Tricon Residential Inc

TSX:TCN

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Tricon Residential Fourth Quarter Analyst Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today, Wojtek Nowak, Managing Director of Capital Markets. Please go ahead, sir.

[Wojtek Nowak, Managing Director of Capital Markets]

Thank you, Jason. Good morning, everyone, and thank you for joining us to discuss Tricon's results for the 3 months and year ended December 31, 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 the 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 this presentation in the Investors section of triconresidential.com under News & Events. With that, I will turn the call over to Gary Berman, President and CEO of Tricon.

[Gary Berman, President, CEO & Director]

Thank you, Wojtek, and good morning, everyone. I hope everybody listening in is doing well and is healthy. I want to start the call today by first recognizing the truly incredible efforts of our frontline employees and their unwavering commitment to go above and beyond for our residents throughout the pandemic and most recently during the extreme cold weather and power outages that affected Texas, Nashville and Indianapolis. Our thoughts are with our colleagues as well as our residents and their families who have been affected. Our frontline team is working tirelessly to ensure our residents are well taken care of, and we've been fortunate not to incur any material damage to our property. During these challenging times, our organization has been well served by our guiding principles such as going above and beyond to enrich the lives of others and doing what's right, not what's easy. I'm extremely proud of how our team has worked together through adversity while consistently delivering strong operating metrics. We have our heroes in Santa Ana and our on-the-ground employees to thank for that.Let's start on Slide 2 and talk about the key takeaways we want to emphasize for you in recapping the fourth quarter of 2020. First, our results this quarter demonstrate how our Sun Belt-focused investment strategy and middle market resident profile are a winning formula in today's environment, allowing us to benefit from exceptional demand trends which have only accelerated throughout the COVID-19 pandemic. Second, the recently announced syndication of our U.S. multifamily portfolio is a significant step towards our previously announced fundraising and deleveraging goals, and we anticipate more third-party fundraising in '21 to accelerate our growth plans. Third, from an operational perspective, our single-family rental business is performing incredibly well, and we expect the strong performance to continue. Lastly, we believe the operating metrics in our U.S. multifamily portfolio troughed in Q3, and we are encouraged by the steady improvement we've seen in Q4 and into the first couple of months of '21.Now let's turn to Slide 3 for a summary of our results. We reported core FFO per share of $0.16 this quarter, an increase of 60% compared to last year. As we break this down, our net operating income grew an impressive 14% year-over-year. And by keeping corporate costs under control and obviously benefiting from the lower interest rate environment we find ourselves in, we were able to turn meaningfully higher NOI into off-the-charts growth when measured on a per-share basis. In our single-family rental business, we continue to see very strong growth from new and existing assets as Tricon's proportionate share of NOI increased by 11% and same home NOI grew 5.1% compared to last year. We also achieved record same home NOI margin of 66.8% by maintaining high occupancy of 97.3%, achieving a record low turnover of 22.2% and generating strong blended rent growth of 5.6% while still governing -- self-governing on renewals. In U.S. multifamily rental, we are encouraged by our improving results with NOI up 3.3% sequentially in Q4 and operating metrics strengthening further into '21. It is also worth noting that even though our U.S. multifamily NOI was down 6% in 2020 on a full year basis, core FFO increased slightly year-over-year on account of interest savings. And lastly, for-sale housing was a real bright spot this quarter, distributing $14.4 million of cash to Tricon as it benefited from broad-based strength across the housing market. As you can see, our business is performing exceptionally well.Now let's turn to Slide 4, where we discuss the 3 key pillars that are driving Tricon's success, namely our people and culture, our operational excellence and our growth. These topics were covered extensively in our Analyst Investor Day, which we hosted on January 27. If you didn't have a chance to listen in, we'd encourage you to watch the replay to get a sense of Tricon's purpose-driven approach to doing business, the depth of our senior leadership team and the way we embrace technology and innovation to provide our residents with better customer service. With over 120 members of the investment community joining us virtually, the event was a huge success and is a great resource for new and existing investors seeking to better understand our company. Let me add that Tricon is invested in U.S. residential real estate, which represents a $26 trillion industry. This industry is not only vast but also highly fragmented and presents Tricon with an extraordinary opportunity to continue to grow with both public and private capital. We're incredibly excited about our growth prospects and our ability to use our expanding platform to do good, and we enter '21 expecting this year to be the most prolific period in our corporate history.Let's turn to Slide 5 and talk about major demographic, social and technological shifts, many of which have commenced prior to March '20 and which have accelerated as a result of the pandemic and which we believe will create strong operating tailwinds over the coming decade. The great migration trend to the U.S. Sun Belt, which has been occurring for years as Americans move from north to south in search of jobs, better weather and lower taxes, is now accelerating further as people seek out the safety and serenity of lower-density living in the suburbs. According to John Burns Real Estate Consulting, the Sun Belt consists of 40% of the U.S. population but will garner at least 60% of the population growth going forward. Government-mandated work from home has only reinforced the appeal of the U.S. Sun Belt. If one is afforded the freedom to work anywhere, why not move to the so-called smile states and take advantage of superior weather and housing affordability. While conventional office space remains