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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the Tricon Capital Group Fourth Quarter 2019 Analyst Conference Call. [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.
Thank you, Susan, and good morning everyone and thank you for joining us to discuss Tricon's results for the three months and year ended December 31st, 2019 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 discussion and analysis and annual information form, which are available on SEDAR and on our company website. Our remarks also include references to non-GAAP financial measures, which are explained and reconciled in our MD&A. I'd 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 via webcast that triconcapital.com, and a replay will be accessible there following the call. Lastly, please note that during this call, we will be referring to a supplementary conference call presentation posted on our website. If you haven't already accessed it, it will be a useful tool to help you follow along during the call. You can find the presentation in the Investor Information section of triconcapital.com under Events and Presentations. With that I will turn the call over to Wissam Francis, EVP and CFO of Tricon Capital Group.
Thank you, Wojtek, and good morning everyone. Q4 2019 was a strong quarter for Tricon with many accomplishments achieved both financial and operational. Let's begin with business highlights on Slide 2. In our single-family rental business, we maintained a very active pace of acquisitions, adding 1,162 homes during the quarter under the TAH joint venture partnership, including our portfolio of 708 homes in Nashville. The TAH joint venture is now more than half-deployed and based on the current acquisition pace, we expect it to be fully invested by mid-2021. The larger portfolio coupled with strong rent increases and operational efficiencies resulting in total NOI growth of 28% and FFO growth of 57% year-over-year. On a similar note, NOI for the same home portfolio grew by 6.5% year-over-year mainly as a result of ongoing rent growth and margin improvements. In our multifamily rental business, the Portfolio delivered 5% same-property NOI growth driven by continued improvements in occupancy. We also completed the disposition of our last non-core U.S. development asset with the sale of the Maxwell in December. In total, sale of the 4 non-core developments 2 in our balance sheet and 2 in our funds generated 14% IRR over a 5-year investment period. We thought we did well on these investments given the pressure of rising construction costs and our role as limited partner.Meanwhile, in the Canadian multifamily portfolio, we achieved 86% lease-up at the South and we have now fully internalized property management in Canada. In our private funds and advisory business, assets under management increased by 41% while fee revenue increased by 13% year-over-year. And lastly, our legacy for sale housing business continues to be a significant source of cash flow distributing $24 million to Tricon in the quarter and $52 million for the full year. We generated additional cash subsequent to year-end as we syndicated 50% of our direct investment in Trinity Falls for the ISIS joint venture, offered financial performance this quarter is highlighted by strong FFO growth as you can see on Slide 3.Tricon generated total FFO of $34 million in Q4 and 35% increase year-over-year. The drivers of FFO included: first, higher single-family rental Core FFO of $23 million compared to $17 million last year as the portfolio grew in size and delivered higher NOI margin. This was partly offset by higher interest expense on a larger outstanding debt balance to finance our growth. Second, incremental contribution of $7 million of core FFO from the U.S. multifamily rental portfolio which was acquired in June 2019. Third, lower investment income from residential developments of $10 million this quarter compared to $13 million last year as a result of a lower contribution from Canadian multifamily developments in the current period. And finally, higher contractual fees of $10 million compared to $9 million in the prior year, mainly from higher performance fees earned this quarter as well as strong development fees from Johnson. Overall, our FFO per share this quarter was $0.16, which translates to $0.21 in Canadian currency. The strong growth in total FFO was offset by an increase in shares outstanding as a result of the U.S. multifamily portfolio acquisition, resulting in the same FFO per share compared to last year. On Slide 4, you see that on a full year basis, our FFO per share increased by 35% year-over-year to $0.42, exceeding our target range of 37 to 40. This outperformance was driven by higher unexpected contribution from single-family rental and higher than expected cash distributions from residential development, which also led to a stronger than expected performance fees. Moving on to Slide 5, we summarize the reported IFRS and non-IFRS results. You can see that Tricon generated IFRS diluted earnings per share of $0.22 this quarter, compared to $0.23 last year.We also reported adjusted earnings per share of $0.23 for the quarter and $0.30 for the prior year. The main differences between the IFRS and adjusted figures related to the transaction costs and non-recurring items derivative of the valuation changes and unrealized foreign exchange fluctuation. Digging deeper into the year-over-year variance, our adjusted EBITDA increased by 20 percent year-over-year to $96 million compared to $80 million last year. In addition to the drivers already discussed on Slide 3, you will note that there is a significant variance and adjusted compensation in G&A expense. If you look at the table on the right you can see this variance was largely attributed to AIP. In 2018, we over accrued the IP expense during the first 3 quarters and booked a true-up adjustment in Q4.Whereas in 2019, we accrued expense more evenly throughout the year. I would also point out that adjusted EBITDA captures fair value gains on our single-family rental portfolio. Without this item, our adjusted EBITDA would have increased by 30% year-over-year. Switching from adjusted EBITDA to adjusted earnings, we had an increase in interest expense, mainly from adding the U.S. multifamily rental portfolio and higher tax expense versus last year where we benefited from tax recoveries.The net result was stable adjusted net income, and a decrease in adjusted EPS when you factor in higher share count year-over-year. Moving onto Slide 6, as a result of us transitioning from an investment entity to an owner and manager of residential real estate properties, we have determined that Tricon no-longer meet all the criteria to apply investment entity accounting. As such an effective January 1st, 2020, we will consolidate our controlled subsidiaries and apply relevant IFRS standards to the individual assets, liabilities, equity, revenue and expense accounts.In order to transition to consolidated accounting, we will need to review our fair values for the entire portfolio. And our investment accounting, we fair value our investments based on the intention of a limited holding period and -- a defined exit strategy. On the consolidated accounting, however, the assumption is we will hold these assets indefinitely as an [indiscernible] an operator.This transition may result in fair value changes to certain assets, though overall we don't expect significant impact on our financial statements in terms of revaluations. The transition to consolidated accounting is applied on a prospective basis, which means the 2019 comparative results in the financial statements are precluded from being restated. We will however be providing comparative disclosure in our MD&A when we report our Q1 2020 ultimate coupled with consolidating accounting and transitioning Tricon to be a rental housing company going forward, we will be focused on IFRS results in FFO metrics only and therefore, we will no longer be disclosing adjusted figures. With that, I'll now turn the call over to Gary to discuss highlights of our business verticals and our priorities going forward.
