Investing in Communities

Transcription

1 Investing in Communities Q Earnings Presentation November 8, 2018

2 Disclaimer General You are advised to read this disclaimer carefully before reading, accessing or making any other use of the information included herewith. These materials are not an offer or the solicitation of an offer to purchase any securities or make any investment. This presentation includes information about Tricon Capital Group Inc. and its subsidiaries and investees (together, the Company ) as of September 30, 2018, unless otherwise stated. These materials should also be reviewed in conjunction with the Company s Financial Statements and Management Discussion and Analysis for the periods ending September 30, All dollar amounts are expressed in U.S. Dollars unless otherwise stated. This presentation may contain information and statistics regarding the markets in which the Company and its investees operate. Some of this information has been obtained from market research, publicly available information and industry publications. This information has been obtained from sources believed to be reliable, but the accuracy or completeness of such information has not been independently verified by the Company and cannot be guaranteed. The Company measures the success of its business in part by employing several key performance indicators that are not recognized under IFRS. These indicators should not be considered an alternative to IFRS financial measures, such as net income. As non- IFRS financial measures do not have standardized definitions prescribed by IFRS, they are less likely to be comparable with other issuers or peer companies. A description of the non-ifrs measures used by the Company in measuring its performance is included in its Management Discussion and Analysis available on the Company s website at and on SEDAR at Forward-Looking Statements This presentation may contain forward-looking statements and information relating to expected future events and the Company s financial and operating results and projections, including statements regarding the Company s growth and investment opportunities and the performance goals and expectations of its investees, including, in particular, targeted returns, that involve risks and uncertainties. Such forward-looking information is typically indicated by the use of words such as will, may, expects or intends. The forwardlooking statements and information contained in this presentation include statements regarding expected or targeted investment returns and performance including project timing and cash flow; the ability of the Company to generate fee income from investments and the quantum of these fees; the ability to attract third-party investment; the timing and availability of new investment opportunities, future net income from investments; expectations for the growth in the business; and the availability and quantum of debt reduction opportunities and the Company s ability to avail itself of them. These statements are based on management s current expectations, intentions and assumptions which management believes to be reasonable having regard to its understanding of prevailing market conditions and the current terms on which investment opportunities may be available. Projected returns and performance fees are based in part on projected cash flows for incomplete projects. Numerous factors, many of which are not in the Company s control, and including known and unknown risks, general and local market conditions and general economic conditions (such as prevailing interest rates and rates of inflation) may cause actual investment performance and fee income to differ from current projections. Accordingly, although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information. If known or unknown risks materialize, or if any of the assumptions underlying the forward-looking statements prove incorrect, actual results may differ materially from management expectations as projected in such forward-looking statements. Examples of such risks are described in the Company s continuous disclosure materials from time-to-time, as available on SEDAR at The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

3 Financial Review Wissam Francis - Executive Vice President & Chief Financial Officer 2

4 Q Results IFRS Results Adjusted Results For the three months ended September 30 For the three months ended September 30 (in millions of U.S. dollars) Q Q % YoY (in millions of U.S. dollars) Q Q % YoY PF&A Revenue $ 7.7 $ % PF&A Revenue, net of NCI $ 7.1 $ % TAH Investment Income (6%) TAH Adjusted EBITDA (21%) THP Investment Income (30%) THP Adjusted EBITDA (29%) TLR Investment Income (29%) TLR Adjusted EBITDA % Total Revenue $ 65.9 $ 69.4 (5%) TLC Adjusted EBITDA NMF Compensation Expense (8.6) (9.4) (8%) Adjusted EBITDA before overhead $ 85.1 $ (20%) G&A Expense (2.1) (1.3) 68% Adjusted Compensation Expense (8.0) (9.3) (14%) Interest Expenses (8.2) (6.7) 22% Adjusted G&A Expense (2.1) (1.3) 68% Other (Expenses) / Income (12.1) 5.6 (316%) Adjusted EBITDA $ 75.0 $ 95.8 (22%) Realized and Unrealized FX gain (1.0) (2.1) (50%) Adjusted Interest Expenses (27.1) (27.3) (1%) Total Operating Expenses $ (32.1) $ (13.8) 132% Adjusted Other Expenses 1 (1.4) (0.8) 61% Income from Discontinued Operations $ - $ 1.9 NMF Adjusted Tax Expense (5.5) (10.7) (48%) Net Income $ 33.8 $ 57.5 (41%) Adjusted Net Income $ 41.0 $ 56.9 (28%) Diluted Earnings Per Share $ 0.24 $ 0.29 (17%) Diluted Earnings Per Share $ 0.27 $ 0.37 (27%) Key Variance Drivers Private Fund and Advisory fee increase driven by new TAH JV fees TAH NOI growth of 5% year-over-year, and; TAH Fair Value gain: Q Q Y/Y $ $42.3 $63.0 ($20.6) THP Adjusted EBITDA decrease of 29% year-over-year as a result of ongoing cost and timeline pressures Lower interest expense year-over-year as a result of refinancing initiatives and reduced floating-rate exposure 1. Includes adjusted stock option expense and adjusted amortization expense. 3

