortgage rates have increased by 100 basis points or more, in this case, they moved up much more significantly, certainly from where they started. We've seen home prices, existing home prices and new price, stabilize or potentially even come down. Now what's different about this environment is that we've also never seen such shortage of supply. So that's what's different. The housing market, both on the existing and new home front, is unbelievably tight, and so the number of bidders is definitely decreasing.

Builders, for example, are using rate locks and other incentives to continue to drive home sales, but the demand from what we hear and what we see in our own projects is still exceptionally strong. We haven't seen any cracks yet. Our best guess though is that over time, at these higher rates -- again, you start to see home prices stabilize. And if they stabilize, that actually provides a better opportunity for us to buy homes, and it could ultimately allow us to buy homes one at a time at higher cap rates, because, again, if home prices stabilize and rents continue to increase the way they are, we are going to see higher cap rates over time.

[Chandni Luthra, analyst]

So if home price appreciation slows, and I'm not just thinking 2022, but potentially outyears as well and homebuying moderates, then how should we think about the ability to charge higher rents? I mean, I'm thinking outyears here, can you really charge new leases at an elevated clip if there is no support from home price appreciation?

[Gary Berman, executive]

So what happens over time, and we've seen this -- we've been in this business now for 10 years, and we've seen this through empirical studies, is that there's almost 100% correlation between home prices and rents. Now, they don't necessarily move in tandem. So what we've just seen is we've been through a period where home prices have moved extremely rapidly faster than rents, and that's led to a slight compression in cap rates when we buy one home or two homes at a time.

But what we think now with much higher mortgage rates is that those home prices are likely to stabilize, rents will continue to catch up or increase, which will mean that we'll probably see slightly higher cap rates when we're buying homes one at a time. In terms of future rents, yes, I mean, there's no way that if you think about our rent growth, blended rent growth of 8%, 9%, I mean, long term, depending on what your horizon is, that's not sustainable. That will probably likely moderate, too.

Our forecast, if we looked at, let's say, 2024, we're assuming NOI growth probably let's say in the outer-years of around 6%, right? So we still see very strong growth. There's a couple things to keep in mind. There's huge loss-to-lease in our portfolio, right? So 20%, maybe higher than that. And so as a result, we're going to continue to get outsized rent growth.

And the other thing is that the demand for our business -- again, this is where I'm a little bit more hesitant on how much will home prices moderate, how much will rents moderate? The demand, as we talked about, is just insatiable. We're getting 13,000 leasing inquiries for 200 homes available any given week. I mean that is just astounding. And we're not sure that's going to go away. It doesn't feel like it today. The business is booming and it's an incredible product. There are so many American families that want this experience, the low maintenance lifestyle, and we just think that's going to continue into the future.

[Operator]

Your next question comes from the line of Mario Saric with Deutsche Bank (sic) [ Scotiabank ].

[Mario Saric, analyst]

My one question pertains to the recent proposed transaction with Partners Group acquiring -- reported to acquire a close to $1 dollar transaction in terms of 2,000-or-so rental homes in the U.S. Can you kind of shed any color on what implications in terms of valuation -- if it does indeed trade at that range, what implications there may be for your portfolio, taking consideration kind of varying grants, location and so on so forth.

[Jonathan Ellenzweig, executive]

Yes. Sure, Mario, this is John Ellenzweig speaking. That transaction, there's actually been a handful of private market transactions that have taken place in the last 6 months. To unpack that, there's a number of markets there that overlap with ours, but there's also a number of them especially more in the deep south, I believe in the Midwest, that don't overlap with Tricon. So it's less of a target for us. But what I would say as we see private market transactions taking place, in spite of some of the turbulence we're seeing in the public markets, they're still trading at extremely keen or strong cap rates.

Over the last 6 months, we've seen portfolios trade, in some cases, as tight as the high 2s and in the low 3s on in-place rent. I think what's important to remember when you're seeing these private market transactions or even in our portfolio is there's ample loss-to-lease. So transaction that might take place in the low 3% cap rate on in-place rent may actually be in the low-to-mid 4s on mark-to-market rent. And so, that's important to keep in mind when you're thinking about those trades, but also the valuation of our own portfolio.

[Gary Berman, executive]

Yes, and I'll add to that. I mean, when you think about the private markets, investors are continuing to increase their allocation of real estate, and we expect that will continue to happen going forward. For every 10 basis points increase in private capital allocation another $80 billion to $120 billion needs to be allocated to real estate. That's a huge amount of money. And the preponderance of that is now coming in many ways into what we call beds and sheds, industrial and residential, because those are the best places to get return today. And so there's a wall of capital out there.