Thank you, Wissam. Let's turn to Slide 7, and before we get to the operating highlights, I just want to talk again about our transformation to a rental housing company, which is essentially complete now with the adoption of consolidated accounting as a January 1st, 2020. As many of you would recall in 2010, when we went public, we essentially were an asset manager focused on for-sale housing. We manage no rental property. Fast forward 9 or 10 years, you can see, we now have 32,000 units. Nearly 32,000 units that we own and manage, and if you look at our development as a percentage of our IFRS balance sheet, you can see that's also been significantly de-emphasized. Going back to 2013, 52% of our balance sheet which invested in development assets. Today, that is 18% and as we moved to consolidated accounting, that will drop to 5% and trend lower. I will remind you, though, that these developments are drilling assets are high quality and cash flowing as Wissam just said, we generated over $50 million of cash flow in 2019, and we expect to generate even more cash flow from our development assets in 2020.Tricon is a growth company. Asked executives at our Investor Day to think about where we would be in 10 years, how many units what we own and manage, and each executive, use different assumptions but go to about 100,000 units plus in 10 years. And so we're going to continue to move towards our longer-term goal. This slide also talks about our evolution as an innovator and in many cases, our first mover advantages. We entered in single-family rental. We are one of the first to enter single-family rental in 2012. We were one of the first to raise significant amounts of institutional capital to invest in single-family rental organically and now in build-to-rent communities, and we're the first to put single family rental and multifamily rental together in a significant way, and we believe this is going to generate operational efficiency synergies and allow us to raise more and more third-party capital. Let's move on to Slide 8 and now talk about operational highlights, beginning with our single-family rental consolidated portfolio. This continues to be a story of strong organic growth and operating performance. We increased our managed home count by about 3,600 homes over the year, including 1,162 homes that dispositions in Q1 and acquired a large portfolio in Nashville, 708 homes from Invitation Homes. This is a high-quality portfolio and allows us to gain scale in a high-growing market in Nashville, and it would stabilize at about 96%. So that's one of the reasons and our occupancy edged up year-over-year about 140 basis points to 93.8% at the close of 2019. Rent growth has moderated but still continues to be very strong at 5.1%. The higher larger lease portfolio up 23% year-over-year, strong rent growth, and relatively stable occupancy as that our overall revenues in the portfolio to grow almost 27%. Expenses were up again on the larger lease portfolio but not as much as we continue to contain expenses and overhead and that resulted in our NOI margin increasing 50 basis points from 64.5% to 65% for the quarter. As we work our way down to FFO, a couple of things to point out. Overhead is growing. It's up 14% year-over-year, but it's obviously not as much as the overall portfolio. If you look at overhead for the full year, it's roughly $20 million, and it's stable with what it was in 2018, and this goes to show how we continue to get economies of scale in this business and that were really geared up to be much, much larger. Nonrecurring items, really first one-time items transaction costs as a result of refinancing our warehouse credit facility in Q4 and the new Morgan Stanley term loans, and now if -- and now to get to our proportional share of FFO, we deduct the non-controlling interest. Remember at this time last year, our single-family rental joint venture only had 2000 homes in it. Today we're at 5600 homes, so we're generating more and more income and cash flow and that needs to get deducted as limited partner interest to arrive at our core FFO of $23 million and up 40% year-over-year. Let's move on to Slide 9 and talk about our same-store portfolio in single-family rental, which provides a more pure comparison year-over-year. We continue to have an occupancy bias, particularly in the slower leasing months in Q4 that occupancy is of normally 30 basis points year-over-year. Rent growth strong. This is industry leading metric at 5.3%. It has moderated a 110 basis points year-over-year. The main reason for this is our decision to self-govern on renewals. Our renewals for last few quarters have been 4. 7% or 4.8% compared to 5.6% in Q4, 2018. So that's the main reason for the lower rank growth. Obviously sequentially, this is a seasonal business, and Q4 is a slower quarter. And so the new rent growth has obviously dropped from where it was in Q2 and Q3 and that's what we would have expected. Overall, if we move down to revenues, rental revenues up 5%, again a higher rent and stable occupancy. Our ancillary fee incomes up 18% year-over-year and now represents about 4% of rental revenue, and we're doing a better job collecting on administration fees, pet fees, enforcing renters' insurance. We talked about in our Investor Day, how this area will continue to grow as percentage of revenues as we offer more as we offer more services to our residents, including rolling out smart home technology. As we move now to expenses, property taxes continue to be the one key item that is negating our margin expansion and these were up 6.7% year-over-year. This is slightly lower than where we guided, at 7% to 8% but still continues to be a headwind. Repairs and maintenance, the story continues to be one of internalization, and the gains we get from doing more R&M ourselves. Our turnover was also lower year-over-year, 25.7%. In fact for the entire portfolio, our turnover was 25.7% for the year, which is a record low for us and points really to our middle market investment strategy, our ability to screen residents better, and really a strong focus on customer service.Other expenses were up 8% year-over-year. Some of this relates to higher [indiscernible] fees. We've also reclassified renters' insurance. We used to show this is a net number. Now we show as a gross number in both revenues and expenses and that