necessary to foster culture and team building, we believe that advances in communications infrastructure and video conferencing have permanently changed the way we work. And then on the margin, more and more employers and employees will offer more flexible work-live arrangements, which in turn will increase demand for additional living space in general and single-family homes in particular. At Tricon, we believe that demographics are destiny and that the millennial cohort will drive significant demand for single-family housing as they enter their prime years of family formation. The millennial cohort is larger than the baby boomers, and there are already more Americans in their early 30s than any other age group. Millennials are not only in their prime years of forming families but also are showing a preference for flexible and maintenance-free lifestyle that best suits rental living and the sharing economy they've grown accustomed to. Meanwhile, at the other end of the spectrum, older baby boomers are increasingly opting to age in place rather than moving to retirement facilities, and this trend will likely become even more pronounced given the prevalence of COVID-19 outbreaks in many senior housing facilities. In essence, both millennials and boomers are working in unison, albeit for different reasons, to drive massive demand for suburban housing. We like to think of the period after the Great Recession as a lost decade for housing, where the homebuilding industry was also slow to recover and supply stagnated, especially for more affordable starter homes. And so now that we enter a boom period of housing demand, spurred by the pandemic and historically low interest rates, we find ourselves in an environment of relatively constrained supply at a time where demand is surging, which should lead to significantly higher home prices and rents. You can see this dynamic at play within our own portfolio on Slide 6, where there's been a strong historical correlation between home prices and rent. The average value of our single-family rental homes has increased by 18% over 3 years while rents in our portfolio increased by 13%. These numbers are impacted by acquisitions and lower renewal rents over time and are therefore not exactly apples to apples, but directionally, they prove the point. Tricon shareholders get a double whammy, benefiting not only from strong growth in rents and NOI but also higher net asset value per share as our existing homes appreciate in value. And with home prices and rents moving more or less in lockstep, we are able to continue to grow by acquiring homes at stable cap rates while we get the benefit of ultra-low financing. Let's turn to Slide 7. The combination of strong fundamentals in rental housing and our ability to execute on operations in a field where there are relatively few proven operators is enabling us to manage significantly more third-party capital. As you can see on this slide, we expect to raise $1.2 billion of third-party equity capital across all our rental businesses in '21, which would make this the most prolific year of fundraising in Tricon's 33-year history. We're very excited to have put a checkmark beside one of the key opportunities outlined here, the upcoming syndication of our U.S. multifamily portfolio to 2 major institutional investors. Before we discuss the transaction in more detail, I want to remind everyone that we are primarily a balance sheet investor but raise third-party capital strategically to allow us to add scale and gain operating efficiencies, to take development off balance sheet, to source capital when the public market window is closed and to enhance our return on equity by earning management fees. On Slide 8, you can see a summary of our new U.S. multifamily joint venture, which was an extensive undertaking during a pandemic, and so I want to thank our team for their hard work and also welcome our new partners into this venture. Under the JV, which we expect to close this month, 2 institutional investors will acquire a combined 80% interest in our existing portfolio of 23 apartment properties while we retain a 20% interest and continue to manage the portfolio. The transaction values the portfolio at $1.33 billion, which is in line with our current balance sheet valuation, and upon closing, will generate gross proceeds to Tricon of approximately $425 million. The transaction will allow us to accomplish 2 key goals. The first is creating a platform for growth. Our goal has always been to pursue U.S. multifamily, which is the largest investable segment in residential real estate, alongside third-party investors. We will now have 2 partners in place for the strategy and are in discussions with them to form a separate growth-oriented joint venture, which would allow us to add scale and balance out our existing portfolio. Our second goal has been to lower our leverage, including reducing our net debt-to-assets to a range of 50% to 55% by '22. We are pleased to announce that upon closing, we expect our leverage ratio to be approximately 50%. In fact, over the course of a year, we will have succeeded in reducing our net debt-to-assets by about 1,100 basis points, an impressive accomplishment in the midst of a pandemic and worldwide recession and one that Wissam and his team should be commended for. Shifting gears to Slide 9. I'd like to give an update on our ESG initiatives and specifically, our ongoing commitment to social causes. This quarter, our employees participated in Tricon's Pay it Forward program, which was inspired by Tricon's desire to make a difference in the local communities that we serve. The program works as follows. We deposit $100 into each of our employee's bank accounts at the end of November with the only stipulation that they pay it forward to an organization or individual of their choice that is in need. This program also inspires many employees to match their initial donation, creating a multiplier effect, which leads to even more giving. Since the program's inception a couple of years ago, our team has donated approximately $200,000 to a wide variety of causes that are near and dear to our hearts and which improved the lives of so many. At Tricon, there's real purity in our mission. We care deeply about our employees and the communities in which we operate. By focusing on the well-being of our employees first, they're inspired and empowered to go above and beyond for our residents. And when our residents are fulfilled, they stay with us longer and treat our properties like their own, which translates into better financial results for investors. In essence, by taking a balanced approach to our stakeholders, we are able to put everyone, employees, residents and investors, in a better position and truly drive sustainability.