What's happening I think as we speak is we're not seeing any private investors really exit the market. They're just adjusting their return expectations, which makes sense. I mean the math changed because underlying interest rates or financing costs are higher. And so our best guess from being in the market is that on portfolios in residential, we've probably seen private market pricing drop from the peak by about 10%.

So if we say the peak, Mario, is let's say in February of 2022, we think maybe private market pricing is down 10%, private market cap rates might be up about 50 basis points, but they are far lower as Jon just said that where the public markets are at. Our best guess is kind of where we're trading today. Maybe we're trading at a kind of implied 5.5% cap rate. That is absurd. It's absolutely absurd.

If you think about where private market valuations are today, they're probably at 3.5%, they're maybe up 50 basis points from where Jon talked about, they're 3.5% today. That's factoring in a much higher interest rate curve. And again, because of that -- the reason for that is because of the loss-to-lease. The public markets are not factoring in the loss-to-lease in valuations and private markets are.

[Mario Saric, analyst]

Okay. And then my follow-up is not necessarily related to my original question, but I'll throw it in there. Just at higher level, Gary, like when you look at the past 3 months, and if you think back to the Q4 call, and specifically thinking about stuff on the margins. On the margin, what would you say is the one thing that you're incrementally most positive on relative to 3 months ago? And then conversely, what's the one thing that stands out that you're incrementally more cautious on relative to 3 months ago and how has your organization pivoted in the last couple of months to address those things?

[Gary Berman, executive]

Mario, you're talking about SFR NOI margin?

[Mario Saric, analyst]

No, I'm saying overall. No, no, just overall business-wise.

[Gary Berman, executive]

Business-wise? Well, look, I think where we have to look at things and be monitored very carefully is certainly inflation. I mean, we're in an unbelievably inflationary environment. I mean, we've never seen this before. If you think about it, we've got balance sheet normalization, we've never seen that before. We have a war between Russia and NATO, that's never happened in our lifetimes. We have zero COVID policies in China. Like if you wanted to create the perfect storm for inflation, I don't think you'd even make that up. That's what it is. So we are in an inflationary environment, and that affects our entire business.

Now, at this point in time, nothing is insurmountable and we're very fortunate that we're in a business where we continue to believe that we can drive revenues faster than expenses. But we've not seen -- if you look at our NOI for instance this quarter, we've never seen revenue and expense growth this high. I mean, they're both really high, it's driving exceptional NOI growth, which is the real positive. But the thing we're really keeping an eye on is the inflation. It is starting to feel like that's stabilizing a little bit. Supply chain issues feel like they're starting to stabilize a little bit, but that's where we have to continue to monitor the business.

[Mario Saric, analyst]

Are you seeing any kind of stagflation within the portfolio?

[Gary Berman, executive]

No. I mean, in some ways, it feels like we're in an economic period of stagflation, in some ways. Certainly, you could feel that with higher grocery prices and in prices at the gas pump and certainly higher rents, but as far as our business is concerned, I mean, the business is booming. I mean, if you think about it -- let's just talk about this high level, NOI growth and SFR up 12%, multifamily up 18% in the U.S., 24% in Canada. I mean, those numbers are unbelievable. That gives you a sense of how strong our business is on the ground, and it does not reflect what's happening in the capital markets.

[Operator]

Your next question comes from the line of Nick Joseph with Citi.

[Michael Bilerman, analyst]

It's Michael Bilerman, here with Nick. Gary, you just commented that you thought the public markets valuation of single-family rental or at least your stock is absurd relative to the private market. And I want to think a little bit about how public market investors sort of, I think, are more about where the puck is going rather than where the puck is today. And there appears to be, as much as you're talking about how everything is bullish, right, prices are down from a home perspective and there may be more risk in the future. So why shouldn't the public markets investors have a higher discount rate or risk profile when they may think that eventually home prices go down and rents could start turning based on that?

[Gary Berman, executive]

I mean, we can't move the market. I mean the market is what it is and the market's having a moment. There's a huge amount of uncertainty out there. I just talked about for reasons for the uncertainty. And when the market is uncertain, it leads to very volatile movements in the stock market and much lower pricing. And that's what we're seeing today. That's the capital markets. That doesn't necessarily mean that is being reflected on what's happening on the ground today on main street or what's going happen in the future. And as far as our business is concerned, the demand is rock solid. We don't see that changing.

