Investing in. Communities. Investor Presentation April 2018

Transcription

1 Investing in Communities Investor Presentation April 2018

2 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 December 31 st, 2017, 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 December 31 st, All dollar amounts are expressed in U.S. Dollars unless otherwise stated. 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 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. 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 overall growth in the business; the availability and quantum of debt reduction opportunities and the Company s ability to avail itself of them; the timing and opportunity to divest of assets and investments and the impact of such divestiture on Company debt; and the intention to refinance TAH debt. 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. 2

3 $4.6 Billion (C$5.9 billion) Total Assets Under Management TSX: TCN Principal investor and asset manager focused on the North American residential real estate industry 1988 Founded Toronto Headquarters Share Price (March 29, 2018) San Francisco All figures in U.S. dollars unless otherwise indicated Regional Offices C$9.85 Quarterly Dividend (Annualized yield %) C$0.07 (2.8%) Basic Shares Outstanding Market Capitalization Enterprise Value Vistancia West Phoenix, AZ 2010 Listed (TSX) 30 years of Investing in Communities Orange County Houston 133 Million C$1.3 Billion C$1.8 Billion 3 Data presented as at December 31 st, 2017, except where otherwise noted.

4 Investments with a Residential Focus Multi-Family Rental $15 Founded in 1988, Tricon has evolved into a diversified housing platform spanning a range of demographics, lifestyles, affordability and ownership/ rentership options. INITIAL PUBLIC OFFERING Single-Family Rental Manufactured Housing Communities Land Lease $10 Land Development and Homebuilding / Master Planned Communities % annualized total return since IPO in % annualized total return since entering SFR in 2012 Outperformed TSX Index, Real Estate sub-index and Financials sub-index total return since 2010 SHARE PRICE $5

5 A Vast Residential Market Opportunity BC AB ON Canada 9% CA NV IN TRICON AUM U.S. vs CANADA THP TAH TLC AZ TX NC SC GA FL U.S. 91% TLR Housing is a major component of the economy, representing 3-4% of GDP and ~20% of personal spending in the U.S. 133M residential units in the U.S. 13M residential units in Canada 16M single-family rentals in the U.S. 1.2M annual housing starts in the U.S. 5 Source: U.S. Census, StatsCan & National Association of Realtors, John Burns Real Estate Consulting

6 The Great Millennial Demographic Shift Millennials represent the largest demographic cohort in the U.S. today and are expected to be a key driver of near-term household formation. Key U.S. Demographic Cohorts In millions 80M Baby Boomers 92M Millennials ( ) Catalyst to Household Formation 26.5 YRS Women s median age at first child birth 52M MILLENNIALS TO GO 27.4 YRS Women s median age at first marriage 57M MILLENNIALS TO GO 31.5 YRS Women s median age at first child birth +5 years (start of full-time school) 75M MILLENNIALS TO GO 61M Gen X Annual Pace of U.S. Household Formation: 440,000 Owners 750,000 Renters 6 Source: John Burns Real Estate Consulting and Goldman Sachs; annual pace of household formation is as of Q4/17.

7 Integrated Operating Businesses Tricon is creating integrated operating businesses within each investment vertical to better control its growth strategy and enhance investment returns for third-party investors and shareholders Viridian DALLAS-FORT WORTH, TX Fully internalized operating platform including acquisitions, leasing, customer service/call centre, maintenance, accounting and asset management The Selby TORONTO, ON TAH CHARLOTTE, NC Fully integrated investment and development platform Acquisition, construction oversight, marketing, builder program management and municipal bond finance Institutional reporting and asset management capabilities Cross Creek Ranch HOUSTON, TX TAH ATLANTA, GA Fully integrated investment, development and asset management platform with expertise in acquisitions, zoning/entitlement, building design and construction 57 Spadina TORONTO, ON 7

8 AUM at a Glance Tricon currently manages $4.6 billion of AUM, including $1.2 billion on behalf of third-party investors and $3.4 billion of principal investments and co-investments funded with our own balance sheet 1. Tricon invests across four complementary housing verticals with a geographic focus on the U.S. sunbelt. PRINCIPAL VS. 3 RD PARTY AUM 30% $4.6B AUM LAND & HOMEBUILDING / MASTER PLANNED COMMUNITIES 59% SINGLE-FAMILY RENTAL 27% 3 RD PARTY 73% PRINCIPAL 3% MANUFACTURED HOUSING 8% MULTI-FAMILY RENTAL 8 1. Any differences due to rounding