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. Let's begin with Slide 10 and review 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 represented in a graphical dashboard on Slide 11. Our team has worked incredibly hard over this past year to make meaningful progress on all fronts, getting us much closer to meeting our 2022 targets. Let's start with the 3-year FFO target. We had a strong quarter and achieved $0.16 of FFO per share, which brings us to $0.49 per share for the full year. Assuming the current trends hold, we are confident that we can achieve our FFO target of $0.52 to $0.57 in 2022 even with higher diluted share count caused by the exchangeable preferred share offering and deleveraging. In terms of raising third-party capital, we are well on our way to raising another $1 billion of fee-bearing capital ahead of schedule with the upcoming syndication of the U.S. multifamily portfolio as a meaningful step towards this goal. We also expect additional capital raises in our SFR business and Canadian multifamily business later this year. Another one of our priorities is reducing leverage to our target range of 50% to 55%. With the syndication of the US multifamily portfolio, we have reached the low end of the target range ahead of schedule, and we'll continue to work on bringing our leverage lower over the long term while continuing to grow our business. Our final priority was improving our reporting, which is substantially completed with our transition from investment entity accounting to consolidated accounting earlier this year as well as adopting REIT-like MD&A disclosures such as FFO per share and AFFO per share. With ESG as a company-wide priority, we issued our first ESG road map at the beginning of 2020 and are looking forward to publishing our first annual ESG report in the coming weeks.Let's turn to Slide 12, where we provide highlights of our key metrics for the quarter. First, our net income grew 87% year-over-year to $81.5 million. This included $79 million of NOI from our rental properties, representing a 14% year-over-year increase. We also had $107 million fair value gain from rental properties in Q4 compared to $32 million in the prior year, reflecting strong home price appreciation in Tricon's core markets. Second, our core FFO per share increased 60% to $0.16 or CAD 0.20. Reminder that this excludes our fair value gains on the Canadian multifamily business which historically was included. Q4 tends to have some onetime adjustments, and we do not view this as an appropriate run rate going forward. But the underlying numbers show robust performance in all of our residential segments. Third, we reported AFFO of $0.13 per share, which translates to CAD 0.17, and provides us with ample cushion to support our quarterly dividend of CAD 0.07 per share, reflecting an AFFO payout ratio of 32%.Let's move to Slide 13, which highlights the drivers that contributed to our FFO growth for the quarter. Our year-over-year increase of $0.06 per share was due to strength across all aspects of our business. Our single-family rental portfolio, which makes up 2/3 of our assets, delivered 11% growth in Tricon's share of NOI, reflecting an 8% increase in number of homes in the portfolio, coupled with very strong blended rent growth of 5.4% and a healthy occupancy of 96.4%. Our other businesses also contributed meaningfully this quarter. Of note, residential development performed exceptionally well as demand for development lots in our for-sale housing business has exceeded our expectations during the pandemic. The business contributed $11.5 million to our core FFO this quarter and generated $14.4 million of cash for Tricon. Our multifamily business also reported a slight increase in FFO as lower NOI was offset by interest expense savings. Likewise, we saw a year-over-year decrease in corporate interest expense due to refinancing activities that have allowed us to benefit from lower interest rate environment as well as lower balance outstanding on our corporate credit facility. There are 2 other factors that essentially net each other out. First, we benefited from a onetime tax recovery of $7.3 million this quarter, driven by tax losses applied to historical tax gains. And offsetting that is a higher compensation expense, mainly driven by year-end bonus accrual and PSUs. Given the uncertainty of the pandemic, we had accrued a lower variable compensation in the first 3 quarters of the year and trued this up for actual performance in Q4. Lastly, we adjusted our PSU liability as the share price increases. For the full year, however, cash compensation was up 3% year-over-year. And lastly, let's not forget, our weighted average diluted share count was up, 16% higher than last year, reflecting our exchangeable preferred share issuance in August.Turning over to Slide 14. We have significantly improved our liquidity profile over the past year as well as positioned ourselves to address our near-term debt maturities and potentially realize significant interest expense savings. We currently have $529 million of corporate liquidity, including cash on hand and room on our corporate credit facility. The U.S. multifamily syndication will enhance this further. In terms of use of proceeds from the syndication, we plan to immediately pay and retire the $110 million credit facility outstanding on the portfolio, which is due to mature later this year. We also have the option to prepay some of the property-level debt in the single-family rental portfolio which matures next year. Beyond that, we expect to pay down our corporate credit facility in full and have cash on hand for near-term growth investments. As we look out to 2022, aside from retiring a portion of our debt, we expect to refinance the bulk of these maturities with new property-level debt, including securitizations. We see a significant opportunity for interest expense savings in today's low interest rate environment, given that the blended rate of these maturities is just over 3% whereas our latest securitization was done at 1.83%. And so if you could save 100 basis points on the $1 billion of debt shown here, that translates to about $10 million of interest expense annually or $0.03 incremental core FFO per share for Tricon. I realize talking about financing and interest expense savings is exciting, but what's more exciting is talking about our operations.With that, I'll turn it over to Kevin Baldridge, Chief Operating Officer, to discuss the operational highlights for the quarter.