Like I said, we've got 200 homes available any given week, and we're getting 13,000 leasing inquiries or leads. We don't see that changing. People have to live somewhere. If, obviously, the cost of debt or equity moves up, that will obviously have an impact in valuations, that's beyond our control. But what doesn't change is the underlying demand for our business, and we don't see that changing.

So my best hunch is that the markets tend to overreact. And I think we're following that type of situation and things will probably stabilize. But it doesn't change our outlook as to where we think this business is going. This business was built to be defensive. It was built to be able to be resilient and to perform in inflationary times, which we're in today and also in recessionary times. We think we do relatively well both in inflation and in a recession, and so we remain confident in the outlook.

[Michael Bilerman, analyst]

You have, obviously, very big growth plans and you want to use a lot of other people's money to do that, and you already have raised a bunch of that, and obviously, the equity offering that you did recently, you leveraged the balance sheet and provided you a little bit of growth capital. I guess, with the stock where it is, how does that sort of affect your view?

Arguably, you could use some of that excess capital to buy your own stock, but that effectively then just takes up leverage and cuts into the future growth that you want to have. So how are you balancing where you are going to need some level of attractive equity to be able to fund your very strong external growth plan?

[Gary Berman, executive]

Yes. It is a great question. Look, I mean the stock market valuation is a point in time, and it's low today, but it can move up quickly. So I think what we don't want to have is a knee jerk reaction and say, "Oh, our stock is low today or this week, and now we're going to just switch from buying homes to buying back our stock." We don't think that makes a lot of sense. I mean, if the stock was low forever, then that might be a different situation, but as I said, it's a point in time.

And the way we think about our business is we're growing NOI by 20% a year, right? If you think about, that's a combination of external growth, it's the 8,000 homes a year plus the same home growth, that's incredibly strong. We're in an environment where we can grow NOI 20% a year, FFO for sure over time by, let's say, 15% a year. We think it makes sense to focus on the growth and finding efficiencies in our business rather than buying back our stock.

[Nicholas Joseph, analyst]

It's Nick here. Sorry, one more. Just on the balance sheet, given the higher interest rates, how does that change your views on target leverage and then the 25% floating rate debt?

[Wissam Francis, executive]

Nic, it's Wissam. Actually, so we're looking at our balance sheet and we've done a pretty great job over the past couple of years completely deleveraging, and more importantly, we fixed a lot of our debt. 75% of our debt is currently fixed, 25% of it is floating. Of the 25% that is floating today, one which is a term loan that matures in 2022, we're going to refinance that for-- we can keep the rate exactly as is, actually, and it's going to cap on the upper end, so it doesn't really impact the higher rate environments.

And the other 2 items that are floating, we're actually looking at a securitization as we speak. We're in the market today. The rate is probably going to be higher at 70% leverage, you're probably going to be closer to 4.75%, maybe 4.85%, but it's still a positive spread and it's still lower than what we're buying at. So we're going to try to fix for as long as we can, and we're really in a great position. And apart from that, really the next big maturity is 2024. So we have time to start thinking about options there.

[Gary Berman, executive]

Nick, the other thing I would chime in it's possible that if we remain in a relatively high-rate environment for a longer period of time, it's possible in our joint ventures is - certainly, new joint ventures that we target lower leverage. That's another way to kind of bring down the effective cost of debt. That might be something we're going to consider with our joint venture partners going forward.

[Operator]

Your next question comes from the line of Richard Hill with Morgan Stanley.

[Unknown Analyst]

It's Adam, on for Rich. I just wanted to ask a little bit about -- actually what you just mentioned, Gary, the fundraising. Can I ask you if you could remind us what the kind of time line is for fundraising for new JVs potentially? And if that timeline has changed or shifted at all, and have you kind of executed the plan, right? And kind of then combined this kind of 8,000 homes per year, are you executing on that plan?

[Gary Berman, executive]

We're actually going a little faster than we thought. One of the reasons is the home prices have moved up, so we're putting out capital a little faster than we initially anticipated in setting our 3-year target. And so we would expect to get to that kind of 50,000 home mark or certainly invest all the capital in the JVs by the end of 2024, and it's possible that that's going to happen sooner. And that puts us in a position then to raise new funds sooner. I can't say specifically whether it's half year or a year faster, but it could be meaningfully faster than what we're currently projecting.

The conversations we're having with our existing partners are very bullish. They want to put out a lot of -- they love this sector. We performed extremely well for them. They want to put out a lot more capital. The real governor is how much capital can we manage? How many homes can we buy? Do we have the operations in place to manage that growth? But the capital is there from our partners to keep on going. And so that's something that's really exciting.

