Tricon Residential Inc

TSX:TCN

Earnings Call Transcript 2021-Q3

[Operator]

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

[Wojtek Nowak, Managing Director of Capital Markets]

Thank you, Sarah. Good morning, everyone, and thanks for joining us to discuss Tricon's Third Quarter Results for the 3 and 9 months ended September 30, 2021, 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. Our remarks also include references to non-GAAP financial measures, which are explained and reconciled in our MD&A. I would also like to remind everyone that all figures are being quoted in U.S. dollars, unless otherwise stated. Please note that this call is available by webcast on our website and a replay will be accessible there, following the call.Lastly, during this call, we will be referring to a supplementary presentation that you can follow by joining our webcast or you can access it directly through our website. You can find both the webcast and presentation in the Investors section of triconresidential.com under News and Events.With that, I will turn the call over to Gary Berman, President and CEO of Tricon.

[Gary Berman, President, CEO & Director]

Thank you, Wojtek, and good morning, everyone. Thank you for joining us to discuss another successful quarter for Tricon. Before we get into the details, I want to thank our exceptional team who are the real drivers behind the strong results we're presenting to you today.Our team's unwavering dedication to our residents and the communities we serve is fundamental to our culture and I believe it's a key reason our company continues to perform well quarter after quarter. This is a team that I'm incredibly proud to work with.Let's start on Slide 2 and talk about the key takeaways we want to emphasize for you today. First, our single-family rental business continues to deliver solid operating performance with record high occupancy and rent growth on new movements north of 20%, demand for SFR is clearly off the charts, and we expect it to remain this way for some time. Second, in Q3, we saw a meaningful contribution from fee revenue earned from the syndication of our U.S. multifamily rental portfolio and the formation of new SFR joint ventures earlier in the year.Third, as you all know, we are laser-focused on growth. This quarter, our acquisitions team achieved a new milestone by purchasing a record of nearly 2,300 single-family rental homes in a very competitive housing market, using our sophisticated technology platform. And going forward, our growth plan is supported by $2 billion of third-party equity capital commitments announced year-to-date. With the capital and platform in place, we are on our way to doubling our portfolio to roughly 50,000 homes in the next 3 years.Finally, we've achieved significant growth while remaining disciplined with our balance sheet, substantially exceeding our deleveraging target a year ahead of schedule.Let's now turn to Slide 3 for a summary of our results. We reported earnings per diluted share of $0.92 compared to $0.21 in the prior year, which included strong fair value gains driven by near record home price appreciation. Our core FFO per share was $0.14, up 17% compared to last year.Our results were driven by consolidated NOI growing 21%, but also by private funds and advisory fees, which grew by 120%, as we launched several new investment vehicles this year in partnership with third-party investors. We also announced a number of new strategic accomplishments, including the launch of our largest JV to date, the $5 billion SFR JV-2, which is the capacity to acquire approximately 19,000 homes over 3 years.And most recently, we listed our common shares on the New York Stock Exchange and closed a U.S. marketed offering and private placement for gross proceeds of $570 million, which strengthened our balance sheet and brought our pro forma net debt to assets to 34% and pro forma net debt to EBITDA, down to 7.6x.Moving to Slide 4. In our single-family rental business, we saw a strong growth from new and existing assets, as Tricon's proportionate share of NOI increased by 13% and same-home NOI grew 6.5% compared to last year. We achieved a near record same-home NOI margin of 66.6%, driven by consistently high occupancy, record low turnover and strong rent growth of 9.1% on a blended basis. In our adjacent residential businesses, U.S. multifamily rental is recovering nicely with same-property NOI, up 15.5% year-over-year and is now solidly above the pre-pandemic levels, driven by strong occupancy gains, lower turnover and rent growth. For-sale housing delivered another strong quarter, distributing nearly $14 million of cash to Tricon, and Canadian multifamily is progressing on its development pipeline with over 1,000 apartment units on track to be completed in 2022.Let's now turn to Slide 5 to discuss our exciting and very successful dual listing in U.S. IPO completed in early October. Our transaction was one of the largest real estate IPOs in the U.S. in recent years and was significantly oversubscribed.This IPO was the culmination of a decade-long journey to transform our company from a small asset manager invested in for-sale housing to a tech-enabled rental housing company focused on single-family rental. And given our Sun Belt middle-market focus, it made perfect sense to provide an opportunity