[Kevin Baldridge, Chief Operating Officer]

Thank you very much for that exciting handoff, Wissam, and hello, everyone. When I take a moment to reflect on our successes over the past year, I think of how proud I am of our dedicated teams who have continued to persevere during these difficult times to improve the lives of our residents while, at the same time, delivering exceptional operating metrics and adapting to the many changes that have come their way. We remain steadfast in our commitment to putting our employees and our residents first, which ultimately is in the best interest of our investors. I also wanted to take a moment to acknowledge all of our employees and our residents who have been impacted by the recent winter storms in Texas, Nashville and Indianapolis. As Gary mentioned earlier, our residents and our employees who have been affected are top of mind, and we continue to work diligently at the local levels to prioritize their safety and well-being.Let's now turn to Slide 15 to review the operational performance of our single-family rental business, which represents about 2/3 of our proportional balance sheet exposure. The business continued to benefit from secular tailwinds, which drove higher occupancy, rent growth and resident retention, resulting in same home NOI growth of 5.1% year-over-year. As we delve into the numbers, same home revenues grew by 2.8%. This was driven by an occupancy increase of 140 basis points and higher average rents, which resulted in rental revenue that was 5.6% higher than last year. The offsetting factor was higher bad debt expense of 2.8% of revenue compared to 0.8% in the prior year. Our bad debt expense has been increasing over time as previously delinquent residents tend to carry over into the next month and new delinquencies are layered on top of that. However, with more clarity on U.S. stimulus measures entering into the new year, along with the push for the economy reopening, we do think that we are at a peak in our bad debt and that this number will start to stabilize in the near term, with bad debt normalizing to 2022 when the pandemic is hopefully well behind us.On the expense side, we saw a modest increase of 1.6% compared to last year due to a reduction in controllable expenses, specifically a 10% decrease in turnover costs. Our turnover rate decreased by 310 basis points compared to last year to 22.3%, reflecting the propensity to stay in place as a result of the pandemic as well as our focus on superior resident service. Property taxes grew by only 2.1% year-over-year due to a onetime tax adjustment in Q4 2019, which was -- which made our property tax unusually high that quarter. On a full year basis, property taxes increased by 4.4%. In addition, we saw a 5% increase in property insurance as premiums increased across the industry. Together, robust revenue growth combined with diligent expense control translated into a record-high same home NOI margin of 66.8% in Q4.As we start the new year, one can see on Slide 16 that the positive trends have continued into January. Occupancy remains at all-time highs and rent growth for new move-ins has remained in double digits as we harvest the loss to lease that has built up over time with our low turnover rate. Meanwhile, rent growth on renewals has started to tick upwards as strong demand for our homes allows us to push that metric a bit more while we -- while still being sensitive to a challenging economic environment impacting our residents.Now let's turn to Slide 17 to discuss our U.S. multifamily business. I'm pleased to say that it feels like we bottomed in Q3 2020 and are now seeing incremental improvement in our metrics. Year-over-year, the Q4 variance is still negative as NOI decreased by 8%. I would note that our concessions accounting policy is conservative, whereby we expense all concessions in the current period. If we were to amortize concessions over the term of the lease, our year-on-year NOI decline would have been 7.1%. If we look at the components of NOI, revenues were down 3.4% relative to last year as a result of lower occupancy, higher leasing concessions and higher bad debt provisions, offset slightly by higher revenue from new ancillary services. Expenses increased by 3.2% year-over-year, driven by slightly higher property management expenses, property insurance as well as repairs and maintenance and turnover expenses at specific properties. While the year-over-year percentage change in NOI is meaningful, the dollar change is only $1.4 million and underscores the fact that our portfolio of 23 properties is still relatively small when compared to the rest of our residential rental business. The location of our multifamily assets are also not as diversified as the portfolios of some of our public peers. We continue to experience challenges in Houston and Orlando, which make up 32% of the total suites in our portfolio. These markets are among the hardest hit by the pandemic with unemployment rates above the national average. On the bright side, however, the quarterly FFO contribution of the multifamily business actually increased by $100,000 compared to last year as we benefited significantly from lower LIBOR rates which positively impacted interest expense on roughly 1/3 of the portfolio's debt that is tied to floating rates. Also, looking at the sequential trend from Q3 to Q4, one can see that NOI has increased by 3.3%, and we are optimistic that performance can get better from here. The increased -- the increase reflects stronger occupancy and improved expense control which more than offsets pressure from blended rent growth which was still negative but to a lesser extent than in recent quarters.On that note, let's turn to Slide 18 for an analysis of the sequential trends on a monthly basis. From October to the end of January, we've seen a 130 basis point increase in occupancy, ending at 94.6%. Likewise, our blended rent growth is now in positive territory, reaching 1.1% as of January. We're getting closer to flat lease trade-outs on new leases, coupled with strong renewal increases. Notably, we have achieved these improvements while reducing the use of concessions, which has moved from $420 per lease in July to $70 in January. This could continue to serve as a positive tailwind for net operating income.I'd like to end off with Slide 19 to give you a sense of our top operational priorities for the year ahead. Our first priority is to grow same home NOI. We expect to maintain a strong occupancy bias and see continued upside to rent growth, especially on new leases. Additionally, we continue to grow ancillary revenues while keeping the cost to maintain stable. While we believe our bad debt exposure peaked in Q4 '20, we expect it will remain above pre-pandemic levels much of 2021, returning back to normal some time in 2022. Second, we plan to increase acquisitions by gradually ramping up our purchases to between 800 and 1,000 homes per quarter and expanding our build-to-rent program. Third, we plan to continue innovating to drive efficiencies, which has been a company-wide priority for years. In 2021, our focus is on expanding our Smart Home offering, escalating our use of intelligent virtual agent technology to help automate the scheduling of leasing tours and respond to maintenance requests in our call center. We will also be expanding our national procurement program and continuing to improve our fleet efficiency and productivity.Finally, we plan to realize synergies between our single-family and multifamily portfolios in the areas of maintenance, leasing and operations. We will also be relying on our operating platform to lease up and stabilize 3 Canadian multifamily assets over the next 12 to 24 months. Of course, with all of the above, our top priority is always to ensure our employees and residents stay safe and healthy as we work through the tail end of the pandemic while maintaining our mission of providing quality housing for families across America.Now I'll turn the call back over to Gary for closing remarks.