9 Shift Towards Recurring Revenue Focus on investments with recurring and predictable cash flows to drive consistent financial results, reduce risk and simplify valuation Focus on longer-term master planned community investments with stable revenue from recurring lot sales 12% $144M Adjusted EBITDA before corporate overhead and TAH fair value gains in % Recurring rental revenue from 15,218 single-family homes Recurring rental revenue from 3,065 manufactured housing community rental sites 6% 14% PRIVATE FUNDS AND ADVISORY (PF&A) Diversified contractual fee stream from third-party asset management and development activities 8% Developing five class A rental apartment buildings that will ultimately generate stable rental revenue 9

10 Solid Financial Performance $ Billions Principal Third-Party $ Millions 42% CAGR $270 27% CAGR $4.6 14% CAGR In C$ dollars C$8.69 C$8.43 C$ HIGHLIGHTS THP generated $18M of investment income as well as $22M of management fees from third-party capital and Johnson in THP also distributed $70M to investors, including $35M to Tricon. TAH reported strong operational performance including 95.8% occupancy, 4.4% blended rent growth and a 62.3% NOI margin in 2017 (ex. hurricane impact). $1.8 $2.2 $2.7 $3.0 $66 $98 $109 $115 C$5.06 $4.76 C$6.07 $5.23 $6.09 $6.47 $6.87 TAH also reported year-over-year same-home NOI growth of 10.6% driven by occupancy of 97.0%, blended rent growth of 4.3% and a NOI margin of 61.7% (ex. hurricane impact). TLR generated $12M of investment income in 2017 as project milestones were met. TLR is currently advancing on three developments in Toronto as well as two developments in the U.S. 10 AUM Adjusted EBITDA Book Value per Share Past performance is not necessarily indicative of future performance. There can be no assurance that historical rates of growth will continue. TLC achieved a 47% increase in NOI and 64% increase in Core FFO in 2017, and reached total occupancy of 86.5%. Tricon officially launched a marketed sales process to exit the TLC vertical as part of its business simplification initiative, with an expected sale in 2018.

11 Tricon s Senior Management Team Gary Berman Director, President & CEO Wissam Francis EVP & Chief Financial Officer David Berman Executive Chairman & Co-Founder Geoff Matus Director & Co-Founder Jonathan Ellenzweig Managing Director Andy Carmody Managing Director David Veneziano EVP & General Counsel Alexandra Blum Chief Marketing Officer Evelyne Dubé Managing Director, Private Funds Kevin Baldrige President TAH Andrew Joyner Director Douglas Quesnel Chief Accounting Officer Wojtek Nowak Director, Corporate Finance & Investor Relations Sandra Pereira Senior Vice President, Head of Tax Services David Mark Director, Finance Orange County / Local Field Offices Houston Toronto / San Francisco 396 TAH 100 Johnson 19 Investment Team & Tricon Development Group 47 Finance, Tax and Accounting Team 11

12 Tricon Housing Partners Land development and homebuilding / master planned communities $351M Principal Investments $1.4B 1 Total AUM $1.1B Third-Party Assets 30% of AUM Generated $18M of Investment Income in 2017 Augmented Tricon s returns with $22M of management fees in 2017 Distributed $35M of cash to Tricon in 2017 with $607M net distributions projected over ~8-10 years Projected to generate $56M of performance fees over ~8-10 years Active THP Commingled Funds, Separate Accounts and Principal Investments THP1 US THP2 US THP1 CA THP2 CA THP3 CA Cross Creek Ranch Grand Central Park Fulshear Farms Trilogy at Verde River El Camino MOUNTAIN VIEW, CA Trinity Falls Viridian THP US SP1 THP US SP Any differences due to rounding