for U.S. investors to participate in our growth, many of whom we've had conversations with for years. We were thrilled with the response of the stock performance afterwards.I want to thank our Canadian investors for their ongoing support and give a warm welcome to our new U.S. shareholders. Let's turn to Slide 6 to refresh you on our strategy. We may be the smallest of the 3 public SFR companies. Our strategy is differentiated and we believe it can provide investors with significant upside. The old outage in real estate is location, location, location. Tricon's outage is growth, growth, growth, and it's our first point of differentiation. With the capital and platform in place, we intend to double our portfolio to roughly 50,000 homes in 3 years. SFR is one of the largest asset classes in the world and is incredibly fragmented. Think of SFR as a classic rollout. There's a golden opportunity to acquire high-quality homes, one at a time, and drive synergies in the process.Our unique approach to acquisitions is powered by technology and enables us to build a highly targeted portfolio focused on the middle market demographic and U.S. Sun Belt. Our second point of differentiation is our strategic capital platform. Over time, Tricon has developed deeper relationships with some of the largest private investors in the world. These partnerships allow us to scale faster, drive efficiencies, raise capital when the public market window is closed and take development off balance sheet.Our third point of differentiation is our tech-enabled operating platform, which is the backbone of our business and allows us to enhance the resident experience and improve our operating metrics. It is one of the key reasons that Tricon is leading operating metrics in SFR without nearly the scale of our peers. So how do we grow our SFR business?Let's zoom in on our acquisition program on Slide 7. Today's SFR market includes over 16 million homes valued at approximately $3.4 trillion. It is a huge market and any one player or frankly, all institutional players combined remain a drop in the bucket. We are playing in a sandbox of about 1.3 million annual home sales in our target markets. And in the third quarter, we processed 264,000 MLS listings.About 1 in 3 of these homes are acquisition Buy Box, which automatically filters homes based on a 90-point criteria, including age, size, bedroom count and neighborhood quality. This left us with roughly 92,000 homes for our acquisition team to screen, in order to find high-quality rental housing for our residents at an accessible price point. We were then able to quickly and efficiently kick at homes that were below our target returns or lack the aesthetic qualities we are looking for.In the end, we generated about 30,000 offers during the quarter, winning about 1 in 13. I should note that the vast majority of the homes we offer on, but don't acquire, are purchased by traditional homeowners. We've continued to ramp up acquisitions over the course of this year and have moved from 800 homes in Q1 to over 1,500 homes in Q2 and now almost 2,300 homes in Q3.Historically, our acquisition program has always been constrained by capital, not opportunity. And with the new joint ventures, we are finally in a position to take advantage of what we believe is a massive and evergreen opportunity to acquire homes. Our expanded Buy Box enables us to buy homes in 21 markets compared to 12 previously under SFR JV-1, including cities such as Phoenix, Las Vegas and Greenville, South Carolina, while still remaining focused on our middle market demographic.Let's move to Slide 8 for an ESG update. ESG is a top priority at Tricon as evidenced by our continued commitment to self-govern on rent renewals and prioritize our residents. This quarter, we engaged in several new initiatives in support of our broader company-wide commitment to ESG. I'm pleased to report that we secured our first green loan to fund construction of the West Don Lands Block 10, LEED Gold-level certified rental apartment building with a master plan that includes Ontario's first purpose-built indigenous health and education hub.We also rolled out a Diversity, Inclusion and Belonging strategy for our team, which provides a road map to fostering genuine inclusiveness across our organization. I'm proud to report that we've made significant progress. And in nearly a year, we've increased our percentage of women in leadership positions from roughly 35% to more than 45%.Although there's still lots of work to be done, Diversity, Inclusion and Belonging remain a priority for our organization and a key aspect of our hiring plans for both leadership and non-leadership positions.At Tricon, there's a genuine purity and remission. We care deeply about our employees, and we know that a diverse organization will position us better to serve our residents and the communities they live in and ultimately drive consistently strong results for our business.And finally, we committed to the United Nations Principles of Responsible Investing, a leading global framework that integrates ESG considerations into investment practices and ownership policies. This is another important step in furthering our commitment to ESG.That concludes my opening remarks. I would now like to pass the presentation over to Wissam to discuss our financial results.