[Gary Berman, President, CEO & Director]

Thank you, Kevin, for that exciting update. I'd like to conclude our presentation today with an overview of upcoming catalysts, on Slide 20, that our team has been working on. First, we expect to close the syndication of our U.S. multifamily portfolio this month, and that ties to our second point here that upon closing of this transaction, our leverage will be approximately 50% net debt-to-assets, which again represents a reduction of 1,100 basis points of leverage in just 1 year. In terms of growth, we are working on additional third-party capital raises across all residential strategies, which I outlined earlier. Our own balance sheet investments will remain focused on single-family rental, which will account for over 80% of our net asset value going forward. Our acquisition program is back to pre-pandemic levels, and we expect to accelerate acquisitions of rental homes during the year. Meanwhile, our legacy for-sale housing assets remain a very small part of our business but are quietly generating significant cash. We expect to generate over $300 million in the next 5 to 7 years, which can be used for deleveraging and to reallocate to our rental housing businesses. And lastly, north of the border, we continue to construct, develop and stabilize our Canadian multifamily development properties. In addition to The Selby, we have around 3,700 units under various stages of development and construction, and we believe that when these properties are stabilized over the next 3 to 4 years and we apply today's cap rates, we will be able to generate another $2 per share of value on top of the existing IFRS NAV. So we see significant value upside as we quietly incubate a best-in-class multifamily portfolio.I'm very proud of the progress our team made in 2020 in the face of an extremely challenging environment. We are very fortunate to emerge from the pandemic in such a strong position and to be able to hit the ground running in '21 with so many exciting plans.That concludes our prepared remarks. I'll pass the call back to Jason to take questions. Wissam, Kevin and I will be joined by Jon Ellenzweig, Andy Carmody and Joyner to answer questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Stephen MacLeod from BMO Capital Markets.

[Stephen MacLeod, Analyst]

So lots of great detail on the call, and congrats on a quarter with businesses really humming along very nicely. I just had a couple of questions for you. You had some interesting commentary around the third-party capital commitments. And I'm just wondering if you could give a little bit of color on a couple of things, the first one being the multifamily JV growth expectations. I know that's still in process. The second one -- and then the second one being, are you able to give a little bit of timing around the SFR JV-2 and Canadian multifamily timing for those investments as well?

[Gary Berman, President, CEO & Director]

Yes, sure. So I think in terms of sequencing, the next announcement you should expect for us will be on the Canadian multifamily development side, built-to-core. We are working with a major investor to grow that strategy and to take advantage of dislocation in Toronto. And so you should expect something from us on that fairly soon. With respect to the single-family rental initiatives -- and really, that represents, I think, the lion's share of what we're really going to raise over the balance of the year and where, obviously, there's major focus, as we talked about, in terms of our balance sheet investments. That capital will likely be announced in Q2, right? We're working on 2 major initiatives. One is a continuation of the existing strategy, JV-1. So that -- we'll call that JV-2. And the second one is what we've been calling Homebuilder Direct, where we will be able to buy homes from builders, public and private, new homes. So expect something there in Q2. With respect to the multifamily syndication that we just announced, we are working on a growth strategy. We call that a dry powder vehicle, and that's likely a Q2 event. The overall amount will probably be a little bit lower than what we talked about before, but we will have the ability to upsize that if we see compelling opportunities. So overall, we're incredibly excited about all the third-party capital raising that'll be coming down the pipe, and probably all of that, again, should hit in the first half of this year.

[Stephen MacLeod, Analyst]

Okay. That's great. And you mentioned the $1.2 billion which is committed. Is that the number or is that sort of -- could that move around maybe to the -- maybe higher than that as you work through negotiations?

[Gary Berman, President, CEO & Director]

Yes. I would say that if I were to guess, is it going to be lower or higher, it's more likely to be higher.

[Stephen MacLeod, Analyst]

Right. Okay. That makes sense. Okay. That's great. And then the SFR business, obviously benefiting from a lot of these secular tailwinds and record NOI margin in the quarter. Can you talk a little bit about how you see that NOI margin moving as you ramp up your home buying program back to pre-pandemic levels and drive ongoing rent growth? What would you expect -- how do you expect it to evolve kind of this year and maybe into next year as things normalize?