13 Cross Creek Ranch HOUSTON, TX Focus on Master Planned Communities (MPCs) 13 The MPC Advantage Attractive risk-adjusted returns Recurring cash flows from ongoing land sales and municipal bond issuance Suitable size for institutional partners Lot mix adaptable to market conditions Outperformance in down-markets Long duration assets (5-15 years) Case Study: Cross Creek Ranch Active 3,200 acre master plan (~5,500 potential homes); 2,800 homes sold to date Located in Katy-South submarket of Houston, Texas with convenient access to major employment nodes Consistently ranked as one of the best selling master planned communities in the U.S. Stable cash flows projected from recurring lot sales over 8-10 years Unlevered projected IRR of 18% before fees

14 Adding Value Through Johnson 15 Active Communities TRICON S PRINCIPAL INVESTMENTS Fully integrated investment and development platform 5 of the top 50 master plans in the U.S. in communities under development (including 4 THP investments) Source of recurring fee revenue from lot sales across all managed communities Extensive builder relationships Innovative community programs and amenities Source: Robert Charles Lesser & Co. Real Estate Advisors Johnson communities ranked in the top-50 Master Planned Communities in

15 Tricon American Homes Single-Family Rental 15,218 Homes 95.8% Occupancy $2.7B Total AUM $1,283 Average Monthly Rent 27.6% Annualized Turnover 62.3% NOI Margin 1 59% of AUM $116M NOI and $36M Core FFO in After disposition of non-core homes Number of homes SBY Acquisition 16,660 15,218 7,193 7,765 5,030 3,256 1, Q Q HOUSTON, TX 1. Excludes impact of hurricanes

16 DALLAS, TX COLUMBIA, SC ATLANTA, GA TAH Portfolio Overview TAH MARGIN DRIVERS (as of Q4 2017) Total Portfolio Same Home Portfolio Total Homes 15,218 4,412 Occupancy 95.8% 97.0% RENO NORTHERN CALIFORNIA Annualized Turnover 27.6% 27.9% Average Monthly Rent $1,283 $1,318 FY 2017 LAS VEGAS INDIANAPOLIS Revenue 100.0% 100.0% SOUTHERN CALIFORNIA PHOENIX DALLAS-FORT WORTH ATLANTA CHARLOTTE COLUMBIA Repair, Maintenance & Turnover 11.4% 11.3% Property Taxes 15.0% 13.5% Property Management Fees 7.0% 7.0% 16 SAN ANTONIO Mature Market Active Acquisition Market HOUSTON ORLANDO SOUTHEAST FLORIDA JACKSONVILLE TAMPA Other Expenses 5.2% 6.4% Total Operating Expenses 38.6% 38.2% NOI Margin 61.3% 61.7% NOI Margin (ex hurricanes impact) 62.3% 61.7% Year-over-year NOI Growth (ex hurricanes impact) 106% 10.6%

17 SFR is a Rapidly Evolving Asset Class U.S. MARKET OPPORTUNITY TECHNOLOGY OPERATIONS FINANCING 126M Households 15.8M SFR Universe 45M Renters 0.2M Institutionally-Owned SFR Homes (~1% of SFR Universe) Robust IT platforms enable scalable operations and seamless customer interface and support Professionally managed organizations include national call centers, in-house leasing capabilities and comprehensive repair & maintenance programs Access to capital markets facilitates portfolio growth and attractive debt terms enhance investor returns SFR vs Other Housing-Related REITs 1 SFR Sector Outperformance 2 $ Billions $157 Gross Equity Asset Market Value Cap Equity Gross Market Asset Cap Value SFR Office MSCI U.S. REIT Index 3 Retail Multi- Family Industrial $34 Q % 1.6% 0.3% 5.0% (1.9%) 0.7% $107 $19 $13 One Year 15.1% (3.2%) 0.9% (9.1%) 2.3% 17.1% $19 $17 $8 Two Years 45.1% 2.7% 4.2% (12.2%) (3.1)% 41.0% Multi-Family SFR Manufactured Housing Student Housing SFR data consists of Invitation Homes (INVH) and American Homes 4 Rent (AMH). Equity Market Cap as of December 31, SFR sector includes AMH, SFR, INVH and SBY. Multi-Family, Office, Industrial and Retail sector indices per SNL Financial. Information as of December 31, Commonly known as the RMZ Index.

