Tricon Residential Inc

TSX:TCN

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Tricon Residential Second Quarter 2020 Analyst Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Wojtek Nowak, Managing Director, Capital Markets. Thank you. Please go ahead.

[Wojtek Nowak, Managing Director of Capital Markets]

Thank you, Whitney. Good morning, everyone, and thank you for joining us to discuss Tricon's results for the 3 and 6 months ended June 30, 2020, 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 at triconresidential.com, and a replay will be accessible there following the call. Lastly, please note that during this call, we will be referring to a supplementary conference call presentation posted on our website. If you haven't already accessed it, it will be a useful tool to help you follow along during the call. You can find the presentation in the Investor Information section of triconresidential.com under Events and Presentations. With that, I will turn the call over to Gary Berman, President and CEO of Tricon.

[Gary Berman, President, CEO & Director]

Thank you, Wojtek. Good morning, everybody. I hope everybody listening is doing well. We're starting here on Page 2. And I'd like to start by saying as we transitioned from being a pure-play asset manager focused on for-sale housing to a major owner, operator of rental housing, we deliberately set out to create a defensive business, one that would perform well in good times and bad times. And while we could not have foreseen this pandemic, and we certainly would never wish it upon any of us, we really needed to test our business, and I'm proud to say that we've risen to that challenge. The results in Q2 are compelling and they illustrate how defensive and resilient our business has been during COVID. You look at FFO per diluted share, CAD 0.11 or CAD 0.15, that's up 175% year-over-year. That's on a larger single-family rental portfolio, strong single-family rental operations, but also the inclusion, a full core inclusion of the U.S. multifamily portfolio, which was weaker this quarter, but on the whole, given that we were able to issue equity at a forward price, of a price 30% higher than where we're trading today, this transaction has been accretive and it's contributed to the strong FFO per share growth year-over-year. Our NOI at $77 million is up $2.5 million over Q1. So up sequentially $2.5 million, and that includes bad debt, which is double -- still low by industry standards, but double where we were in Q1. We also lowered our cost of funds by issuing a $553 million securitization in our single-family rental joint venture at a weighted average interest rate of 2.34%, which is close to a record low and really ladders out our debt. We also, this quarter, have been busy with our integration plan, changed our name to Tricon Residential, Inc. And behind the scenes, we're quietly working on combining Tricon, collapsing our investment entity structure to create one unified company so we can speak internally and externally with one voice. Moving to our single-family rental business, which accounts for up to 75% -- 65%, I should say, of our FFO contribution, about 75% of our assets. The results were very strong this quarter on a relative basis. But I'd like to remind everyone that we are trying to balance the needs of various stakeholders. We are trying to take a compassionate approach to our residents during this difficult time. And so we've halted evictions, we've waived late fees, we forewent rent growth on renewals and we're not trying to maximize profits in any given specific quarter. As strong as these results are with 5.1% same-store NOI growth and 4.7% blending growth -- blended rent growth, they would have been much stronger if we hadn't taken some of those initiatives to help our residents. Multifamily rental in the U.S. this -- at this quarter, 17% of FFO contribution has been weaker. The U.S. multifamily does tend to be a more cyclical business as residents tend to be singles and couples and can double up during tougher times. Also with the pandemic with our amenity shuttered, obviously, this offering is not nearly as compelling as it tends to. It loses its kind of social or community aspect. We did see occupancy drop about 100 basis points year-over-year and negative lease trade-outs of about 2%. On the whole, we do still feel good about this portfolio. We think there's a lot of embedded growth in it and will perform well as we get through the pandemic. In both single-family rental and multifamily rental, we had no issues with collections. We were concerned about this going into the pandemic, but we ended up collecting 99% of rents billed in single-family rental and 98% of rents billed in multifamily. Moving along to residential developments. In our Scrivener project, we called out The James and The Shops of Summerhill. We perfected the entitlements in the quarter, which is a big milestone for us. It took about 3 years to do that. I will add that the previous developers couldn't accomplish it in 25 years. And with the entitlements in place, our partner being in a limited life fund, an opportunity presented to buy them out. And so we acquired the remaining interest of both the development site, the remaining 50% interest and 75% in the adjoining shops. And so now we control 100% of what I would see is arguably the most coveted and most valuable residential development site in Toronto. On the for-sale housing business, on our legacy business, we continue to bring cash home. We distribute -- we received about $7.3 million of cash in the quarter largely from the sale of Fulshear Farms, which is a separate account with a sovereign wealth fund near Cross Creek Ranch. We were able to bring back about $4 million to Tricon on that and also able to retain management. We sold this to a consortium of private investors. Johnson will remain on as the developer, so we'll continue to receive fees going forward. Let's move on to Page 3. So in the pandemic, a lot of the trends or factors that have supported our Sun Belt middle market strategy are strengthening. And we can -- if we start with Sun Belt migration, we've always been a demographic-based investors. We look to invest in the markets that over time have the strongest household formation, job growth because in those markets, you tend to have more liquidity, more rent growth, more home price appreciation. And that's why the vast majority of our portfolio is invested in the Sun Belt. And what we're seeing in the pandemic and during this health crisis is those trends are accelerating. People, families are seeking out suburbia and single-family housing for safety. And I'm not just talking