[Wissam Francis, Executive VP & CFO]

Thank you, Gary, and good morning, everyone. Q3 was another tremendous quarter for Tricon, and I'm proud of what our team has accomplished so far this year. We've achieved exceptional results, launched significant vehicles to support our growth of our business, and effectively control costs in an inflationary environment, while meaningfully reducing our leverage.Slide 9 highlights our progress against the 5 key priorities that we set out in 2019. 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 leverage and improving our reporting.As you can see, we are well on our way to achieving, and in most cases, exceeding these goals well ahead of schedule. You can see here, we have raised over $2 billion of third-party capital compared to our target range of $1 billion. This is one of our key drivers for doubling in size over the next 3 years. More importantly, we've achieved $0.42 of FFO per share year-to-date. Assuming the current trends hold, we are confident that we can achieve our FFO target of $0.52 to $0.57, a year ahead of schedule, even with higher diluted share count caused by our exchangeable preferred share offering last year as well as this year's equity offering and U.S. IPO, which have been instrumental in reducing our debt. We plan to refresh this dashboard with new targets for 2022 when we report year-end results.Let's turn to Slide 10, where we provide highlights of our key metrics for the quarter. First, our net income from continuing operation grew almost threefold year-over-year to $202 million. This included approximately $76 million of NOI from our single-family rental portfolio, representing a 21% year-over-year increase. We also had a $362 million fair value gain on rental properties in Q3 compared to $60 million in the prior year, reflecting significant home price appreciation in our Sun Belt markets. Second, our core FFO per share increased by 17% year-over-year to $0.14. Finally, we reported AFFO of $0.12 per share.This provides us with ample cushion to support our quarterly dividend with an AFFO payout ratio of 40%. You will note that this quarter, we changed our dividend from CAD 0.07 to USD 0.058, to better match our functional and reporting currencies. At the current spot rate, this represents a 3% increase quarter-over-quarter.Let's now move over to Slide 11 and talk about the drivers that contributed to our FFO per share for the quarter. On the whole, the core FFO grew by 46% from last year to $38 million in the third quarter. On a per share basis, the year-over-year increase of $0.02 or 17% can be attributed to strength across several aspects of our business.First, our single-family rental portfolio, which makes up 90% of our real estate assets delivered 13% growth on Tricon's proportionate NOI. This was driven by a 9% increase in the number of homes, coupled with a 6% increase in the average monthly rent. This was offset by higher direct expenses associated with a larger portfolio, net of savings from lower resident turnover and less marketing and leasing spend.Our private funds and advisory fees contributed meaningfully this quarter with 120% increase in revenues, driven by an incremental fees from new investment vehicles in SFR and U.S. multifamily, along with higher development fees generated from our Johnson subsidiary. In our adjacent residential businesses, U.S. multifamily rental FFO reflected an 80% syndication of the portfolio earlier this year. And as Gary mentioned, this portfolio is doing very well. This is coupled with solid results from our for-sale housing business. And on the corporate side, we had higher corporate overhead, partly offset by lower interest expense as well as the impact of the higher diluted share count reflected common and preferred equity of financings.Let's turn to Slide 12 and talk about the significant increase in fee revenue, which I just mentioned. The fees we earn from managing third-party capital, not only allow us to scale faster and improve operational efficiency, but also allow us to offset a large portion of our corporate overhead expenses. These fees include asset management fees, property management fees and development fees, which together covered about 73% of our total recurring overhead cost this quarter.Now granted, this was a particularly strong quarter for Johnson Development fees and SFR acquisition fees. But over time, we expect our fee revenue to eventually cover the bulk of our overhead expenses. This means our shareholders will essentially get our platform for free, and we'd reap the benefits of strong NOI growth contributing directly to the bottom line.Let's talk about our balance sheet on Slide 13. We have shown a successful track record of reducing balance sheet leverage, coupled with the significant growth in the business while navigating a global recession and a pandemic. We have decreased net debt to adjusted EBITDA by 5.5 turns in the past 1.5 years to 9.8x in the third quarter. It was the proceeds from the U.S. IPO, our pro forma leverage comes down to 7.6x.This translates to 34% net debt to assets compared to 61% in the beginning of 2020. As we embark on a period of hyper growth over the next 3 years, we plan to stay disciplined and manage our leverage generally with a range of 8 to 9x EBITDA, as we deploy significant capital into growing the SFR portfolio.Turning to our debt profile on Slide 14. We have also made meaningful progress in addressing near-term debt maturities. At the end of Q3, we had $1.3 billion of debt, maturing in 2022. Since then, we have repaid the 2017-1 securitization of $455 million with the proceeds from our U.S. IPO. And more recently, we refinanced the final tranche of our short-term debt in SFR JV-1 with a fixed rate debt financing at 2.49%, with maturity concurrent with the JV term.This leaves a $221 million term loan as the only remaining maturity in 2022, which we aim to refinance early next year. Our liquidity profile is also strong. $637 million in available cash and credit facility to fund our growth. On the whole, this was a very strong quarter, and we're going full steam ahead into the next quarter.On that note, let me pass the call over to Kevin to discuss the operational highlights of the quarter.