18 Strategic Focus on the Middle Market The acquisition of Silver Bay enhances TAH s position as the leading SFR operator focused on the Middle Market, an addressable market of approximately 11 million households that possess strong long-term rentership fundamentals. 37M HOUSEHOLDS > $95K 34M HOUSEHOLDS $50K 95K 53M HOUSEHOLDS < $50K 7.0M RENTERS $1,600+ Monthly Rent View rentership as temporary, resulting in higher turnover High ownership rates 11.4M RENTERS $1,000 - $1,600 Monthly Rent TAH target market Generally longer-term residents Lower turnover and stable cash flow Attractive value proposition drives enhanced returns 25.8M RENTERS $95k $50k <$1,000 Monthly Rent Higher eviction rates / turnover Employment volatility HOUSEHOLD INCOME HOUSEHOLDS BY INCOME BRACKET 18 Source: U.S. Census Bureau.

19 Recent Refinancing Initiatives at TAH TAH Debt Maturity Profile As at Q2 / 17 Objectives: Reduce cost of capital over long term SBY Acquisition Facility L bps $1,198 Warehouse Credit Facility L bps Securitization L bps Securitization 3.59% fixed Securitization 3.50% fixed Term Loan L bps Securitization 3.58% fixed Loan-to-Value: 69.9% Debt Outstanding: $1,975 Wtd. Avg. Maturity: 2.5 years Wtd. Avg. Rate: 4.31% Extend term structure Diversify across fixed & floating instruments $74 $340 $363 May 2019 Oct 2019 May 2020 Nov 2021 Aug 2022 Oct 2022 Jan 2024 Diversify sources of financing Q4 / 17 Loan-to-Value: 65.8% Debt Outstanding: $1,878 Wtd. Avg. Maturity: 4.2 years Wtd. Avg. Rate: 3.73% $156 $184 $- $363 $463 $348 $365 May 2019 Oct 2019 May 2020 Nov 2021 Aug 2022 Oct 2022 Jan 2024 Target for refinancing by mid All figures are in millions of U.S. dollars

20 Tricon Lifestyle Rentals Multi-family development and rental business $176M Principal Investments Generated $12M of Investment Income in 2017 as project milestones were met $355M Total AUM $179M Third-Party Assets Augmented Tricon s returns with $2.4M of asset management and development fees in % of AUM Current TLR Projects Projected to generate $17M of performance fees over 8-10 years Summerhill TORONTO, ON 57 Spadina TORONTO, ON The Maxwell FRISCO, TX The Selby TORONTO, ON The McKenzie DALLAS, TX 20

21 CLASS-A FINISHES AND AMENITIES ACTIVE LIFESTYLE MANAGEMENT CUSTOMER SERVICE & PROPERTY MANAGEMENT INTEGRATED RETAIL The Selby TORONTO, ON TLR Brand and Value Proposition: The Selby 502 unit and 50 storey Class A rental building in Toronto, Canada Positioned as a premium rental building with amenities and suite finishes similar to new high-end condominiums Amenities include outdoor pool, terrace, gym and multi-purpose lounge Proximity to Bloor Street and Sherbourne subway station offers convenient access to employment and retail nodes 21

22 Tricon Lifestyle Communities Manufactured Housing Land Lease Business 14 Properties (including 13 age-restricted) 3,065 Rental Sites $138M Total AUM 72.8% Long-term Occupancy $425 Average Monthly Rent 56.8% NOI Margin 3% of AUM $8.0M NOI and $3.6M Core FFO in 2017 Number of Sites Owned New Acquisitions 3,065 3,065 1, Strategy Complete value-enhancement capex programs Increase occupancy and rent Exit the business in

23 Tricon s Diversified Housing Investment Platform Core / Income SINGLE-FAMILY RENTAL $2.7B Value Added / Income + Development Component Investment Strategy 15-20% target returns MANUFACTURED HOUSING MULTI-FAMILY RENTAL $0.1B $0.4B Opportunistic / Development LAND & HOMEBUILDING / MASTER PLANNED COMMUNITIES $1.4B Financial Leverage (Debt/Assets) TOTAL AUM $4.6B 23

24 Gary Berman President and Chief Executive Officer T: E: Wissam Francis EVP and Chief Financial Officer T: E: Wojtek Nowak Director, Corporate Finance and Investor Relations T: E: Investor Presentation Page 24