about our single-family rental business, the entire single-family housing business, everything from single-family rental to for sale is strong. In fact, in our Johnson business, in June, over a 4-week stretch, our sales were probably the best they've been in 4 decades, to give you a sense of how strong the trends have been and how de-urbanization trends are taking hold. And it's not just de-urbanization, we're also in a time where a powerful work-from-home trend is taking place. And when you think about it, the technology that was available to allow working from home was available before. We had Zoom or Webex before, but it just wasn't socially acceptable. Now that CEOs are working in the Hamptons or Muskoka or, in my case, in Oakville, now it becomes much more acceptable to work from home. And that's going to change the way we work, and we think it's going to have an impact on migration patterns. The way we think about it is that the time and space of the traditional workday starts to blur. The traditional idea of a 9:00 to 5:00 workday is really dead. And now with technology, you can think about it this way, the so-called worker in plant become untethered. So someone can work almost anywhere. And I'm not implying here that we think there's less demand for physical office space. I could just tell you at Tricon that we believe in our culture. I said before that I think culture, as Peter Drucker said, eats strategy for breakfast. But we really believe that our culture is manifested and strengthened by being together in a physical office. And so we will try to go back to that when we can. But for many other companies that maybe don't prioritize culture who have back-office workers who just can't find the talent in a particular locale, now they can access talent anywhere through work-from-home arrangements. And if you can access talent anywhere by extension, why not live anywhere? And if you can live anywhere, why not live in the Sun Belt where the weather is better, the taxes are lower and it's more affordable. And that we're seeing that -- again, when we talk about affordability, that's a segue into the final point here on this slide is that in a pandemic and an economic crisis, affordability is paramount. And so we're seeing more and more people move to the Sun Belt where there's a lower cost of living. I'd also add, and the Congress right now is debating the stimulus. But with all the stimulus that we're seeing, that's also -- that is coming into place through record money printing that we've been to this movie before after the Great Recession. We're likely to see asset price inflation and also higher home prices. And so if we see higher home prices, again, we'll have more affordability challenges. And all of this reinforces our Sun Belt strategy and middle-market strategy where affordability is driving our key trends. And on Page 4, you can see how these trends are observed by analyzing U-Haul data. And this is just really interesting anecdotal information on migration trends. U-Haul uses pricing algorithms to determine the cost to rent a truck to move it from A to B. In the in-migration markets, it's more expensive. There's a premium. Those are the green circles. And in the out-migration markets, there's essentially a discount as there's less competition to rent those trucks. And so if you take an example, let's say, to Tampa, for instance, you can see there's a premium, a $750 premium to take a truck in versus take it out. But what's really interesting is that's increased 44% year-over-year and 15% in the quarter. So direct evidence through U-Haul data that we're seeing this migration. And if we look at all the markets, all the in-migration markets, and those are largely Sun Belt markets where we're investing, those are up 30 -- that premium is up 33% year-over-year and 11% in the quarter. Another way to observe this is to look at Slide 5 and analyze a REIT data, public apartment REIT data. And you can see here the year-over-year occupancy trends between urban centers and suburban markets. And it's quite pronounced. In the urban centers, New York, San Francisco, Boston, occupancy is down about 2% to 4%. In the more affordable suburban markets, occupancy is down about 1% to 2%. And to be fair, we've included probably 2 of the hardest hit suburban markets in Houston and Orlando in this comparison. Orlando, for instance, lost -- has lost about 200,000 jobs in the last several months. And so you can see how these de-urbanization trends are taking hold with the apartment REIT data. If we then move over to Slide 6, we try to look at this on more of an apples-to-apples basis between the suburbs. And we're not only seeing a de-urbanization trend, but we're also seeing a de-densification trend. The garden-style or multifamily suburban properties, occupancy is down 1% to 2%. But single-family rental by comparison, occupancy is up roughly 1% and is proving to be a place during the pandemic, again, where families are seeking safety and also affordability. If you look at this on a per-square-foot basis, single-family rental is more affordable than suburban. And I would say that these de-urbanization trends are probably longer term; de-densification, unlikely. We do think that as we get out of the pandemic, when we have a vaccine, that we will see stronger demand for suburban single-family because of the social aspects of those communities. Let's move on to Slide 7. As the pandemic rolls on, we wanted to give you an update and talk about how our approach has changed to our employees, our residents and the way we think about investments as we've emerged from the dark days of May, when we were all in a lockdown, to a period today, which I would say is less restrictive but where social distancing remains enforced in August. And I -- and we would really describe where we are today in August as probably being a new normal for some time. So starting with our employees, everyone was working from home beginning in March. And now as we look to August, we're gradually going to reopen our office, particularly in Toronto, on a volunteer basis. And again, as I said before, we do believe in bringing everyone together, that's how we drive our culture. And as soon as it's safe to do so and we're permitted in different locales by municipalities or governments, we do want to bring our employees back to a physical setting. In terms of our workers who are in the front lines, our maintenance techs, as an example, in May, we really wanted to ensure that there was complete separation between them and our residents. And in many cases, we use specialized third-party vendors to perform maintenance. Well, now in August, everyone -- pretty much