5 TAH Debt Position TAH Interest Expense For the three months ended September 30 (in millions of U.S. dollars) Y/Y $ Y/Y % TAH Adjusted Interest Expense $19.6 $20.8 ($1.2) (5.9%) Leverage Assets (fair value) Debt (net of cash) Weighted Average Maturity Fixed Debt as a % of Total Debt Weighted Average Interest Rate 68% 59% Increased by 1.3 years Increased by 35% Decreased by 43bps $2.8B $3.2B $2.0B $1.9B 3.0 years 4.3 years 42% 77% 4.2% 3.7% Q Q Q Q Q Q Q Q

6 Financial Position Sources of Liquidity Cash Generation As at September 30, 2018 (in millions of U.S. dollars) Revolving Facility $365.0 Less: Amount Drawn Amount Available Cash on Hand 6.7 CORPORATE LEVE2017 Tricon American Homes Disposition of non-core homes Tricon Lifestyle Communities Divestiture of 14 park portfolio Completed 2020 E q u i t y Look-through Leverage 1 (excluding Convertible Debentures) Debt (net of cash) 62% $3.4B $2.4B Assets (fair value) 59% $3.6B $2.4B Q Q Tricon Housing Partners T Strong net cash C flow profile N Tricon American Homes Operating cash flow 1. Look-through leverage includes debt at the corporate level, and TCN s portion of debt at TAH and TLR. 2. Assets include corporate assets, and TCN s portion of fair value of assets at the TAH & TLR, and net fair value of its co-investment in THP. Note: There can be no assurance that these liquidity events will occur in line with current expectations or at all. Tricon Lifestyle Rentals U.S. Divestiture of U.S. multi-family assets (in progress) T L R Tricon Lifestyle Rentals Operating cash flow T Private Funds and Advisory AH Recurring fee income related to third-party capital in all verticals 5 T H P D e b t C o n v e r t i b l e D e b e n t u r e s

7 Operational Review Gary Berman President and Chief Executive Officer 6

8 Joint Venture Update Total Homes Under Management Joint Venture Partners TAH wholly-owned homes JV homes 16, ,219 67% 33% 100% 15,995 (39) JV Portfolio 1,219 Homes (10,000 12,000 1 Target Homes) Asset management fees and potential performance fees TAH Existing Portfolio 15,547 Homes Property management fees, acquisition fees, and construction management fees 508 homes transferred from TAH to JV 15, % 100% TAH OpCo Property Management Platform Q Total Homes TAH whollyowned dispositions TAH whollyowned acquisitions JV vended homes JV purchased homes Q Total Homes 1. Please refer to the Company s News Release dated June 27, 2018 for more details concerning the TAH JV. There can be no assurance that actual results will align with expectations. 7

9 Record Acquisition Pace at TAH TAH Acquisition Funnel 1 16,766 Total Homes Managed 145,150 New Q3 MLS Homes filtered by proprietary TriAD platform Mature Market Active Acquisition Market 9,448 Underwritten Homes 1,774 Offers RENO NORTHERN CALIFORNIA INDIANAPOLIS 810 Purchased in Q3 2 LAS VEGAS SOUTHERN CALIFORNIA PHOENIX DALLAS-FORT WORTH ATLANTA CHARLOTTE COLUMBIA SAN ANTONIO HOUSTON JACKSONVILLE TAMPA ORLANDO 99 TAH whollyowned Portfolio 711 JV Portfolio Planned acquisition pace of ~ homes per quarter with the TAH JV SOUTHEAST FLORIDA Q Acquisition Metrics Average All-in Cost 3 : $181,000 Average SqFt: 1,582 Average Monthly Rent: $1,377 Average Monthly Rent/SqFt: $0.87 Average Cap Rate 4 : ~ 5.8% 1. Q figures may not represent available opportunities in the future. Planned acquisition pace is estimated based on current market conditions and continuing availability of acquisition opportunities. There can be no assurance that actual results will align with expectations. 2. Includes homes purchased through MLS and other channels. 3. Average all-in cost includes purchase price and initial rehab capex. 4. Average cap rate is based on annualized rent, less vacancy loss, less bad debt expense, less operating expenses, divided by all-in cost. 8