[Kevin Baldridge, Chief Operating Officer]

Thank you, Wissam, and good morning, everyone. First and foremost, a big thank you goes out to our Tricon operations and customer service teams who helped deliver this quarter's outstanding results. To say I am proud of this team would be an understatement, as they continue to go above and beyond day in, day out to make the lives of our residents better.Moving to Slide 15. It's our focus on a superior resident experience that sets us apart and allows us to continue to deliver consistent, predictable and scalable results quarter after quarter. To put things in context, if you look at our metrics over the past 6 quarters, we've historically reported rent growth on new move-ins that is higher than our public peers, reflecting the strong loss to lease embedded in our portfolio.Meanwhile, rent growth on renewals has been tempered by our policy of self-governing and our commitment to ESG, but strong demand for our homes is allowing us to slowly adjust that metric upward, while continuing to be sensitive to our residents' financial circumstances. Our same-home NOI growth has similarly exceeded that of our peers over time, driven by topline growth, disciplined expense management and industry low turnover rates.And we think our industry low turn rate is a function of our middle market strategy, our diligent underwriting and self-governing on renewals and unmatched customer service. In the third quarter, we continued to deliver solid same-home results, including 6.1% revenue growth and 5.3% expense growth, which combined to produce 6.5% same-home NOI growth compared to last year.Let's talk about the drivers of same-home NOI growth on Slide 16. The left side of this slide depicts the underlying components that made up our year-on-year same-home revenue growth in the third quarter. While strong by historical standards, we expect this number to remain robust and possibly improve in the quarters to come. We expect high single-digit blended rent growth to continue. Blended rents were 9.1% in the quarter, supported by an impressive 20.8% increase on new move-ins and 5% growth in renewals.Since we've been self-governing on renewals for the past 3.5 to 4 years, we conservatively estimate that our -- we have an accumulated 15% to 20% loss to lease in our portfolio, creating a runway for significant rent growth ahead.Our ancillary fees and other revenue also grew meaningfully, up 18% from last year. We see a path to increase this number by another 40%, as we continue to roll out programs such as Smart Home and Renters Insurance, but also from future programs like Telecom concierge services, appliance upgrade, solar panels and more. Lastly, our bad debt has come down from a high of 2.8% of revenue to 1.4% in the quarter and we expect it to continue to trend towards pre-pandemic levels of sub 1%.Let's turn to Slide 17 to discuss some of the key expense variances this quarter. Property taxes continue to trend higher, in line with the massive home appreciation we are witnessing in our markets. With the benefit of successful appeals, we have managed to keep property tax growth to 4.5% this quarter, but the underlying growth in taxes is generally in the mid- to high single digits.Repair and maintenance expenses were higher this quarter as we returned to pre-COVID levels of maintenance activity, whereas last year, we cut back on any nonessential work during the pandemic. Conversely, our turnover expenses is much lower as our turnover rate decreased by 660 basis points from last year. Across both of these line items, we're seeing inflation materials and labor expenses, but we are mitigating these to some extent by completing more work orders in-house versus using third-party contractors and by leveraging our beneficial relationships with national manufacturers and suppliers.Property insurance costs have also increased, driven by rising premiums across the industry, which we hope to mitigate over time with greater scale and diversification. While we expect inflationary pressures to continue in the near term, we remain focused on what we can control, harvesting operating efficiencies through technology and process improvements, providing superior resident service and driving economies of scale.You can see the results in our cost to maintain at the bottom of this slide, which has dropped meaningfully over the past 3 years from 3,200 per home to 2,600 currently, while our NOI margin has increased from 61% to 67% over the same time period. Let's now turn to Slide 18 for an update on more recent leasing trends. I continue to be blown away by the consistent insatiable demand for our product. We're getting approximately 5,000 calls per week by people inquiring to lease 1 of only, say, 300 homes available at any one time. And we registered higher call volume in October than we did in September.When we consider online leads, that number increases to 9,000 leads per week. Since the beginning of our business, our challenge has not been with lead generation, but rather with lead management, and we've addressed these challenges through technology, such as our proprietary CRM system, automatic outbound dialing and intelligent virtual system. This strong demand funnel, coupled with significant loss to lease is allowing us to continue to push rents on new move-ins by over 20% in October.Meanwhile, rent growth on renewals is hovering around 5% and our overall blended rent growth has remained at a healthy 8% in October, which is slightly lower month-over-month due to a higher mix of renewals. At the same time, occupancy remains consistently high at 97.6%.All in all, our momentum did not show any sign of slowing during this quarter with strong demand trends continuing, coupled, of course, with our team's excellent execution. I want to truly thank our operations team for pouring their hearts into what they do as the purity and our purpose continues to translate into exceptional results.Now I'll turn the call back to Gary for closing remarks.