everyone is comfortable going back. Our maintenance techs are comfortable going into homes and apartments. And we're increasingly using our own team to perform essential and nonessential maintenance. In Q2, only about 45% of work orders were performed in-house. And as we move through the year and into next year, that will move back up to about 65% where we were in Q1. Our approach with our residents, as I said, has been one of compassion. We recognize this is a challenging time, and we very much opted in the quarter, in Q2, for strong occupancy or retention bias. And so we have halted evictions, waived late fees. We forewent rent growth. But in single-family rental, in particular, as we now move into August and we see such strong growth, such strong demand, we're now trying to balance occupancy and rent growth. So we are layering in now late payments, although with a longer grace period, and we are going to gradually increase renewal rents to take into account the much higher demand. On the multifamily side, in Q2, our amenities were largely closed. That definitely affected our leasing. But now in August, we're gradually opening up those amenities. And again, given that these are social environments, that should help our leasing activity over time. With respect to our investments, in May, we just didn't have certainty as to where this was going, the pandemic. Economies hadn't really opened up, and we wanted to be very conservative and conserve cash. So we essentially paused all acquisitions or investments. As we got to the end of the quarter and we could see things were opening up, we became more confident. I would say, we moved into more of a risk-on mode. We resumed investments and actions. We talked about Scrivener Square. We've also now resumed acquisitions in our single-family rental joint venture. We expect to buy about 400 homes in Q3, about 500 in Q4 and then ramp up probably at about 800 per quarter in '21. We've also now advanced discussions on the syndication of our U.S. multifamily portfolio. We're dealing with 2 sovereign wealth funds to sell a 2/3 interest in the portfolio. And we're hoping to be able to announce something later in the year. And with respect to CapEx, we halted all nonessential CapEx in the quarter. But now we're gradually phasing that back in and even looking at value-enhancing CapEx, especially if we think we can drive rent growth. Let's move on to Slide 8 and talk about an ESG update. And I recognize this has been a very difficult, very challenging time for all of us. I mean this 3 months has really felt like 3 years. We witnessed the senseless murder of George Floyd, police protests in U.S. cities and really all around the world. And it's been a time for self-reflection and soul searching. And we wanted to take this time and take our position of privilege and responsibility to see what we could do, how we could do more for our employees, our residents and the communities we serve. And so we've unveiled 3 new initiatives as part of our ESG program, which I'm very excited to share with you. The first is what we call the living wage. And this is spearheaded by my father, David, and our founder. And essentially, we're establishing a minimum base salary for our U.S. employees of $36,400 and CAD 46,000 for our Canadian employees. To put this in context, in the U.S., this is about an hourly wage of $17.5, and that compares to minimum wage in states anywhere from about $7 to $14. So it's been really important for us to make sure that our frontline workers are getting paid a little bit more, that they have enough money not only for basics, but a little bit leftover to safer retirement and unforeseen expenses so they can live with dignity. And we know that if we treat our frontline team and our workers properly, they will do a much better job taking care of our residents. And when our residents are fulfilled, they're going to stay with us longer. They're going to treat our homes like their own, and they're going to refer us to other residents, and all of that is good for investors. We've also beefed up our diversity policies and taken action to acknowledge and counter systemic anti-black and other anti-minority races and including indigenous racism in Canada. And this is a very sensitive matter for me. I came to Canada as a young boy from South Africa under apartheid regime. And my parents and Geoff Matus as well, our co-founder, left South Africa for Canada to go to a more diverse society, one that was certainly more tolerant of differences. And while that's largely true, a lot of work still needs to be done. And I've learned more about this in the last few months. And it's incredibly unfortunate, the systemic anti-black racism still exists today, and we've got to do everything we can to fight that and eliminate it. And so at Tricon, a number -- we've done a number of things. But for the first time, we observed Juneteenth, June 19, the Juneteenth holiday, which marks the day in 1865 when anti-slavery laws were enforced by the government of Texas. We also provided resources to all our employees to allow them to learn more about black history and to talk about some very uncomfortable things like the legacy of slavery. We've made significant donations to Black Girls Code and Black Boys Code. These are Canadian and U.S. organizations that help young black girls and boys, men and women learn about computer science so that 1 day, they could potentially have careers in tech or a business and hopefully can become business leaders and help rise up in their communities and support their communities. And I'm also proud to say that we signed the BlackNorth CEO Pledge, along with other companies in Canada, which commits to a diversity target, such that 3.5% of Tricon Executive and Board roles are held by black leaders by 2025. It's very important that our senior leadership over time reflects the communities that we're serving. And lastly, I want to talk about an initiative in the West Don Lands on Block 10. This is in the east side of downtown in Toronto. We have a partnership there with Dream and Kilmer, and now we're going to be developing Block 10 in partnership with the [ Ashwin Avi ] people. We're going to be doing a rental project, but that will help unlock the broader site and allow [ Ashwin Avi ] to create a first of its kind purpose-built indigenous hub. And this indigenous hub will include a health center and community gardens, an indigenous employment, education and training center. So it's going to be state-of-the-art. We're incredibly excited about this initiative. And with that, I'm going to turn it over to Wissam to shift gears and now talk about our financial priorities.