This year, we're not really focused on fundraising with the existing JV2 or Homebuilder Direct. We're putting the capital out. But what I will tell you is that on the built-to-rent program, we are now nearly fully committed on what we call keep as one. Our joint venture with Arizona State Retirement System, that venture is now fully committed, and so we're now in a position to think about launching a successor vehicle. So that's something you should be expecting later in the year.

[Unknown Analyst]

Great, that's really helpful. I guess just switching gears with turnover, kind of, seemingly lower every quarter, right, I think just a hair over 14% in April. Once it adds to that kind of your assumption is going to be hereon on same-store expenses. If kind of given what turnover's done, if that's kind of changed your view on what some of the kind of controllable, right, or some of those operating expenses might be, there's always the future, right, if turnover going to hold up these levels, right, kind of given the tight housing market, if that may be changes here from a long-term view about, you know, turnover expense and those other expense lines that may be impacted.

[Gary Berman, executive]

Well, I'd let Kevin maybe chime in on some of the expense line items, but I just say high level that never in a million years did I ever think we'd be at this level of turnover. I mean, it's mind-blowing. I remember Kevin saying a few years ago, "Maybe we can get below 25%, maybe." And now we're below 15%. So I mean, we just never projected this, we never thought this would happen. It's partly a function of how much demand is out there and the fact that we're self-governing on renewals, right.

And I think that our team's doing such a great job on the quality of the home and the service that people just don't want to leave. It's just such a great form of housing. So I think that's going to change our expectations. But I still think that 15% just seems so low. And I think when we look at our projections, we're typically looking maybe 20% this year -- 18% to 20% this year. And if we looked at the kind of a longer-term forecast, let's say at 2024, we probably would be projecting 25% turnover.

So to give you some sense of how that will impact the various line items, but 25% I would say -- maybe 18% to 20% this year and 25% longer term. Anything else you want to add, Kevin, on that?

[Kevin Baldridge, executive]

No, I mean to your projections, I think that we will see turnover go up a little bit. People have been hunkering down because of COVID, and that psychology now is changing. And so we're seeing people starting to move a little bit more and so I think that -- I don't see the turnover staying this low. I think it'll get back to like what Gary was saying because we'll start seeing decoupling happening from the COVID era. I mean, we're already starting to see it a little bit. So we'll see turnover go up a bit, but still it's going to stay in the 18% to 20% most probably, and that's going to help mitigate our costs.

The other things that we're doing just so that you know to help our costs going into the future is, we've increased the work orders done in-house. We're up to 70% of work orders that our team -- we get into our centralized office, 70% of that is done by our in-house techs. We also have national purchase contract that helped us -- have shield with some of the inflationary pressures.

So we're seeing, in some cases, the cost of appliances, for instance, going up 30%, and we've got locked in prices of 5% to 7%, 8%. So it's giving us a hedge on that. We are also -- the average age of our homes are 24 years right now. The homes we're buying these days are 14, 15 years old and we've seen that translate into lower cost by 20% or so.

And then we've rolled out what we call Intelligent Virtual Assistant, IVA, in concert with the permission to enter, and so that allows us to more efficiently and quickly respond to work orders, provides better customer service, we're getting the houses faster, so increasing satisfaction, and then it's also helping us push the number of homes our techs see per day and per week, which makes us more efficient. So in addition to the lower turnover that we're experiencing, we're constantly thinking from a technology standpoint and process improvement standpoint to keep our costs low.

[Operator]

Your next question comes from the line of Brad Heffern with RBC.

[Brad Heffern, analyst]

You've talked about a potential recap of the U.S. multifamily portfolio in the past. I'm curious, what's the likelihood of that change just given all the capital market's turmoil, and how does that affect the funding picture for '22?

[Gary Berman, executive]

We're still looking at it. It's still something we'd like to do. It certainly has become a little bit more difficult or perhaps a little bit less accretive given the underlying rates have increased significantly, as you know, Brad. But it's not something we still think makes sense. If you look at our IFRS carry value, which is about $1.7 billion, $1.75 billion, I mean, it's significantly above where we bought the portfolio, where we syndicated it and is obviously much higher.

We got about $800 million of debt in place on, let's say, $1.7 billion, $1.75 billion portfolio valuation which is conservative, quite conservative, I would say, and so there seems to be room there to recap. So again, a little bit more difficult than where we were a couple of months ago, or a month ago, but something we still think makes sense and something we're going to continue to look at.