explains some of the 8% increase year-over-year.Overall, revenues up on the same-store portfolio of 5.3%, operating expenses up 3% for same home NOI growth of 6.5% that's an industry-leading metric up to $39 million for the quarter, and our margin has expanded 75 basis points from 64.7% to 65.5%. This is a record for us in the fourth quarter.Let's move on to Slide 10And talk about our U.S. multifamily rental operations. Since taking over the portfolio from Starlight in June, our focus again continues to be on occupancy growth. That's up 160 basis points year-over-year, is down slightly sequentially. Obviously, again, this is a seasonal business, and the winter months are a little slower, but overall, occupancy up 160 basis points, and our longer-term goal is to get occupancy up to 95%. We were able to do this with strong, renewal rent growth of 4.6% that we sacrificed on new moving rent in order to drive the occupancy in Q4.Overall, revenues up 2% this is also a story of cost containment, property operating costs are down year-over-year. This speaks to Starlight efforts to renegotiate service contracts in Q2, valet, trash, cable. That's why operating costs have come in lower year-over-year. On property taxes, we had some one-time settlements on prior assessments, which led to lower property taxes. Property taxes in general are increasing, but the one-time settlements allowed us to record lower taxes year-over-year and reduce our operating expenses year-over-year by 1%, that translated to NOI growth in the portfolio of 5% if you strip out the one-time property tax settlements, it's closer to 4% and our margin increased from 57.8% to 59%. Again, very strong performance for the quarter. Let's move on it. Let's move on to Slide 11 and talk about our Canadian multifamily development portfolio. We have 3600 units in the portfolio today under various stages of lease-up or development. This is an incredibly high-quality portfolio. All the properties are located in Downtown, Toronto, where transit oriented walkable either in Midtown, somewhere the Downtown core in a market with virtually no vacancy, about 1% vacancy and the recorded about 5% rent growth in 2019. I'm starting with the Selby. At the end of the year, we were at 86% lease-up. Today we're above 90%, in-place rents of $3.80. This property recorded the fastest lease up of the year according to urbanization, and also earned a number of accolades including the rental development of the year by the FRPOs, so that's something we're really proud of, our first rental property in Toronto. In terms of projects that are under construction, the Taylor, King, and Spadina, is now above grade. The IV that's the Gloucester project has been renamed Young Gloucester. We are doing site preparation and demolition. The first phase of the West Don Lands, which we call Block 8 is roughly 800 units, that's also we've also commenced underground construction there as well. If we move down the page to our last 2 projects, the low-by-project in core 10 is going to be a mixed tenure building of half condo units, half rental. We intend to launch the condo sale in September and start construction at relatively the same time and the James and Scrivener Square, Rosedale/Summerhill has received its LPAT approval, and our plan right now is to commence demolition of the existing project there in May and get going on construction.So if you take it in totality, as we look towards the end of this year, we will have 5 and 2000 units under construction. Let's move on to Slide 12. When we look at the, at the cost of that construction on completion, I mean you can see that, that's roughly $1.5 billion. I'll just remind everybody that all the figures in this presentation are in USD, given our functional currency is USD. So the cost of this portfolio in USD is 1.5 billion. We're about 23% complete-to-date, and the cost to complete is $1.1 billion or 77% to go. The cost-to-date are essentially the equity. The equities in the ground and we use construction financing to complete the portfolio. On completion, we expect that to generate a conservative amount of NOI of about $81 million and again, when I say conservative, we're assuming a 5.25% development yield to calculate that 65% leverage and 3.5% interest rate. That compares to the Selby. As an example, Selby has a 6% development yield, and we locked in 10-year financing at 2.4%. So we think those numbers are relatively conservative, but even at $81 million in our 30% share at $24 million, you can see how much value creation that potentially can create for our shareholders. Our IFRS NAV of this business is $0.50. If we're able to receive achieve a 3.5% to 4% valuation on completion, that translates into NAV growth of 3 to 4x over three years. So this is a relatively small part of our business, but you can see, you can generate significant upside and NAV accretion for us going forward.Let's move to Slide 13 and talk about our private funds and advisory business. We talked about in Q2, that our goal was to raise $1.5 billion of incremental third party equity with the announcement of the Eastern joint venture, we got about 30% of the way there and that largely explains the increase year-over-year from $1.7 billion, up 40% to $2.4 billion of third-party capital.In terms of contractual fees, those are up 13% year-over-year. The big story here is Johnson, much higher Johnson development fees and higher performance fees, Johnson had a record year in 2019 in terms of home sales, log sales for the quarter were up 75% year-over-year. This is partly explained by weather delays in Q4 of 2018, which led to back ended lot closings.In 2019 but it also points to the much stronger housing market with dramatically lower mortgage rates, home buying -- new home buying has been very strong, and that spurred obviously the builders to need to replenish their existing inventory.I would also add that home sales in Q4, home sales and Jon since 19 active communities were up 20% year-over-year and we've seen that trend continue into Q1 with home sales also up another 20%. So this business right now is looking very strong.As we look at the components of contractual fees, for-sale housing is down, and this is to be expected. As we continue to distribute cash and in many of these investment vehicles are harvest mode, investment balances declining, and