[Gary Berman, President, CEO & Director]

Thank you, Kevin. Let's spend a few minutes discussing our adjacent residential businesses on Slide 19, which account for less than 10% of the balance sheet, but represent a meaningful source of value for shareholders and a potential source of cash to supercharge our SFR growth. These businesses include our Canadian multifamily built-to-core business. A 20% interest in a high-quality multifamily portfolio located in the Sun Belt and legacy for-sale housing assets.Using conservative current valuation metrics, we believe these assets have the potential to be worth 2x our IFRS carry value over time and represent $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 our SFR portfolio and in the process simplify our business. Taken together, these investments could be worth almost $4 per share when fully realized.And so let's conclude on Slide 20. If there's one thing you should take away from our story is our focus on growth. By partnering with leading global real estate investors to form 3 complementary SFR joint ventures, Tricon has a clear path to doubling its SFR portfolio to 50,000 homes in the next 3 years.We have the balance sheet, operating platform and third-party capital in place to achieve this target with confidence and believe favorable tailwinds in our industry should drive strong operating performance for years to come.That concludes our prepared remarks. I will pass the call back to Sarah to take questions. Wissam, Kevin and I will also be joined by Jon Ellenzweig, Andy Carmody and Andrew Joyner to answer questions.

[Operator]

[Operator Instructions] First question comes from the line of Richard Hill from Morgan Stanley.

[Richard Hill]

Congrats on your first earnings call as a public U.S. company. I'm pretty comfortable with the revenue side of the equation. We feel pretty good with where you stand. I did want to maybe unpack a little bit more about your same-home expenses that you provided on 17. I think this is a great slide.Two things I want to focus on. The repairs and maintenance looks like it increased somewhat significantly year-over-year. Maybe walk us through that. And if you think about the property management, which is another big line item, how do you think about that in the year ahead, not asking you to get into guidance by any means. I know you don't provide guidance intra-quarter. But maybe just talk us through what the inflationary impacts are in your portfolio, recognizing that they're probably going to be more than offset on the revenue side of the equation?

[Gary Berman, President, CEO & Director]

Rich, great to talk to you, and thanks for the kind words. I'm going to turn it over to Kevin to answer those questions.

[Kevin Baldridge, Chief Operating Officer]

Sure. Thanks, Gary. Rich, good question. Yes, on the R&M side, we really -- we returned back to kind of pre-COVID levels of activity. So during last year in the third quarter, at least 1 month, we were doing only nonessential work. And where this quarter, we've been back to full work, and we're doing all the work orders that come our way.So it's a little bit of a noisy comp comparing to third quarter of last year. But really, the more meaningful reason is that it depends quarter-to-quarter, month-to-month on the mix of the work orders we get. So Q3 of this last quarter, we got more bigger HVAC work orders, landscape repair work orders. And that made up between 13% to 15% of that 20% year-over-year growth you see. And then there were some of the material and labor cost pressures, call it, 5% to 7% of that 20%.And we're doing more preventive work now than we were before. But I'll tell you, in October, we already have our numbers. We have visibility to October numbers, and they've come in lower, meaningfully lower than last quarter and lower than the same month last year. So we think we're only meant for that.

[Richard Hill]

Got it. And I said that I was pretty comfortable to the revenue side of the equation, but I can't help but ask a question. Your new lease spreads of 20.8%, I think I got that right, are pretty consistent with what our projections were for your new leases. And frankly, it looks like your new lease growth is fairly unabated here. Can you maybe talk through those demand drivers and if there's an ability to push new lease rate growth even further, I know some of your Sun Belt cousins in the apartment sector are doing even higher than that. Their comps are easier than yours. But maybe think about -- maybe talk -- walk us through where you could go in the new lease rate growth? Or is this sort of the new normal of 20% is as good as it's going to get?