[Wissam Francis, executive]

Yes. If I could add to that as well is let's talk about this year. As you know, we talked about our commitment to buying up 8,000 homes. If you really put that in mathematically, we're looking for another $200 million of equity that we need to fund our portion of the growth. AFFO after dividend provides us with another $50 million this year, so our shortfall this year is really about $150 million. We are in a great liquidity position, our credit facilities and the unrestricted cash, we have about $558 million available for us. So we could either easily absorb all of that without having to go to the capital markets or do any of these dispositions either. These is just a plus for this year.

[Brad Heffern, analyst]

Okay. Got it. And then I'm curious, you mentioned several times the 13,000 applications for 200 spots. I'm curious if you changed credit standards at all trying to upgrade the credit quality of the portfolio, just given all the macroeconomic concerns?

[Wissam Francis, executive]

No. We really haven't. We're keeping with the same program that we've had. We currently -- we think they're pretty strict. We currently turned down between 48% to 52% of applicants. From the very beginning, we've really cared about the propensity to pay of our residents, and so we've been maniacal in our kind of underwriting process. We took that. We used to underwrite across all the different offices that we had around the country. We centralized that, so we had a consistent approach and that we were living within all of the fair housing laws and we've found that it's really been helpful.

And COVID hit and the moratoriums hit, we couldn't use all of our normal collection processes. That hurt a little bit, but we're now improving markedly since we started going back to our normal practices. And we're going to start seeing our delinquency rate come down pretty good, but we haven't changed our practices and how we're underwriting. We still see that the rent-to-income rate is at about 23%. It's been 22%, 23% all along, and we've been really pretty happy with that with our resident base.

[Operator]

Your next question comes from the line of Jade Rahmani with KBW.

[Jade Rahmani, analyst]

April numbers sounded good, but has there been any moderation in demand either in number of leads, conversion ratios from number of leads or renter willingness to accept asking rent? And secondly, could turnover, in some ways, reflect a weakening in demand since there's such a gap between new lease rent growth versus renewal rent growth?

[Gary Berman, executive]

So I'm going to answer the first question, Jade, and just say, no. There's been no change. If anything, we're going into the stronger spring leasing season, and in some ways, trends remain as robust if not more robust as where they were. So no change at all. I will say this, if you think about the for-sale housing market versus the rental market. The for-sale market has probably never been more expensive. If you go back to 2020 -- or 2000 let's say back to the millennium, it's never been more expensive if you look at housing on a price to income basis, right? For-sale housing on a price-to-income basis has never been more expensive. Conversely, rental housing has never been more affordable on a rent-to-income basis.

We just talked about being at 22%, 23% rent to income, it's never been more affordable going back to 2000. So we're really in a great position to continue to drive the business. There's insatiable demand. We've got pricing power. We're using that responsibly as you know. We can be pushing our renewals much harder, we're not. So we're building in that loss to lease. And I think the low turnover, I think in my opinion, just really reflects the fact that we are self-governing.

When we're giving people 6% or 6.5% renewals, they go around and they look around on what else can they get in the market. And they realize they're getting a good deal and they stay. And they like the product and they like the service. They like what we do and there's no reason to go anywhere else. So no, we think the low turnover is more a reflection of the way we're running the business.

[Jade Rahmani, analyst]

On the supply side, I see positives and negatives, and I wonder how you see it. On the existing home market, something like 80% of mortgages have a rate less than 4.5%, creating a very large disincentive to move. On the other hand, every company in the space seems to be chasing the build-to-rent model. I even know mortgage REITs that are lending money in that asset class as well as home builders developing that asset. And yet the supply chain issues might be forestalling the onset of that supply. So how do you think about the supply picture and is there an environment later in the year where supply chain gets relief and there's suddenly an avalanche or a big inflow of newly developed rental homes that deliver to the market?

[Gary Berman, executive]

Well, I'm going to let Andy talk about supply of build-to-rent. But I think before that, I will just say this, on the existing home market, which obviously has a major impact on our ability to buy homes, right, because that's really what's driving our growth, if you think about the 8,000 homes that we are going to buy this year, roughly 7 out of 8 are existing homes.

That market over the last couple of years, including up until today, has never been tighter. It's never been a more difficult time to buy existing homes, maybe ever, than it has been in the last couple of years. And we are having no issue hitting our 8,000 homes that are 5% to 5.5% cap rates. So I just want to be clear on that. I think if anything can happen to loosen the market, I would agree with you, more people are likely to stay in place, but maybe with considerably higher mortgage rates, it gives us an opportunity, maybe it helps loosen the market a little bit, we'll see.

