Tricon Residential Inc (TCN) 2012 Q3 法說會逐字稿

Good morning, and welcome to the Tricon Q3 investor conference call. At this time, all lines are in a listen-only mode, but later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, know that this conference call is being recorded today, Monday, November 12, 2012.

And I would like to turn the conference over to your host, Mr. David Berman. Please go ahead, sir.

Thank you, Operator. Good morning, everyone. And thank you for joining us to discuss Tricon's results for the quarter ended 30th September, 2012, which results were set out in the news release we distributed earlier this morning. Our quarterly financial statements and MD&A are also available on both the Tricon website and SEDAR.

With me today in our offices are June Alikhan, our Chief Financial Officer; and Gary Berman, President and Co-Chief Operating Officer. Joining me from other parts of the globe are Glenn Watchorn, Co-Chief Operating Officer; and Jonathan Ellenzweig, Vice President.

Please note that this call is also available by webcast at triconcapital.com, and a replay will be accessible by telephone until November the 19th. Before we get started, a reminder that our remarks and answers to your questions may contain forward-looking information about future events and the performance of our limited partnership funds. This information by its nature is subject to risks and uncertainties that may cause actual events or results to differ materially. A detailed review of such risk factors is included in both our most recent AIF, Annual Information Form, and our most recent short form prospectus, which are available on SEDAR.

I will start with a summary of our third-quarter highlights. June will then briefly review key financial results, after which Glenn, Gary, and Jon will provide some commentary on what we are seeing in the markets in which we operate. I will conclude by commenting on our outlook and business prospects. We will then be pleased to take your questions.

For the second consecutive quarter, Tricon announced record financial results with both quarterly revenue and adjusted EBITDA increasing by over 200% when compared to Q3 2011. These results were bolstered by a new US single-family rental strategy, as well as additional fees and income generated by the first close of our new distressed US fund, Tricon XI. Although our Assets Under Management, AUM, declined to CAD1.1 billion at the end of Q3, this decline is attributable to the exclusion of two older funds, both of which are in runoff mode, and as a result, will not meaningfully impact our contractual management fee revenue going forward.

The major operational highlight for the quarter was CAD125 million first closed for Tricon XI, with a top five US state pension plan and the Company committing CAD100 million and CAD25 million, respectively. In the wake of this close, our senior management team has been deeply engaged in the fund-raising process, meeting with large public and private pension funds, endowments, family officers, and the like. Potential investors are keenly aware of the upside inherent in buying US distressed land at this point in the economic cycle, and we have a full slate of marketing meetings lined up through year-end 2012 and beyond.

In our principal investing business, we continue to grow our US single-family platform during the quarter, with the acquisition of 488 homes. At quarter-end, we owned 651, consisting of 605 rental homes and 46 homes designated for sale. We also sold 22 homes during the quarter at an average profit margin of 9%. With an average hold period of 73 days, this equates to a 45% return on a non-compounded annualized basis.

In addition, in July, we added a new operating partner in southeast Florida, increasing our number of operating partners to four. And as I have previously stated, given that it takes generally 60 to 90 days from the acquisition before our rental home cash flows, we don't expect this strategy to produce meaningful financial results until the end of Q4. And I would ask you to take that into account when you evaluate our prospects going forward into 2013.

Finally, I'm very pleased to announce that on November 9, our Board of Directors declared an unchanged quarterly dividend payment in the amount of CAD0.06 a share to shareholders of record on December 31. The dividend will be payable on January the 15th, 2013.

With that, I will now turn our presentation over to June for a summary of how we have performed in relation to our key financial metrics.

Thanks, David. Tricon's financial results released earlier today are prepared in accordance with International Financial Reporting Standards, or IFRS, and are presented in Canadian dollars unless noted otherwise. Management's discussion and analysis of these results and the full financial statements are available on our website and SEDAR.

Total adjusted base revenues for the quarter ended September 30, 2012 increased by CAD7,456,000 or 277% to CAD10,146,000 when compared to the quarter ended September 30, 2011, and were bolstered by revenue from US single-family homes designated for sale. Adjusted EBITDA for Q3 2012 increased by CAD2,288,000 or 210% to CAD3,379,000, augmented by the gain realized on the sale of warehouse investments to Tricon XI, and the contribution from the new US single-family rental strategy.

Similarly, adjusted net income for the quarter was CAD1,692,000, 186% higher than the quarter ended September 30, 2011. Accordingly, adjusted basic and diluted earnings per share for the quarter were CAD0.05 compared to CAD0.03 for the corresponding period in 2011.

In summary, we are extremely pleased but not surprised with the strong improvement in our key financial metrics, as we continue to advance both our asset management and principal investing business.

I will now turn the presentation back to David.

Thanks, June. In order to provide shareholders with additional insights on the residential real estate markets in both Canada and the United States, including our US single-family platform, I have invited Glenn, Gary, and Jon to provide some additional commentary. Glenn?