then obviously translates into lower contractual fees, but for those vehicles that are in the money, we're seeing higher performance fees.Our performance fees for the quarter were $2.6 million and about $7.5 million for the year, those were the main reasons, higher Johnson fees and performance fees that led to the beat on our contractual fees.Let's move on to Slide 14 and really talk about our key 5 priorities which we introduced in Q2 2019.Our first priority is to continue Tricon's transformation into a rental housing company providing our shareholders with stable, predictable income. To measure our performance, we adopted FFO per share as a key metric and set a target of a 10% compounded annual growth rate through 2022.We tend to achieve this by simply completing what we've started, fully investing our single-family rental joint venture, building out our Canadian multifamily projects, growing single family NOI by 4% to 5% and multifamily NOI by 3% per annum through 2002. Our second priority is to raise third-party capital in all our business verticals. We see raising third-party capital is a pathway to enhance scale improve, our operational efficiency, and drive our return on equity. Our third priority is to continue growing our book value per share by reinvesting the majority of free cash flows into accretive growth opportunities and rental housing. Our fourth priority is to reduce leverage, our goal is to pursue look-through leverage that's net debt to assets of 50% to 55% over the next 3 years excluding the convertible debentures and finally, we want to improve and simplify our financial reporting to make our performance comparable to other real estate companies. We believe the move to consolidated accounting will be a big step towards this goal.We will also be revamping our MD&A in Q1 to include more disclosure around such items as CapEx, cash flows, segmented reporting, and overhead allocation. Okay. Let's move over to Slide 15 and go through our performance dashboard. Let's see how, how we're doing. So starting with FFO per share as with Sam mentioned, we are up 35% year-over-year, very strong growth, admittedly, though, off of a low base. Our prior year target out to '22 $0.50 to $0.55, given that we beat our 2019 guidance by 2 pennies. We've also revised our '22 target up 2 pennies to $0.52 to $0.57 and if you take the top end of the guidance that represents more than 10% annual compounded growth to 2022.Third-party AUM, no tangible progress here in the quarter, but we are working on 2 major fund raises in multifamily; one to further our Canadian build the core strategy and also the syndication of our U.S. multifamily business, and we're hoping for closings of those major, major vehicles in Q3. Our book value per share has grown by 18% per annum since entering single family rental in 2012. This is something that we're going to continue to track as a reminder. Our book value per share does not take into account or private funds and business or any embedded growth in our underlying investments. In terms of leverage, we stated at about 62%, look-through leverage, but the major catalyst here is going to be the syndication of our U.S. multifamily portfolio that will help us get closer to 50% to 55%. So that is tied to the third party AUM. So we're still working on that and again, subsequent to quarter end, we were able to syndicate a 50% interest in Trinity Falls, and that capital is being used to repay debt. And finally in terms of improving reporting, we checked the box in Q3 when we formally adopted FFO per share. We launched our ESG plan this year, we've checked that box, and we will be checking the financial disclosure practices and simplification next quarter when we formally adopt consolidated accounting we update our MD&A and in many cases, U.S. [indiscernible] reporting. I'd like to close our Q4 earnings presentation with a summary of our key priorities unveiled in our ESG road map on page 16, although we only recently formalized our ESG framework, ESG has always guided our investment in asset management practices over the past 31 years. When we developed this framework last year, it wasn't just a simple checking the boxes exercise, we spent several months thinking through what really matters to us and our stakeholders, and we summarize our findings to five key priorities that we will focus on in the next three years.Our first priority is our people. At Tricon, we believe that our people are our most important asset. We make it our top priority to foster a culture of diversity, inclusiveness, and service, so that our team in turn can enrich the lives of our residents and stakeholders. Our second priorities are residents. We believe a person's home where they experience our most important life events. In all our rental offerings, we focused on quality housing and excellent customer service to enrich our residents lives and the communities they live in. Our third priorities are innovation. We view ourselves as a tech-enabled rental housing company managing a disparate portfolio of single family rental homes could only be possible with the use of technology, and now we intend to apply the innovations from this business to multifamily rental and harness our culture of innovation to improve the resident experience and operations.Our fourth priorities are impact we viewed as our mission to consume fewer resources and reduce our carbon footprint. We are dedicated to building developments to lead standards and protecting wildlife and biodiversity by creating parks, green space, a natural ecosystems where appropriate, and our large priorities are governance. At Tricon, we believe in conducting ourselves with integrity, trust, and transparency in everything we do. We are also committed to fostering culture inclusion and diversity within our Board, management team, and employees. We believe this ESG roadmap will guidance and achieving measurable results over the next three years and will provide a framework for robust data collection and reporting and Tricon's ongoing progress of performance.The full roadmap is available on our website and on SEDAR, and I would encourage you to read it. With that, I will pass the call back to Suzanne to take questions, and I'll be joined by other members of our senior management team, including Jon Ellenzweig, Andrew Carmody, and Kevin Walbridge.