[Wissam Francis, Executive VP & CFO]

Thank you, Gary, and good morning, everyone. Let me start with Slide 9 and reiterate the 5 key priorities, which we introduced last year. These include 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 these priorities presented in graphical dashboard on Slide 10. When we reintroduced our 3-year FFO targets last year, we didn't expect the pandemic or a recession of this magnitude. But despite the current economic challenges, we still believe we can hit these targets over the next 2 years. We had a very good quarter and posted $0.11 of FFO per share, which brings us to $0.24 FFO per share year-to-date or CAD 0.33. If our business continues to perform as well as it has, we are confident that we can achieve the FFO target range. In terms of raising third-party capital, our plan is to raise another $1 billion of fee-bearing capital over the next 2 years. In Q2, we resumed discussions with potential investors that were interested in our U.S. multifamily portfolio before the pandemic, and we believe we are on track to syndicate 2/3 of this portfolio by early next year. Also, as we resumed acquisitions in our single-family rental joint venture business, we should be back on track to complete this investment in 2021. And we expect to raise additional third-party capital for a subsequent joint venture to continue our growth. One of our main priorities is reducing leverage, which we believe is one of the key ways to close the gap between our share price and analysts' NAVs. We currently set a 61% net debt to assets, and we believe the syndication of the U.S. multifamily portfolio can reduce our leverage by up to 5% while remaining FFO neutral since we'll be able to use the proceeds to pay off corporate debt and save on interest expense. Even though our near-term target is 50% to 55%, we will continue to work to bring it lower over the long term. Our last priority was to improve our reporting, which is substantially complete with the transition to consolidated accounting last quarter as well as adopting REIT-like MD&A disclosures, such as FFO and AFFO per share. We also issued a comprehensive ESG plan, and we are on track to provide an annual update at the beginning of next year. Let's now turn the call to Slide 11 where we provide highlights of our key metrics for the quarter. First, our net income grew 62% year-over-year to $17 million compared to $11 million last year. Net income includes $10 million of fair value came from rental income properties compared to $27 million in the prior year. In addition, we had $4 million of transaction costs this year versus $25 million last year. If we were to ignore those 2 items, our net income increased $9 million last year to $11 million this year. Second, our core FFO per share increased by 175% to $0.11, showcasing the resiliency of our portfolio. Third, we reported AFFO of $0.08 per share, which translates to CAD 0.11 and provides us with ample cushion to support our quarterly dividend of CAD 0.07 per share. This equates an AFFO payout ratio of 58%. Lastly and more importantly, if we were to annualize our FFO or AFFO per share in Canadian dollars, you can see that our stock price is trading at a relatively low multiple compared to our peers. Moving on to Slide 12. Let's highlight the drivers that contributed to FFO per share growth this quarter. First, our single-family rental business delivered 15% growth in NOI driven by a larger portfolio, strong rent growth and higher NOI margin. Second, our U.S. multifamily portfolio, which was acquired in June of 2019, contributed another $0.03 compared to prior year. Third, G&A decreased by approximately $1 million compared to last year, benefiting from the cost-saving measures implemented at the beginning of the pandemic. Furthermore, we believe that we can continue growing our rental business meaningfully without growing corporate G&A, which should drive strong FFO growth. On Slide 13, I want to walk you through our asset mix and reiterate our focus as a rental housing company. Our consolidated balance sheet is dominated by rental housing with approximately 96% of total assets generating recurring income with a defensive middle-market profile. The remaining 4% represents our development exposure, which is expected to create meaningful value for shareholders over time. Our for-sale housing business, which makes up less than 3% of total assets, generated $7 million of cash in Q2 and is projected to generate approximately $330 million of cash to Tricon over mid to long term. In addition, our Canadian multifamily developments, which makes up 1% of our total assets, are projected to generate $30 million of NOI for Tricon upon stabilization. If we were to apply a cap rate of 4% to that figure and assume 50% debt, you would arrive at a value of 2 to 3x our current book value for these assets. Let's discuss our debt on Slide 14. You can see that our balance sheet is well positioned to weather near-term uncertainty in the economic environment. As of June 30, we had a total liquidity of over $200 million, comprised of $170 million of undrawn credit capacity on our credit facility and $30 million of unrestricted cash. This liquidity profile was further improved after quarter end as we completed a securitization transaction, refinanced our SFR subscription line and warehouse credit facility. With the proceeds from this transaction, we're able to reduce our SFR near-term debt maturities from $864 million to $383 million through 2021. We plan to refinance the outstanding amount of another securitization by early next year. Beyond that, we have 1 credit facility of $114 million related to our U.S. multifamily portfolio that will mature in December of this year. We are currently in active discussions to extend this facility for another year and intend to pay it off with the syndication of the U.S. multifamily portfolio. Let's take a closer look at the recent securitization transaction on page -- on Slide 15. This was Tricon's largest securitization financing to date. The transaction was negotiated and executed during one of the most challenging economic environments of all time, yet our team and our capital partners were able to achieve incredibly attractive terms. First, the weighted average fixed rate of 2.34% is one of the lowest interest rates priced in single-family rental securitization history. Recall, they were currently buying homes at 5.9% cap rate, so the spread versus our funding cost is extremely compelling. Second, this deal attracted 40 investors, including 21 new investors to Tricon, and was approximately 5x oversubscribed at pricing, underscoring strong demand for our product and confidence in our operating platform and operating performance from institutional investors. Third, the 6-year loan reduced our near-term maturities significantly and extended Tricon's overall debt maturity schedule by 7 months. And lastly, the net proceeds of $62 million received from this transaction will provide sufficient equity to acquire approximately 900 homes, which is our acquisition target for the rest of 2020. With that, let me pass the call over to Kevin Baldridge, Chief Operating Officer, to discuss the operating highlights for the quarter.

[Kevin Baldridge, Chief Operating Officer]