Thank you, David. The third quarter of 2012 marks the fourth consecutive quarter of overall positive results in the key indicators in the US housing market, which is significant evidence that a sustainable recovery is well underway. The third quarter saw continued improvement in practically every measure, including inventory levels, sales of both new and resale homes, housing starts, consumer confidence, and foreclosure activity.

Most notably, recent data shows that home prices have demonstrated the most dramatic improvement with year-to-date inflation the highest since 2005. As stated in last quarter's commentary, home prices were improving in many of the markets across the country and in many of Tricon's projects. And it was expected that 2012 would be the first year since 2006 in which the US would experience home price appreciation.

While Tricon and many industry observers continue to expect this to hold true, the magnitude of this price appreciation is significantly higher than originally expected at somewhere between 7% and 9%. Historically, inflationary home price cycles lasted four to six years, with the exception of the 2000 -- or sorry, 1995 to 2006 periods. And with 2012 marking the first year of a potentially new cycle, the implications for the housing market and the overall economy in the short to medium-term are very positive.

A number of factors have contributed to the recent increase in home prices. Firstly, there has been a steady decline in foreclosure activity, as well as the underlying pipeline of shadow inventory. Secondly, while there's been an increase in demand for both distressed and non-distressed housing, the proportion of homes sold on a non-distressed basis has increased significantly over the last few quarters.

Non-distressed sales have been buoyed primarily by the historically low mortgage interest rates, and a positive change in media headlines and consumer sentiment. Distressed sales, while decreasing on a proportionate basis, have been aided by the increase in demand from buy-to-rent investors, and the trend towards short sales as a more effective means of disposition by the banks.

These latest developments have helped to stabilize the market, and will ultimately initiate the process of reversion to what we believe was an overcorrection to housing prices. Evidence of such an overcorrection can be seen in the currently abnormal relationship between the cost of renting and the cost of owning, where renting is currently more expensive than ownership in many markets. Historically, there has been a premium to the cost of owning versus renting. And we expect that house prices will continue to rise until this relationship reverts back to historic norms.

Until such time, there will be a continued source of distressed and opportunistic transactions that Tricon will be able to source. We are still seeing very attractive opportunities, and to date, have already committed to approximately CAD95 million of new transactions to our most recent fund, Tricon XI. These investments include a new single-family housing development with our partner, The New Home Company in Southern California, and a large master-plan land development in Phoenix.

The Phoenix transaction is a good example of the quality of investments that we have been seeing in the market. Phoenix is a market which has been rapidly improving over the last year. In this case, we have invested with a long-standing development partner, Community Southwest, to acquire 1550 acres of land in an already-established and entitled, and partially developed master-plan community in Southeastern Phoenix.

There are 599 homes, and a grocery-anchored retail center already built and occupied, with further entitlements for another 4235 lots and 110 acres of commercial and multi-family land. The land was acquired for CAD19.5 million, or just CAD12,600 per acre, which was significantly less than the cost of the work already completed for major infrastructure landscaping and parks. If one attributed no value to the commercial and multi-family land, this works out to less than CAD5000 per lot.

Looking at this another way, if you were to track the cost of the work already put into the ground from our acquisition price, we are effectively getting the land for free, not to mention the 10 years of time spent planning in planning, engineering, and construction to get the community to its current state. Further, the financial structure for the development going forward does not include any leverage. And we are expecting to receive a 22% compounded annual return, or IRR, which on a risk-adjusted basis, is really quite amazing.

As previously mentioned, we continue to believe that the next year or so will be -- we will be able to find similar institutional quality projects at distressed prices, and that these acquisitions will ultimately provide exceptional returns to both our fund investors and our shareholders.

With that, I'll pass it over to Gary to discuss the Canadian market.

Thanks, Glenn. The federal government and Bank of Canada's plan to slow down the Canadian housing market down is working. By making meaningful changes to the mortgage market and screaming fire enough times, the Feds have changed the Canadian consumer sentiment towards housing. And this is becoming increasingly evident for both anecdotal data and reported statistics.

For instance, national existing home prices are flat and are potentially trending down on a real basis for the first time since 2009. The Toronto condo market, which has become the poster child for government attacks, has cooled off significantly, with several failed launches and sales down 30% year-over-year. As we've said before, in many ways, we welcome a controlled softening of the market, particularly in the Toronto condo market, as prices have run up too quickly.

Own-to-rent fundamentals have deteriorated and costs have swelled, with the industry operating at or above capacity. A slowdown or stop correction, which we believe we are in the midst of, will help shake out the industry, and should provide additional opportunities for well-capitalized financiers such as Tricon.