[Operator Instuctions] Our first question comes from the line of Jonathan Kelcher of TD Securities.
First question just on the single-family rental, you guys had a big, the big portfolio acquisition in Nashville in Q4. Do you expect that to impact the pace of acquisitions at least at the beginning part of 2020?
A little bit. I mean we've guided that we're, and we've been very specific about this, but on average we're trying to buy 800 homes per quarter. This is what we've agreed to, with our joint venture partners that will ebb and flow, a little bit based on the season, seasonality, and opportunities and obviously this opportunity with Invitation Homes came up in Q4, which exceeded our target will essentially just re-balance this year. So it's probably going to mean that our acquisition pace will be below 800 in Q1 and then we'll probably go back to 800 in Q2.
Okay. Any portfolios you're looking at now?
We're always looking at small portfolios. Nothing. There is no major portfolios that are being marketed right now, but we're always looking at our smaller portfolios could be 50 or a couple of hundred homes, but we don't depend on it. The whole acquisition program is really built around organic acquisitions, onesie, twosies through the MLS and through I buyers. And so if any portfolio has come out, we really view it as gravy.
Okay. And then just secondly, looking at FFO going forward, the TLR Canada, you had some pretty good fair value gains in there that you guys account in the FFO. What's a good run rate or best way to model that going, going forward into 2020?
Yes. So in terms of FFO from developments, there is probably different ways to think about it, if you wanted to look at, for example is a return on average invested capital, the way I think about it is, it could be 5%, let's say, on the for-sale housing piece and maybe 10% on the Canadian multifamily development piece. If you work through that math, you'll probably get to a run rate. It's very similar to 2019, Jon. So I think that numbers, maybe just shy of $20 million for the full year, but that's probably where we would guide you.
And our next question comes the line of Stephen MacLeod of BMO Capital Markets.
I just wanted to follow up quickly on the portfolio sort of acquisition pace for the SFR business. Are you still seeing very strong demand or opportunities on the MLS side of things? Like just thinking about how things will evolve over the next couple of years. Do you think you'll eventually have to have more of a reliance on portfolio acquisitions? When you think about growing that business?
No, I mean, if anything, we're in a sense, we're capital constrained by the joint venture and the guidelines of that joint venture which has been very prescriptive, if we, if we had, if we can deploy more capital if we expand our buy box, we absolutely could buy more homes on the MLS and through our buyers. So this is very much being governed by ourselves, and we really view it as a long, long-term opportunity. I mean if you think about it this way, roughly 5.5 million to 6 million homes are being traded on the secondary market through the MLS every year in the U.S. and 40%, let's say, those were in the Sunbelt. We're only trying to get 3000 right now, 3200. With more capital over time, we can easily expand our buy box and go to 5,000 but for today, we're focusing on 800 and then down the road, when we think about creating a new joint venture, will determine whether it makes sense to grow faster.
Okay, that's great. And then just coming back to the FFO outlook. Any change, I assume the answer is no, any change to the FFO outlook on the multifamily side in the U.S., TLR U.S.?
No, I mean, our long-term, the long-term goals that we're setting over three years, though the parameters to achieve that growth at 10% per annum growth haven't changed. I mean we upped our target, our guidance, essentially because the 2019 number has moved up, and we've used that as a base to move forward, but otherwise, the underlying growth assumptions are the same. We continue to believe that over time our single-family rental will generate 4% to 5% same-store growth and our multifamily -- asked about the multifamily, that we -- over time, we think it will be about 3%. There is -- there will be some pressure I think in the short term, as I talked about in my prepared remarks regarding property taxes and insurance but over a longer period of time where we feel good about 3% growth for multifamily.
Okay, that's great. And then maybe just finally you syndicated I guess 50% the Trinity Falls, how do you expect those syndications to rollout over the future?
What - we've been pretty clear that we want to de-emphasize our exposure to-for-sale housing on the balance sheet and we're going to continue to do that. So we feel great about syndicating a 50% interest in Trinity Falls. We're now looking, we have another master plan community on our balance sheet calibration. We're now talking to the joint venture about that opportunity as well. So, hopefully, we're hopeful that we can syndicate that and then we've got some other larger assets, which may be own funds, which were also really where we're looking to expedite those business plans as well. Instead of letting them kind of build out in the, in the normal course of operations, we're evaluating some cases whether we should just bulk sell those portfolios or investments. So you should expect us to continue to look for asset sales to reduce our exposure to for-sale housing and to generate cash for deleveraging.
And our next question comes from the line of Matt Logan of RBC Capital Markets.
As we think about the internalization of the Canadian property management and U.S. Asset Management, could you give us a couple of examples on things that you plan to do differently or perhaps alternatively maybe some opportunities for potential revenue growth or expense savings.
I'm going to turn it over to Jon. And then perhaps Kevin, but Jon maybe you could start with that.