Thank you very much, Wissam, and hello, everyone. I'm going to focus on the operational performance of our rental businesses, starting with single-family rental on Slide 16. The exceptional demand trends we were seeing in our single-family rental business earlier this year accelerated during the COVID-19 pandemic and throughout Q2. As Gary mentioned earlier, the pandemic has made health and safety a key priority for many people, which increased desire to move from dense urban areas into detached single-family homes in the suburbs. And we believe renters are choosing Tricon because of our strong product offering and customer service. Looking at our same-home NOI performance, which captures over 15,300 homes, you can see that we were able to deliver strong same-home NOI growth of 5.1% compared to last year. Let me break this down, our same-home revenues grew 4.2% driven by an occupancy increase of 110 basis points as well as average blended rent growth of 4.1%. And this rent growth consisted of 8.3% growth on new leases and 3.2% growth on renewals. From the expense side, we're reporting a 2.7% increase in same-home expenses largely driven by a 4.8% increase in property taxes as our homes appreciated in value. We also saw a 6.1% increase in property insurance driven by higher premiums across the industry. On the plus side, our controllable operating expenses, including R&M and turnover as well as property management and other direct costs, actually decreased by 1% year-over-year. During the pandemic, we compressed our delegation of authority on turn scopes and further refined and standardized maintenance procedures, and we experienced lower turnover costs as fewer residents moved out. We reported an annualized turnover rate of 22.7% in Q2 2020. That's a 760 basis point decrease from Q2 of 2019. And that's a record low turnover rate for us in the summer season. With the strong results in revenue growth and controllable expenses, we posted an impressive NOI margin of 66.1% in Q2. It's the highest same-home NOI margin we've achieved in our single-family rental business to date and all the while during a pandemic. The positive trends in this business continue in the July results. And so let me move into Slide 17. In July, occupancy continued to track above the historical average. Our same-home portfolio appears to be stabilizing at 97.4%, close to 1% higher than the average occupancy in the past 2 years. On the right side, you can see our rent growth on new move-ins more than doubled since April. In July, we were able to charge 12.2% more on new leases, underscoring the extremely robust demand for single-family homes. We have, however, as Gary was talking about, we moderated rent growth on renewals for 2 reasons: to keep an occupancy bias for the time being until we can see the future with more clarity and to be sensitive to residents' financial position during these uncertain times. However, due to the continuing strong demand, we have begun to gradually raise rents on renewals beginning in July and continuing into August and September. Our strategy of moderating rent growth on renewals is a reflection of our commitment to our residents, which is one of our ESG priorities. And along those lines, since April, we've introduced several options to help our residents with financial difficulties, including offering rent deferral plans and waiving late fees. And to date, around 2% of residents have applied for the rent deferral plans and agreed to a payment schedule, which is typically composed of up to 6 monthly installments that started in June for most of the residents. We have also offered early terminations to select residents, in which case, we apply their security deposit to their outstanding rent payment and we waive the late or the -- removed the early termination without fees. We believe that our caring approach to our residents, our proactive approach to the pandemic and the effectiveness of our property management are the key reasons that contained our bad debt expense while helping our residents navigate through this challenging time. The demand we are seeing for our homes is stronger than we ever would have imagined. Let's turn to Slide 18 where we illustrate our leasing funnel, updated for July statistics. We have seen a tremendous level of activity in our call center and website in the past month as typical seasonal leasing trends continue despite the pandemic environment. The challenge we face is on the supply side. We simply don't have enough vacant homes, unleased vacant homes, especially after we paused acquisitions for 1 quarter. We had a total of 720 homes become available to lease during the month of July, and the number fell to 193 by the end of the month. In the meantime, we received an average of 3,500 calls per week from prospects interested in leasing a home, and that doesn't count all the weekly online leads we receive. The increasing demand, coupled with limited supply, are resulting in fewer days on the market for vacant homes as well as a 33% increase in the ratio of leases per available home year-over-year. We have not offered any meaningful concessions and are yet still able to achieve double-digit rent growth on new leases signed. In contrast to single-family rental, our U.S. multifamily rental business is experiencing somewhat weaker trends. As shown on Slide 19, the business experienced softness in demand due to the pandemic and reported a 4.9% decrease in its same-property NOI in Q2. Our focus continues to be on driving occupancy. In Q2, occupancy decreased by 120 basis points compared to last year, increased by 120 basis points to a level of 93.5%. We adjusted both new and renewal prices downward in submarkets to maintain occupancy, which led to a slight decrease in the average monthly rent. Revenue was further impacted by a higher bad debt expense, which stabilized at 1.8% of revenue in Q2 versus just under 1% pre-pandemic. Operating expenses remained relatively stable as we were able to contain the controllable expenses, such as R&M and turnover, leasing and other direct costs, which increased -- with increased use of in-house personnel. In terms of noncontrollable expenses, we had a 3% decrease in property tax expense as the comparative quarter included some true-ups for final 2019 tax assessments. This was offset by materially higher property insurance premiums market-wide with our property insurance costs rising by 27% year-over-year. Let's now turn to Slide 20 to discuss more recent trends. We continue to work towards striking a balance between stable occupancy and modest rent growth in the current environment. Our occupancy nets down to 92.5% in July as fewer leases were signed in previous months during the pandemic environment. The average effective rent was down by 3.8% on new leases in July as we continue to see elevated concessions across the industry. However, this is a significant improvement from the negative 9.4% rent growth reported in April. At the same time, residents who have remained in place have accepted positive rent growth in renewals in June and July. And as another silver lining, we saw a 19% expansion in the number of leads in July, which bodes well for occupancy going forward. Moving to Slide 21. As we work through some of the headwinds in multifamily, I want to highlight how we're making use of our integrated operating platform to improve our performance and to paint a picture of the opportunities that lie ahead. We are the first public company to combine these 2 asset classes in a significant way. And we are already seeing synergies play out. Let me highlight a few areas on which we are focusing. First, on the leasing front, since the pandemic started in March, all our SFR tours have been fully self-guided. Using our existing technology, we were able to quickly set up self-guided tours at all 23 multifamily assets starting in May. Our SFR business also has sophisticated technologies for lead generation, applications, leasing and rent underwriting. We plan to deploy those across our multifamily assets as well to improve operations and the resident experience. Second, on repairs and maintenance. Over the past few years, we have built an internalized property maintenance management platform for single-family rental with the capacity of processing over 75% of work orders in-house. While we look to ultimately internalize property management for the multifamily portfolio, the more immediate opportunities to save cost by using strict expense management protocols and national procurement programs that are already in place in the SFR business. Third, on collections and property management, we are already sharing resources across both rental portfolios. In Q2, we deployed our SFR team to make collection calls on underperforming assets in multifamily as we had spare capacity to do so. We also deployed maintenance personnel in the field to help assess capital improvements on select multifamily properties. And lastly, on geographic allocation and diversification, if you line up all our markets in single-family and multifamily rental, you can see a very strong geographic overlap. However, the multifamily business is not quite as diversified and has relatively high exposure to Orlando and Houston, which are seeing more challenging trends as a result of the pandemic. Over time, however, we have an opportunity to diversify and grow this portfolio through acquisitions. And we have the infrastructure already in place from our existing field offices to accommodate this expansion. As we continue to grow and diversify, our combined rental business should become not only more efficient but also more resilient. That concludes our prepared remarks. And with that, I will pass the call back to the operator to take questions. And Gary, Wissam and myself will also be joined by Jonathan Ellenzweig, Andy Carmody and Andrew Joyner to answer those questions.