[Gary Berman, President, CEO & Director]

Yes. So Rich, I'll take that. I don't think we're going to go much higher than 20%. Obviously, we're in line in October as you've seen. The markets range from hot, hotter and hottest. But for us to guide you that we're going to be beyond 20% on a blended basis, just seems unreasonable. Look, there are markets that are closer to 30%. Phoenix, for example, is red hot. Our Atlanta market is extremely strong. We've got some markets that are beyond 20%, but you have to also look through and look at some of the laggards, which might be markets like Houston or San Antonio, where we've had to deal with pandemic emergency restrictions in Northern California.So I think you have to take all of that together, and I don't think we feel comfortable thinking we're going to beyond 20%. Really, at the end of the day, the blended growth matters, and it's been 8% to 9%. And I think we feel pretty confident it can continue that way. We are edging up, as we talked about, we do self-governance on renewals, and we are edging that up a little bit as the economy opens and we've certainly seen significant wage inflation. We're always trying to be sensitive to our residents, but they're doing better, and we are edging up that renewal growth. And so we should be able to continue with very strong blended rent growth as we go forward.

[Richard Hill]

And sorry for the annoying sell-side question. I recognize that we're super greedy. If you can put up 20% with your blended, where it is for the foreseeable future, I think we'd all be quite happy. Nice to see a really solid quarter.

[Operator]

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

[Jade Joseph Rahmani, Director]

In the wake of the recent news about Zillow offers, I wanted to ask about Tricon's ability to achieve its growth outlook, specifically with your plans to double the portfolio over 3 years, what do you see is the major constraints in achieving the growth outlook? Do you believe that it's supply of homes? Is it pricing in the marketplace, competition, availability of labor, conversion timelines? And what are your plans to address those constraints?

[Gary Berman, President, CEO & Director]

Jade, this is Gary. I'm going to start, and then I'll pass it on to Jon to maybe talk more specifically by Zillow. But I mean, really, we don't see any constraints. I mean as we talked about, this is kind of a massive evergreen opportunity. The operational difficulty for us is not acquiring homes. It's really -- and by the way, in the past, the only reason we didn't acquire more homes was because we were capital constrained. But now that we've got the capital from these larger joint ventures, you've seen that we've ramped it up.We've gone from 800 homes in Q1, 1,500 in Q2, now 2,300 in Q3. It is -- the proof is in the pudding, there are no constraints on the acquisition side. This is a massive market. It is unbelievably fragmented, and we're being incredibly disciplined and targeted about what we buy, right? So we could obviously be buying a lot more homes if we weren't being as disciplined based on our Buy Box.The only thing we have to make sure of is that hire and anticipate any growth. So that's obviously a key thing because there's one thing to make the acquisitions, but then also, we have to renovate those homes and then ultimately turn a larger portfolio. And so we do need to make sure that we ramp up hiring in order to match an elevated acquisition pace, but it's a difficult environment to hire. Obviously, there is some wage pressure. We're reading all about that. We're seeing that in our own business, but none of it is insurmountable.So I would say there's nothing that we see that makes us feel like we can't hit our long-term target of getting to 50,000 homes. And we're doing that, I would say, by being incredibly disciplined. Jon, maybe you could talk about how the iBuyers play into this. Just one thing I would say, Jade, we do not depend on buying portfolios or even buying homes from iBuyers. We're literally buying one home at a time. The 2,300 homes we bought this quarter essentially all came off the MLS. So I'm going to turn that off to -- turn it over to Jon.

[Jonathan Ellenzweig, Chief Investment Officer]

Sure. And thanks a lot, Gary. Yes, and so as Gary noted, the iBuyers are one of our buying channels and we really look at them in many ways as a supplement or a replacement for MLS homes. If you think about a home seller in Phoenix or Dallas, they can choose with their home on the MLS or they might instead sell it to an iBuyer to expedite the sales process, and we underwrite our iBuyer homes the same way as we would on individual retail home. More specifically with regards to Zillow, we have definitely seen an uptick in the volume of homes we acquired from Zillow in late Q3 and Q4 as they've announced their distress and begun to liquidate homes.So when you think about our Q4 target of 1,600 homes, which reflects lower listing volume, as we approach Thanksgiving and Christmas, we've been picking up a lot more homes than normal from Zillow, which may allow us to beat that targeted number. So thinking about how that would impact us, we're just seeing a little bit more listing volume at Zillow, obviously, as they clear out their homes, which should help us in our Q4 and Q1 numbers.