Yes. Sure, and that we appreciate the question and really as Gary talked about, as we, as we transition to a rental housing company, one of the core competence -- core competencies that we've built over time, especially on our Orange County operating hub is ProbeTec right in some of the ways we've been able to leverage technology in our single-family rental business, and you are a handful of examples that we'll be able to rollout in multifamily over time is a self-showing. So, single-family rental, we've been very successful with having residents shop the homes and allow themselves to access those homes after providing us their drivers’ licenses and a credit card. We think there are select opportunities in multifamily to leverage that as well, maybe they shop at a leasing center but then can tour themselves through the properties after they have provided us some information, so we're very excited about that opportunity. We've also developed great 360 tour technologies, so someone can using their smartphone in the comfort of their own home tour one of our homes, and we think that can be rolled out across multifamily to enhance the online experience, but also to allow us to inventory, some of the components of each individual unit in our multifamily portfolio. We've also built a fantastic operating hard call center accounting team in Orange County, that we think we can leverage across multifamily, so we're calls can come into a centralized State-of-the-art call center be handle there versus at the property. Similarly, accounting related can come into our large and very sophisticated accounting team versus being handled locally, so those are a handful of other ideas. We also -- we've also built up great buying program in procurement department through our single-family rental business that we think can be leveraged across multifamily to make sure that we're really buying all components, whether it's appliances, washer dryers flooring at the best possible price, so I think a couple of those will hit us on the revenue side, where we can drive incremental revenue growth in a couple of those will get us on the expense savings side. And overall, we think there is a number of things. None of these will be dramatic eaten up themselves. But when you add them all together, we think there's a number of areas that we're going to be able to make a incremental and drive incremental NOI and FFO growth.
Jon, the only thing I would add is operated a large portfolio of apartment communities in my past. And when we created the call center, one of the things and benefits we found just to add a little color to it is we have a call center and all of the calls whether their maintenance calls, vendor calls, even leasing calls, you take those off of the office. It really brings a much calmer pace in the rental community and in the leasing office. So the people that are there can really focus on the customer that's in front of them or the residents when they come in as opposed to trying to negotiate phones that are bringing in somebody in front of them and that more relaxed pace really helps in how we correspond with our residents. And so it makes a pretty big difference. It's hard to explain kind of in the numbers. And then lastly, what we've already done is, we've been working with our asset management group to migrate over to CoreLogic as our resident underwriting platform, which will help us with delinquencies and affixions going forward.
I appreciate the color on that. And maybe just changing gears a tad. In terms of the demographic composition of your tenant base, could you tell us the average age of the tenant in your portfolio and maybe what impact do you think household formation might have over the next two or three years.
Sure. So the average Head of Household in our single-family rental business is 38, our multifamily business is younger than that. This is increasingly becoming a millennial demographic that's not been our residents. And so that's just going to continue. And so, you know, Matt, can I speak to household formation specifically over the next few years and we don't have a crystal ball. I mean U.S. household formation has been growing at 1 million plus per year. It's hard to know how that breaks down between ownership and Rennership. But what we would say is that, we are focused on really essential middle market housing. This is affordable housing, and because of a number of factors including the ballooning of student debt, tighter underwriting on the mortgage side compared to pre-financial crisis, there is a lot of people with household formation that are really shut out for different reasons of the new housing or the existing housing market and need shelter, need a quality place to live. And so we're uniquely positioned, I think to take advantage of that, and I think the other thing is, is our focus on the Sunbelt. In particular, we're going to continue to see lots of growth. You can think about it this way, 40% of the U.S. population lives in the Sunbelt. But they're going to get 60% to 70% of the growth and so a lot of that household formation is going to be focused on the Sunbelt because look Americans are focused on moving to places with better weather, lower taxes, newer infrastructure, where there's more jobs, and although we don't have a crystal ball, we believe that those Sunbelt markets are going to continue to grow faster than the national average and we'll continue to have the wind behind your back.
We appreciate that. And maybe one last question from me. Maybe you could just outline your top three priorities for 2020.
Yes. So the top 3 very similar to what we talked about on our prepared remarks is the first one is driving FFO per share growth. We'd like to see that grow by 10% per annum. We've talked about that over three years. We haven't given any kind of specific hard guidance for a given year. It might ebb and flow from year to year, but we would like to see 10% growth, let's say our -- for 2020. Our second key priority would be raising third party capital and a significant amount of third party capital. We talked about two major fund raises that are in the works for multifamily again further our Canadian multifamily built-to-core program. I'm also to syndicate our U.S. multifamily portfolio. We love to have these done by Q3, it takes time. It's not like the public markets, but we'd love to have those closed by Q3 and that really dovetails I think to the third priority, which is deleveraging and if we can raise a significant amount of money in the syndication of our U.S. multifamily portfolio, we can apply those proceeds to delever and get closer to our longer-term target of 50% to 55% debt to assets, so I hope that helps.
And our next question comes from line of Mario Saric of Scotiabank.
Maybe starting off with your kind of long-term guidance for same home NOI growth within NTH of 4% to 5% given your kind of self-regulating on lease renewals and some of the peers are talking about expenses kind of inching up how much of that 4% to 5% is predicated on continued margin expansion going forward.