[Operator]

[Operator Instructions] Your first question is from the line of Cihan Tuncay with Stifel.

[Cihan Tuncay, Analyst]

Just wanted to dig in a little bit deeper on the really strong rent growth you're seeing on new leases. Could you talk to at all what regions? I mean is it across the board? Or which regions are performing the best? And specifically, can you give us a sense of what kind of employment that these new renters that are coming in that are willing to pay such large increases in rent? Any trends in employment on that front as well.

[Gary Berman, President, CEO & Director]

Kevin, can you take that question?

[Kevin Baldridge, Chief Operating Officer]

Sure. So I mean, really, we had a number of markets that have experienced high rent growth. I mean it's -- a lot of it's across the board. I mean I highlight Reno, we had a 25% rent growth on new leases. Atlanta, 16.6%. But now I'm talking about our July, I'm giving the up-to-date numbers. But for the month of July, 25% in Reno. So it's 18% in Atlanta. 14% rent growth on -- in Charlotte. Jacksonville, another -- a 15%. So it was really across the board. Some of our lower rent growth markets, we had Houston, we still had 5.2% rent growth on new leases. San Antonio, 7.3%. So it really has been across the board. I think it's just been the pent-up demand. I don't -- I can't specifically talk to employment gains in each of those markets. But I think the biggest trend for us is just how it's been pretty much across the board and even in the weakest markets that we've had in the past.

[Cihan Tuncay, Analyst]

Just moving over to the syndication of the multifamily portfolio. It looks like now the percentage that's potentially up for sale or for syndication is 66%. That's up from 50% where you guys talked about previously. Could you talk about, Gary, maybe why that's gone higher? Has it been increased demand from potential partners? Or just what are the dynamics there in -- looks like a pretty sizable increase in percentage you're willing to give up?

[Gary Berman, President, CEO & Director]

Yes, I mean, there's significant demand for anything today that we call beds and sheds. So beds being the residential component of that, whether it's single-family or multifamily. And so even though we're in the pandemic and multifamilies, the fundamentals are a little bit more challenging, we're still seeing really, really strong demand from private investors. And so as a result of that, we think it's a great opportunity to sell a higher interest at 2/3. And the major reason we're doing this -- we still really like this portfolio. The major reason we're doing this is for deleveraging purposes. And so if we can repatriate more cash, pay off the credit facility at the portfolio level and then pay down our corporate credit facility, that's, I think, really important. So we're trying to strike a balance there. But again, the major goal is to delever. And this is the best way for us to do that today. And then the other thing I would say, just to add to that, is that we're also working with these sovereign wealth funds on a dry powder vehicle later in the year as well. So we would then be able to go out and buy assets onesie-twosie and start -- Kevin talked about this in his remarks, but started to increase our diversification in the portfolio as well and continue to grow. So we're pretty excited about this initiative.

[Cihan Tuncay, Analyst]

And maybe just one more question, if I can sneak one in on the single-family acquisition front. So it looks like you're talking about 900 new homes for the balance of the year, which is a little bit behind where you guys were on a per quarter basis previously. When do you think we can get back to that 800 or 900 homes per quarter level going forward?

[Gary Berman, President, CEO & Director]

We're hoping we can do that in '21, right? I mean there's a couple of things. It takes time to restart our machine. So we're a little bit behind in Q3, for example. The other thing is just that if you look at -- listings are down 20% to 30%. Closings are down 10%. It was already tight going into the pandemic. So supply is tight. So it's going to take us, I think, a little bit longer to ramp up to where we were. So we may be a little bit conservative with those numbers, but I think we're going to guide to about 900 homes to the balance of this year and then go back to 800 in Q1, Q2 of '21.

[Operator]

Your next question is from the line of Jonathan Kelcher with TD Securities.

[Jonathan Kelcher, Analyst]

Just going back to the multifamily portfolio. Is the write-down you took in Q2 there reflective of sort of the ballpark price you'd expect to see on the syndication?

[Gary Berman, President, CEO & Director]

Yes. Yes, it's very much in line with -- the price we're talking with the sovereign wealth fund investors is very much in line with our current carry value.

[Jonathan Kelcher, Analyst]

Okay. And then just switching gears on the single-family portfolio, you are running north of 97%. The markets are obviously very strong, especially on new leasing. Do you think you -- like as you start to push rents, what occupancy level are you targeting?

[Gary Berman, President, CEO & Director]

Well, I mean we typically target about 95%, right? I mean it's -- when I answer, it's a nuanced answer because we really use revenue maximization program to determine, and we kind of toggle between rent growth and occupancy really to drive revenues. What's more important -- what I'm trying to say is what's more important is your revenue growth in the underlying subcomponents. So that's really what we're trying to drive is revenue. But I think given demand is so strong, my hunch is that the occupancy will stay above 95%. It's going to be in that kind of 96% to 97% range, and we're going to be able to continue to push rent. Obviously, on new leases, we go to market, and that growth has been exceptionally strong. And on renewals, you've seen a downward trend from March through to July, but that's probably going to reverse starting in August and start moving back up. We're going to self-govern and we'll continue to self-govern our renewals. But I think given the demand is so strong, we'll start to ratchet up renewals a little bit more.