10 Representative TAH Acquisitions in Q3 Houston, TX Tampa, FL Indianapolis, IN Charlotte, NC All-in Cost: $187K SqFt: 1,844 Cap Rate: 5.8% Dallas, TX All-in Cost: $185K SqFt: 1,969 Cap Rate: 5.8% Atlanta, GA All-in Cost: $164K SqFt: 1,486 Cap Rate: 6.0% All-in Cost: $197K SqFt: 1,505 Cap Rate: 5.9% All-in Cost: $170K SqFt: 1,284 Cap Rate: 5.8% All-in Cost: $183K SqFt: 2,370 Cap Rate: 6.0% Note: Homes depicted may not be representative of all homes in the portfolio; all metrics reflect underwritten projections. 9

11 TAH Consolidated Operating Results For the three months ended September 30 (in millions of U.S. dollars) Q % of revenue Q % of revenue Rental Homes 16,766 16,594 YoY Change Leased Homes 15,472 15,947 (3.0%) Occupancy 93.1% 96.1% (300 bps) Stabilized Occupancy 96.3% 96.7% (40 bps) Blended Growth Rate 9.4% on new leases 5.6% on new leases 5.4% on renewals 6.7% 4.0% on renewals 4.6% Annualized Turnover 27.7% 31.4% Total Revenue $61.2 $ % Repairs, Maintenance & Turnover (6.9) 11.2% (7.6) 12.6% Property Taxes (9.5) 15.5% (9.3) 15.5% Property Management Fees (4.3) 7.0% (4.2) 7.0% Insurance, HOA & Other Expenses (2.9) 4.7% (3.0) 5.0% Total Operating Expenses ($23.5) 38.4% ($24.0) 40.1% (2.0%) Net Operating Income $37.7 $ % NOI Margin 61.6% 59.9% 170 bps NOI Margin, excluding hurricanes 60.9% 61.6% (70 bps) Core FFO $12.9 $ % Q Annualized Core FFO of $51.7 million Key Variance Drivers Fewer leased homes year-over-year as a result of TAH selling non-core occupied homes acquired from Silver Bay and replacing them with new acquisitions, most of which were vacant (15,472 homes in Q3 2018, vs. 15,947 homes in Q3 2017) Higher revenue despite fewer homes leased Lower operating expenses from lower repair, maintenance and turnover expenses NOI growth of 5%, as a result of 2% higher revenues, and 2% decrease in operating expenses Note: Refer to Section 4.1 in the MD&A for Net Operating Income, excluding impact of hurricanes. 10

12 TAH Same Home Operating Results For the three months ended September 30 (in millions of U.S. dollars) Q % of revenue Q % of revenue Rental Homes 6,626 6,626 YoY Change Occupancy 95.4% 96.6% (120 bps) Blended Rental Growth 8.8% on new leases 4.3% on new leases 5.6% on renewals 6.7% 3.7% on renewals 4.1% 260 bps Annualized Turnover 32.6% 31.0% 1 Total Revenue $25.8 $ % Repairs, Maintenance & Turnover (3.4) (13.3%) (3.7) (14.8%) Property Taxes (4.0) (15.6%) (3.9) (15.7%) Property Management Fees (1.8) (7.0%) (1.7) (7.0%) Insurance, HOA & Other Expenses (1.4) (5.2%) (1.4) (5.8%) Total Operating Expenses ($10.6) (41.1%) ($10.7) (43.3%) (1.4%) Net Operating Income $15.2 $ % NOI Margin 58.9% 56.7% 220 bps Key Variance Drivers Strong blended rent growth of 6.7% in Q (including 8.8% on new leases and 5.6% on renewals) driven by revenue maximization efforts vs. 4.1% in Q (including 4.3% on new leases and 3.7% on renewals) Lower operating expenses as TAH maintenance internalization reduced repairs, maintenance and turnover costs year-over-year Same home NOI increased by 8.0%, as a result of strong revenue growth and reduced expenses 220 bps expansion of NOI margin as a result of the above factors 11

13 THP Update THP Investment Income Bedford Ranch, CA Grand Opening For the three months ended September 30 (in millions of U.S. dollars) Y/Y $ THP1 US $0.2 $1.4 ($1.2) THP2 US (0.5) 0.4 (0.9) THP3 Canada Trinity Falls Separate accounts (0.2) Side-cars (0.1) Total Investment Income (A) $3.3 $4.7 ($1.4) Outstanding Invested Capital at Sept 30, 2018 (B) $252.0 The Michael, TX (THP2 US) Disposition Stats as a % of invested capital (A / B) 5% Key Variance Drivers Project budgets impacted by: Rising construction costs Labor pressures Extended timelines Price per Door: $188K Annualized Return: 20% 12