I mean, the market is so tight, I don't know if it can get any tighter. It probably over time gets looser. And if it gets looser, that's better for us. It allows to be more flexible with our acquisitions. It might allow us to buy at higher cap rates, especially, as I said, if rent growth starts to now outpace home prices. Build-to-rent is a different animal. And Andy, why don't I turn that over to you because it's true -- what Jade's saying, there's a lot of competition for build-to-rent.

[Andrew Carmody, executive]

Certainly. I would add, though, new home supplies are currently at historic lows as well. There's been very significant demand on the retail sales, new home sales as well as increasing number of groups pursuing build-to-rent while you have supply chain and delivery delays. So both supplies are less than a month, right, kind of historic forever lows in terms of supply. Our sense on new home supply is that it will increase over time, but it takes a long time. Building more homes is like an aircraft carrier, it takes a long and a large amount of time to turn or increase that supply.

We do think we'll see a little more supply come online over maybe the latter part of this year and into the following year, but it comes on very slowly, a few hundred homes here, a few hundred homes there, and there's still a very large amount of blocking and tackling required to acquire, gain approvals for developing sites, and then work them through the development and construction time lines that it's probably a couple of years or more before those supplies go back to normal from historic lows. And we don't see them skyrocketing quickly. It just takes too long to mobilize this business to move supply quickly, and we think it's going to take quite a while to do so.

[Jonathan Ellenzweig, executive]

And Jade, just to add one more comment on that, you've talked about supply chain, and maybe the supply chain loosening later this year or early next year, but one major avenue to homebuilding is labor. So even if all of the appliances or windows that are causing some delays do show up, there's just a massive shortage of labor available in the United States in part due to the lack of immigration over the last several years that isn't being solved. And so in spite of -- think about the last several years where before the supply chain shortages, there was still a demand for new housing but a major constraint was labor, and we don't see that problem being solved anytime soon.

[Operator]

Your last question today comes from the line of Stephen MacLeod with BMO Capital Markets.

[Stephen MacLeod, analyst]

I just had one question for you and it relates to something Gary that you mentioned with respect to the infrastructure that you have in place to support the single-family business, which I know you've invested a lot and built quite a significant platform. How many homes do you think you can support on the existing infrastructure without having to add incrementally?

[Gary Berman, executive]

I think we could buy with the existing platform. I mean, the platform is very scalable, right, in terms of the technology. We've got an incredible tech-enabled operating platform, but what does need to get scaled is the people component of it, right. So remember, when you go and buy homes, you then -- if you buy a lot of homes, you need more people to renovate those homes, which involves more supers to oversee the renovation, and nowadays you need more techs to ultimately turn and repair those homes.

So there's a real significant people component, which is why we're continuing to hire aggressively. But we've got, I would say, the team and the platform in place to acquire 8,000 to probably 10,000 homes a year. If we wanted to go faster than that, we'd have to invest certainly more in our people and go faster on the hiring front, but 8,000 to 10,000 is where we could be.

I think given the capital markets environment and based on our guidance, we're probably much more likely to be closer to 8,000 than 10,000. If we were in a better capital market environment, we could probably go faster based on the platform and people in place. I hope that answers your question for you. But either way, it's significant growth, and again, we believe that more growth and less growth is accretive for our business.

[Stephen MacLeod, analyst]

So it sounds like the real variable cost component is on the people. But with the technology platform you have, you can support above 50,000 homes, it's more just the blocking and tackling of buying, renovating and managing the home specifically for the transactions…

[Gary Berman, executive]

Even with the technology to buy a home, which is pretty impressive, we don't buy site on a sea, right? So as soon as we put a home under contract, we need to send someone there to inspect the home, that requires people, right? Then we renovate the home to a common standard, that requires people. Then we've got to turn the home and service the home. All of that requires people. That is the hard part of the business, it's actually not the acquisitions, and that needs to be scaled appropriately. We're actually finding it -- last year was a much tougher time to hire. This year, we were hiring great people, great techs, so we've had no issues on the hiring front, and even in this very tight supply market, no issues on the acquisitions front either.

[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, executive]

Thank you, Emma. I'd like to thank all of you on this call for your participation. We look forward to seeing what the markets look like when we speak with you again in August to discuss our Q2 results. Thanks, everybody.

[Operator]

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