[Gary Berman, President, CEO & Director]

Well, I think -- I mean, again, the home buying wouldn't necessarily impact, certainly, the same-store margin or same home margin. It could over time if we -- depending where we buy homes. So I think I just want to be very clear that a major driver of the margin is where the homes are located and the property taxes, right, because that's the biggest cost in the margin. And so you could have very different margins depending where your portfolio is located, so you do need to isolate that. But I think the most obvious thing to look at is that if we were to normalize bad debt and fees. Remember, through our ESG policy, we're trying to be as sympathetic as we can to our residents during this really difficult time. We're trying to keep them in our homes. So we are incurring higher bad debt and we're earning less fees. If we were to just normalize that, our margin would be almost 1% higher. So instead of being close to 67%, it would be closer to 68%. So that's a big move unto itself. And then, again, as we discussed in previous earnings calls, we continue to believe this is a business where we can drive revenues faster than costs over time, which could lead to more margin expansion. It's not crazy to think that one day, we could have a 7 handle on this margin. I mean never thought in a million years we'd ever get there, but it is possible. It will take time. The offsets to that are obviously property taxes. The states and local municipalities are going to need to find a way to incur more revenue. And one way to do that is obviously through property taxes on residential property, which has been very strong. And obviously, we are seeing -- it's not a major component of the margin, but we are seeing higher premiums on insurance. So those would be the offsets, but I think the trajectory for where we're going couldn't be better right now.

[Stephen MacLeod, Analyst]

Right. So nice positive bias there. Okay. That's great. And then just finally, on the resi business. You had a nice bump in some of the investments on for-sale housing. Do you have any insight into sort of how that -- what that looks like? I know it's a lumpy business, but should we expect more of that going forward as we roll through this year, given the strength in the U.S. housing market? Or what kind of visibility do you have into those fees coming in?

[Gary Berman, President, CEO & Director]

The market is incredibly strong. I mean I don't know -- I mean we haven't seen it this strong since 2004 and '05. I mean it's just -- the market is on fire. Obviously, it's a very difficult business to predict. It's -- the cash flow is episodic. So I can't give you a huge amount of guidance, but I would say that we expect further strength in the year. From a modeling perspective, I would probably just use -- I mean we used to guide to this kind of before the pandemic. But I would probably think, if you look at our fair value on the portfolio, which is about $160 million today, if you took, let's say, 7% to 9% as a kind of unlevered yield, you could kind of think about that as where the FFO or investment income could shake out over time. And hopefully, we do better than that, but that's probably a fair range, 7% to 9% on the fair value. So I hope that helps, but I can't be any more specific than that.

[Operator]

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

[Jonathan Kelcher, Analyst]

Just continuing on, I guess, the SFR business. What's your expectation for property taxes and insurance increases in 2021? And further, just on the insurance side, as you grow your portfolio, is there any chance for savings just given the bigger size?

[Gary Berman, President, CEO & Director]

Yes. So I'll -- Jon, so I'll start with that, and then I'll pass it over to Wissam. So on property taxes, we -- working with our tax consultant, we think that -- we probably guide to increases of 5% to 6% for '21, right? And remember, for '20, we were 4% to 5%. We actually did better than we thought in 2020, but I think a little bit higher for '21, 5% to 6%. Not as high as where it had been a few years ago, but obviously, it represents a bit of a headwind on the margin. And then on insurance, probably looking at insurance -- increases to premiums of about 10% across the board, which is in line with the industry. Obviously, there's been a lot of storms, the recent event in Texas, and that's always putting a drag. Anything you want to add to that, Wissam?

[Wissam Francis, Executive VP & CFO]

Yes. So the only thing I would add is we definitely do get a benefit of scale as we continue to grow the portfolio, and we also get a benefit of scale by combining both single-family and multifamily. But despite all of that, we're still assuming anywhere from 9% to 10% growth in insurance premiums for next year.

[Jonathan Kelcher, Analyst]

Okay. That is helpful. And you guys do -- you net your bad debt against revenue, correct?

[Gary Berman, President, CEO & Director]

Correct.

[Wissam Francis, Executive VP & CFO]

Yes, that's right.

[Jonathan Kelcher, Analyst]

Okay. And Wissam, I just -- I guess sticking with you because I like the balance sheet stuff, too. Given what interest rates have done in the last few weeks or so, where do you think you could do current securitization at?

[Wissam Francis, Executive VP & CFO]

Well, we're looking at -- the last securitization deal that we did end of 2020 was around 1.83%. Right now, we've seen a curve uptick after 5 years. So if we're going to do the same transaction, the rate would have gone up probably by anywhere between 25 to 75 basis points, depending on whether you want 7-year or 8-year or 9-year maturity. So we still think that it is very meaningfully lower than our 3% blended maturities interest expense, but we think we could probably be in the 2.25% range right now.

[Jonathan Kelcher, Analyst]

Okay. Got it. That is helpful. And lastly, you do have -- your convert comes due in about a year from now. What are your early thoughts on what you're going to do with that?

[Wissam Francis, Executive VP & CFO]

Yes. At this point, we obviously have the right to force convert it at the end of this month. At this point, the idea is do nothing. We do think there's a lot of catalyst for our stock to move up further. At which point, we'll put it automatically in the money. So for now, we're just going to sit there and finish what we started, focus on completing the growth and focus on raising the equity and see what happens. So that's our short-term plan. But definitely, the idea is to convert.