[Jade Joseph Rahmani, Director]

And just a follow-up in accelerating the growth, can you talk about risk management and how you aim to mitigate that, the risk of overpaying and managing quality control as well. Zillow has admitted that their algorithms, their data analytics, and their one of the largest in-housing market, were not predictive in terms of accuracy of home prices. So how do you plan to mitigate that? I know you have a lot of boots on the ground, and I think that local presence is critical.

[Gary Berman, President, CEO & Director]

Yes. I mean, look, I think we remain incredibly disciplined. We have a whole number of parameters in our Buy Box that get audited by our joint venture partners. And obviously, one of the key parameters certainly is the cap rate, right? So this is not growth for growth's sake. It's not growth at all costs. It's based on hitting predetermined parameters in a Buy Box, including the cap rate and we're buying homes on a nominal basis between cap rates of 5% to 5.5%. So this is all about discipline.The risk management in terms of them to operate the homes, as I talked about before, means that we have to have boots on the ground, as you said. We need to have -- we need to ramp up our operational workforce so that we have the ability to actually then renovate and turn those homes.So again, it's just making sure that you get ahead. You're going to acquire more homes. You have to get ahead of that and hire in advance. That's the key way to mitigate the risk. But we're making sure that we observe the natural speed limit of our business, right? And remember, we've always been a real estate company where we're applying tech to allow us to operate better. We haven't gone from a tech company to them being a real estate company, which is a much more difficult transition, and we can understand why Zillow probably struggled with it. This business model has been built slowly over time, and we just continue to push the growth as we get more confident with the systems and people in place.

[Jade Joseph Rahmani, Director]

Congrats on the dual listing.

[Operator]

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

[Stephen MacLeod, Analyst]

Just a couple of questions to follow up here. On the single-family rental business, I know that your acquisition price sort of ticked higher quarter-over-quarter. I'm just wondering if that's more attributable to the markets you're buying in? Or is it the channels you're buying in? Just wondering if you can give some color there.

[Gary Berman, President, CEO & Director]

Yes. I mean it's partly attributable to home price appreciation, right? I mean -- and that's the thing. I mean, if home prices, last year were $300,000, you get 20% home price appreciation, now you're at $360,000 right? And it's amazing how fast prices have moved across the Sun Belt. So some of it is just the underlying inflation in the market.Obviously, we've been able to offset that with the rent inflation. We talked about that on new lease growth. So it's allowed us to keep the kind of cap rates that we're buying at fairly constant. But I would say some of it is just underlying inflation in the market, and some of it, to your point, is mix, right? Because in SFR JV-1 as an example, we were not buying in, let's say, Phoenix or Las Vegas. And now we're buying in those markets. We're also starting to buy in Austin and those markets do have higher home prices. And so it's a little bit of mix.We're also activating our Homebuilder Direct program where we are buying new homes, and those new homes also are at slightly higher prices. So I think all of it together is leading to inflation. But again, what's important is the cap rate, even though the home prices are moving up, the cap rates are staying the same.

[Stephen MacLeod, Analyst]

Okay. That's great. And then just when you think about the SFR business going forward, you've had an occupancy bias through the pandemic, but still have been able to drive strong rent growth. Is that sort of a strategy that you expect to continue to anchor to? Or will you sort of move away from that as the market -- the demand -- the pandemic subsides, demand remains strong going forward?

[Gary Berman, President, CEO & Director]

Kevin, do you want to answer that for Steve?

[Kevin Baldridge, Chief Operating Officer]

Yes, you're talking about our occupancy bias versus rent growth. Is that what the question is about?

[Stephen MacLeod, Analyst]

Yes. And just with respect to the outlook, you've maintained an occupancy bias through the pandemic. And I'm just wondering if that shifts at all with the pandemic subsiding and demand and growth remaining strong.

[Kevin Baldridge, Chief Operating Officer]

Yes. I think that -- and I've mentioned it before, this is an incredible business. I've never been in a business like this in my life. And the amount of demand that we have is, since I started 6 years ago, has not abated. And we were a little bit worried what might happen during the pandemic, and it cuts stronger, and it continues to be robust. We -- our leases per rent-ready home in this last quarter were up 12% year-over-year.We're getting upwards of 9,000 leads per week on anywhere from 300-plus homes that are available. And we still -- today, we're still denying anywhere from 48% to 52% of applicants. And that's how confident we feel in our ability to really drive a good rent roll because the demand is just so high. And what's interesting also is while our rent -- on new leases, we're pushing rents 20%. Our rent-to-income ratios have remained static. They're still in the 22%, 23% in the rent-to-income rate.And our FICO score has improved. So we remain very, very robust. I think that we can continue to have an occupancy bias and push rents at the same time. I mean I think that this business and the state that we're in is as strong as it's been, and I don't see that abating for a while. Does that answer your question?