[Jonathan Kelcher, Analyst]

Okay. And just on the renewals, given that you didn't put through any increases, I was a little surprised that it didn't get closer to 0. How do the mechanics of that work? I assume you have to put notices out. So that's why maybe it didn't go all the way down.

[Gary Berman, President, CEO & Director]

Yes. No. I mean in June, for example, we had many residents take 0% rent increases. But really, what we do is we give them a choice, right? So the choice could be a flat increase. But in return for a flat increase, we're looking to increase the term of the lease, so we're looking to really smooth out our expiration schedule. So we're getting something back in return. Otherwise, if they don't want a flat increase, then there's a smaller increase, but with a shorter lease. So really, that's why the renewal increase is higher than -- is higher than 0. It really depends on what they're choosing.

[Operator]

Your next question is from the line of Stephen MacLeod with BMO Capital Markets.

[Stephen MacLeod, Analyst]

I just wanted to circle around here quickly on the multifamily side. You've had -- you talked a little bit over the last couple of quarters of having a bit of an occupancy bias. Can you just talk a little bit about like what you need to see in order to shift away from an occupancy bias? Is it really just demand and reduced competitive pressures?

[Gary Berman, President, CEO & Director]

On the U.S. multifamily side?

[Stephen MacLeod, Analyst]

Yes. That's correct.

[Gary Berman, President, CEO & Director]

Yes. Yes. It would be getting that occupancy closer to 95%, and we're falling short of that today. We were very close to that pre-pandemic. And then obviously, we faced some kind of more challenging times, especially in markets like Orlando and Houston. So we're below that threshold. But I think once we kind of push back up to 95%, then we prioritize rent growth.

[Stephen MacLeod, Analyst]

Okay. That's great. And then Kevin talked a little bit about sort of filling in the gaps or diversifying the portfolio a little bit on the multifamily side. When you look at Orlando and Houston, that 17%, 15% of the overall portfolio, do you have a target of where you want to get those higher proportion markets down to?

[Gary Berman, President, CEO & Director]

Yes. I'm going to pass it on to Jon.

[Jonathan Ellenzweig, Chief Investment Officer]

Sure, Stephen. Yes, regarding diversification, if you look at somewhere like Orlando where we have 4 assets, in contrast, we have other locations like Denver and Phoenix that we have strong conviction in, but only have 1 asset. So really, our goal is to grow the other markets around to the size where we are in Orlando or Houston. So we'd love to get to 3 or 4 or 5 assets in the near to midterm in all of our markets before we continue to grow Orlando and Houston. So that would drop down the concentration in each of those markets meaningfully below 10%.

[Stephen MacLeod, Analyst]

Okay. That makes sense. And then would you do that through that sort of shadow vehicle that you were talking about or dry powder vehicle that you were talking about?

[Jonathan Ellenzweig, Chief Investment Officer]

Exactly. That's the game plan.

[Operator]

Your next question is from the line of Matt Logan with RBC Capital Markets.

[Matt Logan, Analyst]

Just wondering if you guys could give us some context for how the discussions for the multifamily sale are trending. And maybe when we can expect the timing for that sale.

[Gary Berman, President, CEO & Director]

Yes. Sure. So we're in advanced discussions with 2 sovereign wealth funds. These are the same groups we were talking to pre-pandemic. They're very familiar with the portfolio. They both received preliminary approval. And we're now -- it's really subject to, I would call, confirmatory due diligence and documentation. That always takes longer than we like, but it is the process. And so we're hopeful we'll be able to announce something later this year. But the one thing to remember is we do have Freddie Mac debt on these properties and that we need consent. It's just an administrative item, but that consent can take many months. So that's why we're a little bit unclear as to whether this is end of the year or into kind of Q1. But we have made significant progress with our joint venture partners in the last month or so.

[Matt Logan, Analyst]

So likely late 2020, early 2021?

[Gary Berman, President, CEO & Director]

Correct.

[Matt Logan, Analyst]

And when you think about allocating capital going forward, do you see better opportunities in the single-family space or the multifamily space? Or do you have any sort of preference between the 2?

[Gary Berman, President, CEO & Director]

Well, I think today, I mean given that the fundamentals for single-family rental are meaningfully stronger, I mean we want to allocate more capital to SFR. And that's really what we're doing. I mean if you think about the investments we're making right now, the bulk of the capital going forward is going to our single-family rental joint venture. So we are prioritizing SFR. But over time, we do want to grow both. We do have conviction in -- from a property management perspective, in bringing single-family and multifamily together. And we'll see. I mean we'll see what the conditions look like in time. Again, I talked about in my remarks that I think the de-densification trends we're seeing right now, which are hurting multifamily, those will go away as we get herd immunity or there's some sort of vaccine. And so hopefully, in time, we'll see much stronger growth in the U.S. multifamily portfolio as well. But today, the focus is on SFR.

[Matt Logan, Analyst]

And with the strength in the for-sale housing business, do you see any potential to monetize any of your assets in a block sale? Or do you accelerate some of those dispositions?