[Operator]

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

[Cihan Tuncay, Director]

Just a couple of quick ones for me. Gary and the team, really good results, of course. You're talking about 10% FFO growth on a go-forward basis, but quick math suggests that you're -- that 10% growth number would put you for 2021 kind of in and around where your guidance is for 2022. Commentary from all, the business is down, but everything is kind of running on all cylinders. Just wondering how you balance that growth. I mean it's looking like it's too low. Is it an issue of -- like with the last question, are you factoring in some conversion estimates? How do we balance the robust operating performance with the guidance there?

[Gary Berman, President, CEO & Director]

Yes. No, great question, Cihan. Well, look, there's a bunch of puts and takes, I think, to your question. The first one is that we are really now aiming to the very low end of the guidance on leverage, right, with the syndication and maybe we even go lower. So obviously, if you prioritize lower leverage, that will have an impact on the FFO growth. So it's something to keep in mind. And we've always -- we talked about the 10% growth as a CAGR over 3 years, not specific to any one year, right? So we've always -- and the reason we've done that is because we knew that there might be some conversions, some deleveraging. If you just look at the syndication unto itself and you look at the 80% lost FFO, if you then add all the interest savings and some of the fee income we're going to generate, we'll actually be a little bit short. So the syndication in the short term, especially when we get into Q2, this is something everyone should be aware of, is going to be dilutive in the short term. But long term, we think it's neutral. So that all has to get taken into account into '21. But we don't -- I would say we're very confident that we will hit that $0.52 to $0.50 target -- $0.57 target in '22, very confident. And obviously, with the really strong operating fundamental, obviously, it could be at the high end of that range.

[Cihan Tuncay, Director]

Appreciate it. With respect to the multifamily syndication, is the fee structure similar to your SFR asset management program and the residential housing? I just want to double check that. Is there any....

[Gary Berman, President, CEO & Director]

No. Yes, it's a little bit lower. The asset management fees are a little bit lower because it's really viewed as kind of core/core-plus real estate, whereas in SFR, we -- it's more kind of viewed in the kind of value-add, opportunistic bucket where we're able to get higher fees. So the asset management fees are lower. The performance fees, I would say, are very similar though.

[Cihan Tuncay, Director]

Okay. Appreciate that. And just last question for me. With respect to -- in the past, you guys have talked about different ways to close the valuation gap with your U.S. peers, one of which was a potential U.S. listing. Kind of how do you think about that now given where you are in your business and all the puts and takes in your operations?

[Gary Berman, President, CEO & Director]

I think that's something that we absolutely are going to explore and I think, long term, could make a lot of sense. Because, obviously, it would give us a U.S. currency, which would certainly help; at a minimum, anchor our balance sheet on our functional currency, which is U.S. dollars, gives us an acquisition currency and potentially could broaden the shareholding to a larger audience, which would -- all of that, we think, could be catalyst for closing the valuation gap over time. So it's something we're going to look at. I don't think it's anything that's imminent, but it's certainly something that we will be exploring.

[Operator]

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

[Tal Woolley, Research Analyst]

On the Canadian multifamily side, if you're looking at adding new projects in Toronto over the next few years, I'm just wondering how you've seen like your entry cost into new developments evolved from where we were in sort of, say, 2019 to maybe where we were in 2020, so where you see it going over the next couple of years. Has that price per buildable square foot kind of held steady? Is it still rising? Are there any bargains out there? Maybe you could just comment on that part of the market for me.

[Gary Berman, President, CEO & Director]

Sure. I mean, I think the first thing to say is we are working on a new venture with a major investor to grow that strategy. And the reason we're doing that is, one, because we want to minimize the amount of equity that we put into development. We want to try to be as productive as we can with our own balance sheet, and we think there are good opportunities out there to take advantage of. And so you will be learning about -- more about that soon. I'm not going to get too specific because we are working on an opportunity that you'll learn about. And it does represent an opportunity where we were able to pick up land at, I think, a pretty meaningful discount to where it was pre pandemic. It's not to say that the market is distressed. I think that would be a misrepresentation. But I think that there are certain pockets, certain vendors that maybe got in trouble or got stretched, and there's an opportunity because we're well capitalized to take advantage of that. So we will be looking at that. But I want to be clear, it represents a small part of our kind of overall balance sheet allocation. And I think with respect to costs, costs are still moving up. They're probably 5% plus. There's some puts and takes there. But the industry even throughout this pandemic has continued to go full tilt. The trades are still stretched. There's certainly an increase in cost of supplies of material, and so we're still seeing costs move up.

[Tal Woolley, Research Analyst]

Okay. That's helpful. And then just on the asset management platform. So you talked about, if you sort of get the $1.2 billion in fresh commitments executed and it all works as planned, you're looking at about $10 million incremental in fees. I'm wondering. If we looked out a couple of years, because it will probably take you some time to deploy all that capital, like what do you see sort of the run rate kind of number for that private funds on advisory revenue, either like -- longer term?