It's not it's really not. I mean we're not guiding you we're being careful with this, but we're not guiding a higher margins we're at 65%. I mean think about how far we've come. We were it literally 53% three to five years ago with Silver Bay. We were at 57% and now, we're up to 65 or 65.5 for the quarter. We're not guiding beyond that Mario because I think that--we will see expenses growth. And when we can – we -- again we don't have a crystal ball, but I will say that one of the reasons or NOI growth -- same-store NOI growth has been so strong and it's moderated a little bit is because of the internalization of R&M and for us that in some cases, how it is going to catch up compared to our larger peers and so, now that that's largely in place, we're not going to be able to really drive reductions in R&M that we're probably more likely increase with inflation. I think we'll continue to see incremental process improvements, and we'll get the benefit of economies of scale and a better procurement program, but the market shouldn't expect us to have lower R&M expense going forward, so I think the 4% to 5% is largely predicated on both revenues and expenses growing.
Got it, okay. And then you mentioned that your tenant turnover was at an all-time low at just shy of 26%, is that a, is that a floor, is that a structural low for your portfolio or can it go lower.
I'm going to turn it over to Kevin. I'd like to get his views on that
Yes, I think much, much like what Gary just talked about on margin improvement or expansion. I think that where we are, I could see it staying in the 25%, 26%. We drove a lot of that just by optimizing the quality of our portfolio. We've integrated CoreLogic, we've got very purposeful about our collections, and all of that and how we working with residents, I think really drove the retention rates, and we've got good quality people that are staying longer with us where you where we're buying homes are in places, we have families who are getting integrated into the schools, and they are staying longer with us, so I think that and our culture of really pure service and enriching lives as Gary talked about at the beginning, all of that is taken hold and is really brought the improvements that we've seen. Two years ago, I didn't know that we would get to 25.7% or below 26%. I think this is I want to be careful, could we get lower, yes, but I wouldn't message it at this point, I think we're close to where we're going to, we're going to bottom out.
And just a -- just a building that Mario. I mean to get down to 25%, I mean, that means that on average our residents who are staying in our homes for four years, as you know right and then environment is not rent control. That's very, very good. And so I would agree with that. I don't think we're going to see anything below 25%, but you never know.
Okay. In terms of the -- the fundraising initiatives for 2020. You mentioned a couple one in the U.S. and one in Canada, the expansion in Canada on the build to rent. With that bring kind of is the plan to bring in through pretty capital to further indicate your 30% interest in existing projects or is the plan to substantially increased the number of projects you're looking at going forward.
Yes, it's the latter. It's the latter. In the existing portfolio, we own 30%, and we're not looking to syndicate that any further. If anything, we want to give ourselves the opportunity in the future. If any of our existing partners whether their financial strategic want to exit, we can buy their interest. So we can increase our share in those properties. The main intent of bringing in third-party capital into development is because, obviously, as you know, it's a drag on our balance sheet with no real cash earnings until stabilization or completion. So we're going to continue to use third-party capital to grow our development business. It just makes a lot of sense. We can essentially take it off balance sheet. And so this new capital is really just a further -- it's just to grow the existing portfolio. If in fact we want to double the existing portfolio, we're in about 3600 units, this new [indiscernible] capital could over time do that, and we'd also probably look to co-invest roughly 30%.
Got it. And what would be the primary Governor be in terms of the planned total amount of funds raised. Is it end of the available opportunities? Is that the amount of capital that LP investors are looking to put into development in Canada?
Yes, I mean, I can't get into the specifics, but the group that we're working with is extremely large. So it's not the capital. I think the governor will ultimately be the opportunities, which as you know in Toronto are tough to come by, you have to be creative, and also I think within development, you never want to get too far over your skis, you've got, you've got to grow at a natural speed that makes sense. And so even if all the opportunities were there, let's say and/or not. Today, we would never want to go too fast. So we have currently been doing 2 or 3 projects per year and that feels like a comfortable pace.
Okay and then just on the Sterling portfolio presumably the partner that you select syndicate and interest in is someone that you plan to grow with over time. In terms of future capital deployment and acquisition opportunities, is that kind of 3% same-store number that you're thinking about for the existing Starlight's portfolio, kind of a good number to use for -- for assets you plan on acquiring and within that JV going forward.
Yes, I think that's fair, and you're right, I think that in whoever we're going to select a syndicate this portfolio to and we were, we've seen a lot of investor. We've seen some significant enthusiasm for not just -- not only the asset class, but certainly the specific portfolio, we are taking a longer-term view with them. We're not just looking to syndicate. We're also saying, look, this is a partnership, how can we grow together in the future and how can we acquire more one-off assets. So, so that the capital raising exercise here is syndication, plus looking for growth capital.
Got it. And what's the plan kind of Q3 closing your announcement, is that simply the syndication of the Starlight's portfolio or do you think you'd be in a position to kind of highlight what that growth capital may look like in terms of magnitude.
Yes, I think we do both at the same time.
Okay. My last question just on the sale of Trinity Falls into, into the JV. From an FFO standpoint, I think Gary, you mentioned that we should think about land development in terms of 5% on invested capital, would that be similar to Trinity Falls, in terms of what the FFO, the kind of the lost FFO on the sale versus kind of the cost of debt that you will be using the proceeds to pay down the kind of FFO.
Yes, know, I know you got a question we take offline. I have to kind of work, we have to work through that I think, to be more specific, but we are, I mean in a kind of a go-forward. But let me put it to you this way, I think in our go-forward plan of growing FFO per share by 10% per annum, we are taking into account 2 things, one is the reduction of the for-sale housing business as we continue just through not ordinary course and also through more accelerated dispositions like Trinity Falls, and we're also assuming investment income of roughly 5%, so I don't know that I don't know if that answers your question. But we're not, we're not getting more, we're not using aggressive number there to drive the longer-term growth of the overall FFO.