[Gary Berman, President, CEO & Director]

We're going to -- we're continuing to look at those opportunities. I think if they come up, yes, we will take advantage of that, and we'll try to monetize those assets sooner and bring back the cash. But we're in a pretty good position now I think on that portfolio, and we're going to generate -- we think we're going to generate upwards of $350 million of cash in the kind of mid to long term. So we don't really want to -- I don't think we want to do anything at this point that would compromise that amount of cash flow. It's meaningful to us. So it really comes down to whether we can achieve asset sales, which are in line with that cash profile.

[Matt Logan, Analyst]

Makes sense. And maybe just turning to the single-family business for a minute. With double-digit rent increases on renewals -- or not renewals, but move-ins in July, do you think that's reflective of the mark-to-market potential for the portfolio as a whole? Or is that maybe reflective of some pent-up demand or seasonal trends?

[Gary Berman, President, CEO & Director]

Well, I mean if you asked me that question in Q1 or kind of pre-pandemic, I -- that just -- it just seems too high. So I think we kind of felt like the loss to lease in the portfolio kind of pre-pandemic was probably, what, like 6% -- 5%, 6% range. Nothing in the double-digit range. So I think some of it definitely speaks to the pent-up demand. And that so many families right now, you're nesting and they want to get out of the cities and they want to get into single-family accommodation. So there's some kind of big pent-up demand today, but that may moderate over time. So I don't think -- I think it would be aggressive to say it fully reflects the loss to lease in the portfolio. It's somewhere in between.

[Matt Logan, Analyst]

And when we think about organic growth overall for single-family, maybe not in 2020, but moving into 2021, do you think that might remain above the kind of 2% to 4% outlook?

[Gary Berman, President, CEO & Director]

Are you talking about rent growth or NOI growth or both?

[Matt Logan, Analyst]

NOI growth.

[Gary Berman, President, CEO & Director]

No. I think we can do better than that. I mean, I think that longer term, given the demands we're seeing right now and again, we think that these -- I mean we've been seeing those migration trends all along to the Sun Belt, and those are accelerating. So I think with these kind of de-urbanization trends that we've talked about, I think at this point, it looks like we can hit 4% to 5% NOI growth over time, right? So I think 2% to 4% would be conservative. Hopefully, we can do a little bit better than that, in that kind of 4% to 5% range.

[Operator]

Your next question is from the line of Tal Woolley with National Bank Financial.

[Tal Woolley, Research Analyst]

Just with the pandemic ongoing, the state and municipal finances are going to be probably in rough shape for the next little while. What are you sort of hearing from your tax advisers right now about things like property taxes, development charges? Are they giving you any insight as to how things might look?

[Gary Berman, President, CEO & Director]

It's still murky, I would say. But those municipalities, they are in top shape, but they've also got to balance the needs of their stakeholders and the residents that live in those communities. So my best guess is that we're going to continue to see property tax increases, but they're going to be muted compared to where they've been in kind of previous years. If you take single-family rental as an example, our property tax increases this year about 5%. I mean we were guiding to, what, 6% -- Jon, 6% or 7% early in the year. And in previous years, they were 8% to 9%. So those have come off already quite a bit. But I would think that we're going to continue to see property tax increases just given that the municipalities are in tough shape. And the other thing is, obviously, sometimes they're really linked to home price appreciation and higher assessed values. And the underlying market is very, very strong. And the for-sale housing market is strong, and we are seeing home price appreciation.

[Tal Woolley, Research Analyst]

Okay. And then in the areas where or the regions where you're seeing sort of these larger double-digit rent increases on new leases. Are you following the market there? Or are you leading the market on setting those rents or maybe those markets where you don't have as much competition?

[Gary Berman, President, CEO & Director]

Kevin, do you want to take that?

[Kevin Baldridge, Chief Operating Officer]

Yes. I didn't get all of it. You said, are we following the market there?

[Tal Woolley, Research Analyst]

Yes. Like you're comfortable in that double-digit increase because you can point to like a competitor leasing at roughly the same rate, somewhere around in the neighborhood? Or are you potentially leading the market in those increases? Or do you just not -- are those maybe areas where you don't have a lot of competition?

[Kevin Baldridge, Chief Operating Officer]

Yes. I mean that's -- I spent a lot of time in multifamily in my career. And this is really the first job I've had where we -- our problem is we have too much demand. When I first started with the company, we were getting lit up on social media because we weren't getting back to everybody in time. We were getting all these online leads and calls, and we couldn't field all of it. And so it's a long way of saying that really this -- what makes this business so great is there's very little competition. Our competition is mom and pop. The other institutional companies, they either have a slightly different product type, they're not in the same market or even if there's a couple of areas where we do overlap, we have such few homes, but they don't come on the market at the same time. So it's rare that we have a true institutional competitor in the market. So it's us competing against mom and pop. And what we do is as we look at our availabilities, we look at what the seasonality, how many expirations we have coming and then we -- and we use our own system to give us the pricing and we test it. And so we have a certain budgeted amount. And we see, well, wait a minute. Our availability in this market is lower than we thought. So let's push rents and see what we get. And so we push rents higher and if we get nibbles, we keep it and we end up leasing it higher than we thought. And so it's really a program that we've instituted. And I think it's just outsized demand that's coming right now because of the pandemic because of people moving and wanting to distance themselves has really helped push that. So it's much less about competition, and it's really letting the market dictate where they want to live, and this product type right now is definitely favored.

[Operator]

[Operator Instructions] And at this time, there are no further questions.

[Gary Berman, President, CEO & Director]

Thank you, Whitney. I'd like to thank all of you on this call for your participation. We look forward to speaking to you in November when we discuss our Q3 results. In the interim, please stay safe. We'll talk to you soon. Thank you.

[Operator]

Thank you all for joining today's conference call. You may now disconnect.