[Gary Berman, President, CEO & Director]

Yes, yes. So I mean -- let me try to break that down for you because there's a number of components to PF&A. First one is asset management fees. And I probably view those -- that run rate at around 11 -- maybe $11 million today, and 60% of that, let's say, comes from for-sale housing. And so that for-sale housing is going to burn off, let's say, over the next 5 years. But obviously, you just talked about the positive to that. As we layer on new vehicles, we'll get $10 million plus back, right? So that gives you a little bit of insight into how the asset management fee component will move. The development fees are largely made up of Johnson lot sales, which do ebb and flow. And remember, it's not third-party home sales. It's actually when lot sales close that we get a fee, and that does ebb and flow. So for example, Johnson was weaker year-over-year but was stronger than Q3. And all I could say right now is that, that business is extremely strong. Third-party home sales were up 25% year-over-year after a very strong 2019. I mean really, the business is booming. So we should be in good shape there, but it's very hard to kind of predict that quarter-to-quarter. And performance fees are also somewhat episodic. But the way -- I think if you're looking for guidance, Tal, I would say don't look at the quarter, look at the year, right, and consider the year really to be more of a run rate and go from there.

[Operator]

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

[Matt Logan, Analyst]

Kevin, in some of your prepared comments, you talked about expanding the build-to-rent program. Could you give us an update on where you stand for some of your current projects and maybe how big you think this component of your business could be over the next 2 or 3 years?

[Kevin Baldridge, Chief Operating Officer]

Sure, Matt. I'm going to turn that over to Andy Carmody, who leads that business for us. He could be much more articulate on the business.

[Andrew Carmody, Managing Director]

Matt, this is Andy. We talked about this program at our Investor Day back in January in a quick snapshot with 5 communities with about 425 homes today. We expect to add 9 or 10 communities for another about 1,000 homes this year. And I think where we're headed to in this business is adding something like about 15 communities per year and about 1,500 homes per year in the build-to-rent pipeline.

[Matt Logan, Analyst]

Excellent. And maybe changing gears to the for-sale housing business. This one is a bit of a 2-part question. But given how well the business is performing, does that change your plans for potential dispositions of certain assets or perhaps the entire business? And number two, do you think that bodes well for a potential reversal of some of the fair value write-downs that we've seen last year?

[Gary Berman, President, CEO & Director]

Yes. So Matt, I'll start with that, and I'll let Andy chime in if he wants to add more detail. Look, the big write-down in Q1 was kind of a onetime revaluation where we changed discount rates and the methodology in a sense. And also, we took into account the fact that we thought that cash flows would be lower, significantly lower actually, as we went into the pandemic. That turned out not to be the case. Now the business is actually booming. We're not going to write it all the way back up. But now that we use kind of a DCF to kind of straight-line the cash flow over time, we do expect that, that investment income will grow and will certainly look a lot better than where it has been. So -- and it certainly expresses a yield because you have to look at also on the balance on the outstanding capital, not just in terms of the total quantum of FFO. So I think the direction there is very, very positive, and we'll kind of -- you'll see that over time. But we're not looking to do kind of a meaningful write-up. It's more going to -- let's take it over time. And with respect to monetizing quicker, we're in no rush to do that. I mean we want to take advantage -- this has become a really small part of our business. It's only about 2%, but it's generating, obviously, significant cash flow. And to a point, we want to maximize that cash flow. If we get a great offer on, let's say, master planned community or there's an opportunity to expedite that, we will. But it's our intent to only do that if it really makes sense. Otherwise, we're just happy to take that cash over 5 to 7 years. Andy, anything you want to add?

[Andrew Carmody, Managing Director]

Yes. Gary, I would just say that the baseline strategy is harvesting for value, which is to sell lots and land at full retail value versus discounting that in some sort of bulk sale. But as Gary mentioned, if the right opportunity comes along and we do see it from time to time, we'll certainly accelerate and exit on a project or 2, if the economics make sense.

[Matt Logan, Analyst]

Maybe bridging the gap between your build-to-rent and your for-sale housing business. Is there any way to -- are there any synergies between the 2 or ways to perhaps cross-sell some of those opportunities?

[Gary Berman, President, CEO & Director]

Andy, I'll let you take that.

[Andrew Carmody, Managing Director]

Sure. It's a great question. What we're doing in the for-sale business is allocating sections of land. Many of our large master planned communities, particularly in Texas, have many different products and home types. And what we're doing synergistically there is just adding build-to-rent as another product line in those neighborhoods. The trick though is you can't take a 5,000-home master planned community committed to all rental. So it's bits and pieces, in smaller couple of hundred unit sections versus a wholesale revamp of the for-sale business.

[Matt Logan, Analyst]

Appreciate the color. And one last one for me. Just in terms of the multifamily proceeds, how much of the -- of that cash do you plan to keep on hand and how much goes to repaying debt?

[Wissam Francis, Executive VP & CFO]

Yes. Thanks, Matt. So we're -- the idea is, as I mentioned earlier, retire the CIBC facility that matures later this year, which is about $110 million; also retire some of our SFR proceeds there, which is probably another $150 million. Those are all due soon. So that's about $250 million of the $430 million so far. And then we also have some maturities coming up in the Canadian multifamily for one of the properties, and we also have maturities and outstanding debt on our revolving credit facility. All of that being considered, that's about $375 million of the $425 million. So that leaves probably about $50 million or so for growth, for added acquisitions over the next couple of months.

[Operator]

There are no further questions at this time. I'll turn the call back to the presenters for any closing remarks.

[Gary Berman, President, CEO & Director]

Thank you, Jason. I'd like to thank all of you on this call for your participation. Watch for our annual report and annual letter in the coming days, and we look forward to speaking with you again in May to discuss our Q1 '21 results.

[Operator]

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