And our next question comes from Johann Rodrigues of Raymond James.
Most of my questions have been answered, just a few modeling ones. What's the expectation for for-sale cash flow in 2020?
I think it will be higher than 2019. How about that. We generated $52 million in 2019. We have now syndicated 50% interest in Trinity Falls that's -- that's generated again roughly $50 million of cash right there. So we're definitely going to be ahead of 2019. I can't give you specific number, but it's going to be $50 million plus.
Okay. And then do you, do you have a sense as to what the Selby rents would be on average, on a per suite basis and maybe what the NOI expectation is for 2020.
Yes, I would, I would say about $2800 per suite and the expectation is for 2020
Or maybe just the margin there.
Yes, yes. So also the average, but the average rents, about $380 and that is moving $380 per foot per suite that's moving up. That translates to probably about $2800 per suite at the top of my head. And we're looking at renewal growth, we're probably looking at renewal growth, it has been very little, very few renewals. I think there's only been a couple, people love the building. They are staying put, so we've been able to keep the backdoor essentially close as we continue to drive the -- complete the lease up, but I would -- I would assume that on renewals will probably be around 3%. Again, we're not rent control then of these new buildings and and the margin where we're currently -- we're currently at about 65%, but we're, let's say, 90% leased. So I think as we get the full stabilization of around what 97%-97.5%, we'll probably get to a margin of about 70%. So that does help.
Yes. That's helpful. And then last question, what, what percentage of the Starlight portfolio are you hoping syndicate?
A bit. That one is easier, 50%.
50%. Okay. Okay, thanks. I'll turn it back
[Operator Instructions] Our next question comes from the line of Cihan Tuncay of Stifel.
Just to go back to the FFO discussion and the fair value gains from the development projects. You said to expect something around $20 million in gains on an annual basis. Just to be clear, is that. So when you're talking about 10% growth for FFO per share is that the assumption that you guys use in growth metric $20 million of fair value gains.
Yes, it is.
Okay and then just relating to that with the potential, with the change in the disclosures going forward and brisk commentary around, there could be some movement around those fair value numbers, is that still a good, like if you are very confident that that's a number to go by post the in the reporting changes still or could there be some changes to that $20 million?
No, I don't think there. We will not see any kind of meaningful changes on the P&L or FFO, so yes, the changed -- [ the adoption and ] consolidated accounting will not impact that. So that remains true whether we're under investment entity or consolidated accounting.
Great, I appreciate the clarification there. And just switching gears to the single-family portfolio. So after the portfolio acquisition in Nashville and the way things have been churning in the existing portfolio, where do you look in terms of geographic exposure, and I know cities like Phoenix, Atlanta have been performing really well. So can we expect to see more deployment and areas you are already located in or would it be potential new areas or kind of where you are seeing the best demographic that play out?
Well, I would say in a short term, let's say over the next 6 to 12 months, we are going to continue to largely focused on taxes in the Southeast. That's where this great underlying growth economic fundamentals, and we're continuing to able -- we're continue to be able to our JV by box to buy it high 5%, 6% cap rates. So just, I would just expect us to continue to do that, but I think as we look further ahead maybe into 2021 particularly as we think about creating a new joint venture or maybe creating various different products or buy boxes, there is going to, there is certainly an opportunity available there to expand to other markets or to grow in other markets where we are initially -- where we currently have a presence like Phoenix, Vegas, or even California. Those are markets where there is great buying opportunities today. But the going-in yield is lower, yet you might get more -- you might get more rent appreciation. So it's a bit of -- it's a slightly different strategy, where you might get -- you know it's a trade-off between -- in the short term between kind of income and growth, but we think that, just like multifamily there's various strategies, but the market accepts. We think in single-family rental, there could be there could be multiple strategies related to income, growth, or built to core, build to rent. And so our goal long-term is to expand our buy box to -- we potentially have 3 different product types and to invest across all our key markets, not just the Southeast and Texas. And as a reminder, right now we're in 18 different markets, including on the West Coast and the Southwest.
I appreciate the color there. Just one last question for me, on the multi-family portfolio. When you talk about make synergy opportunities with the TAH, back office, and potentially repair and maintenance programs we have in place is, is I know the near-term focus is to, is to focus on occupancy, but could we start to see some of those synergies realized, kind of, towards the end of this year or is that more of a 2021 goal to work towards just where do you think and when do you think, we could start to see that.
Yes, it's not. Look, I think the best opportunity in our U.S. multifamily portfolio is to drive new lease growth that is, that's where there is the biggest upside. To really see synergies from an operational perspective, we have to internalize property management, and we haven't done that yet. I want to be clear, we've internalized asset management in our property management in U.S. multifamily and our goal to internalized property management is a longer-term goal. It's not something we're going to do in 2020, it's probably more likely 2021, and so therefore to see any kind of operational benefits or synergies, we have to look further ahead to probably 2021.
And there are no further questions at this time, I will turn the call back to Mr. Berman for his closing remarks.
Thank you, Suzanne, I would like to thank all of you on this call, for your participation. We look forward to speaking you and me when we discuss our Q1 results.
Thank you. And this concludes today's conference call. You may now disconnect.