[Gary Berman, President, CEO & Director]

Kevin, I just want to build on that for Steve. It's interesting because when Kevin joined us and Kevin and a lot of our senior operating team came from a multifamily background because there was no single-family rental management obviously back in the day. And the prevailing view in multifamily was always, once you hit 95% occupancy, that's when you start driving rent. And we applied that for a while to our single-family rental business. I think the one thing we've learned coming through this pandemic that we're actually better to operate at higher occupancy, to have more of an occupancy bias.And so I can see us, over time, even in different conditions, operating closer to 97%. And the reason for this is it's such an intense business. There's so many moving pieces. And we think of it almost like a machine or an apparatus, if you can keep it quiet, just like you can keep your body quiet as an analogy, you'll probably perform better over time. And so we think it's a key learning that's come out of this pandemic. And I suspect we'll continue maintain for that reason, a very strong bias occupancy bias going forward.

[Stephen MacLeod, Analyst]

Okay. That's great. And then maybe just 1 last final one. When you think about your goal to double the size of the SFR portfolio, does that -- do you need to have -- do you need to raise more third-party capital in order to do that? Or is that based on what you have committed today?

[Gary Berman, President, CEO & Director]

Yes. It's based on the capital we have in place in the SFR joint venture. So that's what's so incredible. I think about our story for shareholders is that we've got all the capital, third-party capital balance sheet and the operating platform in place to hit that target with confidence.

[Operator]

[Operator Instructions] Our last question comes from the line of Jonathan Kelcher from TD Securities.

[Jonathan Kelcher, Analyst]

Just on the SFR acquisition fees that you highlighted as being a strong quarter. Is that a function of the record acquisitions you did in the quarter? Or were there any onetime fees with the new JV in there?

[Gary Berman, President, CEO & Director]

No, that's a function of the -- it's a function of the acquisitions, right? It's paid when we acquire a home. So if you want to think about the fees, I would say, on the whole, they're largely run rate. The fees are largely run rate. I think where there is some onetime -- I mean, certainly, the performance fees are always ebb and flow, as you know. On the development fee side, we did have a big commercial land sale in Johnson, which generated nearly $1 million of fees. So I would say that's probably not run rate.And then the only other thing related to the acquisitions, we did a big vend-in. So what we did is we acquired a lot of the homes on balance sheet, and then we vended it into the joint venture when it closed. And when we vended those homes in our limited partners or private investors paid us a preferred return. So that preferred return is nearly $1 million. That's included in the FFO number, Jon. And so that is 1x. But I will say that the offset to that is we incurred higher interest expense, which is also an FFO in order to warehouse those assets.So it's a bit of kif-kif. But if you're just trying to model out the fee revenue, that is about $1 million high.

[Jonathan Kelcher, Analyst]

Okay. That is helpful. And are you still -- I guess, the limit is really on operations in terms of taking on new homes. Are you still targeting roughly 2,000 a quarter on average?

[Gary Berman, President, CEO & Director]

Yes, yes. I think we're going to -- I mean we're a little higher this quarter. And I will say that it is seasonal. I mean, as Jon talked about, acquisition volumes will typically be lower in Q1 and Q4 where -- when less people list their homes. So you're going to see higher acquisition volumes generally in Q2 and Q3. But the goal is to get to roughly 8,000 homes over the course of the year.

[Operator]

We have a follow-up question comes from the line of Jade Rahmani from KBW.

[Jade Joseph Rahmani, Director]

With the turnover ratio around 20% and new lease rent growth above 20%, do you believe that the remaining 80% of the portfolio has rents that are 15% to 20% below market. granting that would be realized over time, but is that your current belief?

[Gary Berman, President, CEO & Director]

Yes. I mean we'd say that's conservative. It's probably closer to 20%, if not higher. That's a loss to lease.

[Operator]

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

[Gary Berman, President, CEO & Director]

Thank you, Sarah. I'd like to thank all of you on this call for your participation. We look forward to speaking with you again in the new year to discuss our Q4 and full year results.

[Operator]

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