14 Johnson Update Home Sales to End Customers Cross Creek Ranch Viridian For the three months ended September Y/Y % Tricon Investments % Other Johnson Investments % Total Investments % Grand Central Park Trinity Falls Tricon Principal Investments 13

15 The Selby The Selby Toronto, ON Maison Selby Amenities Maison Selby and Amenities include artist renderings. 14

16 TLR Canada Project Update Scrivener Square The Selby 6 Gloucester 57 Spadina Scrivener Square West Don Lands The Selby Gloucester Projected Completion 1 Projected Total Cost 1 Number of Units TLR Ownership The Selby Q $140M % 57 Spadina Q M % Scrivener Square 2 TBD TBD TBD 50% West Don Lands 2 ~ 2023 TBD ~ 1,500 33% 6 Gloucester 2 Q M % TLR Canada Total ~ $1.0 Billion ~ 2,700 West Don ~ 30% Lands 1. Projected costs and timelines are based on current business plans for the projects. There can be no assurance these estimates will remain accurate. 2. Scrivener Square, West Don Lands and Gloucester remain in the design and approval phase. 15

17 Book Value Per Share Growth Book Value per Share Book Value Per Share does not fully capture: $CAD $USD 23% CAGR in C$ (17% in US$) C$10.34 Value of the Private Funds & Advisory fee stream ($7.7M in Q3 2018) C$8.43 C$8.69 C$8.62 Embedded growth in underlying investments C$6.07 C$5.06 C$3.38 $4.76 $5.23 $6.09 $6.47 $6.87 $7.99 $ Q Past performance is not indicative of future results. Note. Foreign exchange rate used $US:$CAD 1.29 at September 30,

18 Selected Drivers of Shareholder Value Tricon s existing investments have the potential to generate significant growth in book value per share over time Potential Value Creation from Same Home NOI Growth $147M NOI run-rate 2 x Same Home NOI Growth Valuation Cap Rate Current Book Value $1,108M (C$9.90 / share) 1 Potential Incremental Book Value in C$ per share 1, per year Same Home NOI Growth % 4.00% 5.00% 6.00% 7.00% 5.75% $0.72 $0.96 $1.20 $1.44 $1.68 Valuation Cap Rate % $0.75 $1.00 $1.25 $1.50 $ % $0.79 $1.05 $1.31 $1.57 $ % $0.83 $1.10 $1.38 $1.65 $ % $0.87 $1.16 $1.45 $1.74 $ Calculated using basic shares outstanding of million at September 30, NOI run rate is based on average 15,953 homes (15,547 TAH wholly-owned homes + 1/3 of 1,219 JV homes) with a current occupancy of 93% at current average monthly rent of $1,336 and a year-to-date NOI margin of 62%. 3. Range is based on analyst estimates, which are presented for illustrative purposes only. Note. Foreign exchange rate used $US:$CAD 1.29 at September 30, There can be no assurance that the estimates and assumptions underlying these illustrative calculations will remain accurate or that future performance will align with current expectations. 17

19 Selected Drivers of Shareholder Value Tricon s existing investments have the potential to generate significant growth in book value per share over time Projected potential book Value in C$ per share 1, upon completion 2 Current Book Value $116M (C$1.00 / share) 1 Calculation of Projected Potential Development Yield % 5.00% 5.50% 6.00% 6.50% Book Value $1.2B cost 2 x development yield Valuation Cap Rate Valuation Cap Rate 3,4 4.75% $1.48 $1.65 $1.81 $1.98 $ % $1.57 $1.74 $1.92 $2.09 $ % $1.66 $1.84 $2.03 $2.21 $ % $1.76 $1.96 $2.16 $2.35 $ % $1.88 $2.09 $2.30 $2.51 $2.72 Current Book Value Calculation of Projected Potential Book Value $318M (C$2.97 / share) 1 $607M projected distributions net of advances remaining 2 C$5.67 / share 2.0x 1. Calculated using basic shares outstanding of million at September 30, Estimated based on current project plans. TLR completion is expected over the next five years and THP completion is largely expected over the next 10 years. There can be no assurance that results will align with current expectations. 3. Based on 65% leverage, a 40% TCN blended interest in TLR Canada and US projects, and Company estimates based on current market conditions. 4. Range is based on analyst estimates, which are presented for illustrative purposes only. Note: Foreign exchange rate used $US:$CAD 1.29 at September 30, There can be no assurance that the estimates and assumptions underlying these illustrative calculations will remain accurate or that future performance will align with current expectations. 18

20 Gary Berman President and Chief Executive Officer Wissam Francis Executive Vice President and Chief Financial Officer Wojtek Nowak Director, Corporate Finance and Investor Relations