We are often asked whether we think the Canadian housing market in general, or the Toronto condo market specifically, is headed for a US-style crash, and believe the likelihood of this happening is very low, given that the current slowdown has been triggered by government intervention, which could be quickly reversed if the market correction overshoots, and as the supply of existing housing condos is extremely tight, as evidenced by near zero vacancy and tightness in the rental market.

Further, even if the Toronto condo market, where the current fallout seems most pronounced -- even in the Toronto condo market where the fallout seems most pronounced, it seems as if there's still significant demand at certain price points, as demonstrated by the recent Ten York launch, which is the Tridel build project, which reportedly received 1000 orders for units priced at CAD650 per square foot. In contrast, similar projects that launched at approximately CAD800 per square foot have received no interest from the investor community.

It is important to remember that condos for the most part are really just glorified apartments that are being rented by individual landlords and investors rather than REITs or other institutions. To induce investors to buy these condos, they have to perceive value, and that they can make an economic return on their investment. In some markets where this value equation exists, demand remains strong. And we are seeing this firsthand in our most recent suburban Vancouver condo investment in Metrotown, where we have now sold over 80% of our units at prices of roughly CAD600 per square foot.

In this period of flux, we're being extremely selective with a bias towards Western Canada ,and will only entertain a Toronto condo project if the land is an A-plus location, has alternative uses, and has been purchased below current market prices. We don't feel any pressure to put capital out, and will wait for better opportunities if we can't find them today; and they will eventually come.

I'm now going to hand it over to Jon to talk about the single-family rental market.

Thanks, Gary. As noted by David earlier in the call, at quarter-end, we owned 651 homes, of which 605 were rental stock. We have continued to acquire additional homes over the past month, and now own over 700 rental homes in addition to approximately 50 flipped properties.

Approximately 50% of our portfolio is located in California, where the median resale home price has increased by 20% year-over-year; however, still remains 45% below the peak price, which was achieved five years ago. Needless to say, we still believe that there is room for significant price appreciation in California.

The remainder of our portfolio is split nearly equally between Southeast Florida and Phoenix, which have experienced year-over-year resale home price appreciation of 13% and 24%, respectively, yet remain at discounts of nearly 50% from peak. Throughout all of our markets, in spite of recent home price appreciation, we remain keenly cognizant of housing affordability, and continue to target workforce housing. We like to own homes where two hard-working blue-collar parents can raise their family and easily afford their monthly rent.

We've also seen increased competition over the past quarter, as large Wall Street private equity shops have entered the market in a big way, outbidding competitors at auctions and targeting portfolios of 10,000 to 15,000 homes. We welcome this competition, as it will help further institutionalize the industry. In fact, there have already been several pre-IPO or private placement filings in the US, and we anticipate the first publicly-traded dedicated single-family rental company to emerge next year.

We remain steadfast with our strategy of buying one to two homes per day per market. And in spite of this additional competition, we have been able to continue to meet our targets, in terms of both volume, but more importantly, in terms of both cap rate and quality of homes. Our operating partners are nimble, and have found unique ways to source assets, staying ahead of the competition, and becoming the buyer of choice for brokers and off-market home sellers.

As we continue to buy homes, we are also continually evaluating the remaining distressed inventory in our markets, and are cognizant that the buying opportunity will not last forever. We expect that opportunities in Phoenix will slow down for the first half of next year, and we very well could stop buying there by this time next year, with some California markets not that far behind.

We still see significant opportunities in the Southeast, where housing markets took longer to crash and are taking longer to reemerge from the crisis. In addition, foreclosures in Florida must go through a judicial process, whereby it could take two to three years for a homeowner to get evicted from their home, which will extend the distressed homebuying time horizon. In that regard, we are continuing -- we're considering expansion into Orlando and Charlotte to balance our portfolio, and may also redistribute some of our capital focused on California into Los Angeles County -- a market where we are not currently active, yet remains ripe with opportunities and reduced competition.

We've also begun to add leverage to our portfolio. During the previous quarter, our Sacramento partner took on a small CAD10 million credit facility with a local bank, which bears a 5% annual rate of interest and interest-only payments for the next five years. We see our broader leverage strategy involving a large credit facility across the entire Tricon platform. And, to date, we have had very positive discussions with several large Wall Street banks regarding a [CAD50 million to CAD100 million] facility at LIBOR plus 350 to 400 basis points, and 60% to 70% loan-to-cost, which would provide significantly enhanced cash-on-cash returns to our shareholders.

In summary, we continue to be very satisfied with our US single-family operating partners in the markets in which we operate. We believe that the remainder of 2012 and the bulk of 2013 will present strong distressed buying opportunities, during which time, home price appreciation will also increase the value of our portfolio.

I will now turn the call back over to David for his concluding remarks.

Thank you, gentlemen. On a weekly basis, I field calls from shareholders and potential shareholders asking about the Canadian housing market, and in particular, the Toronto condominium market. I know that Gary has already addressed this in his remarks. However, I thought that it would be worth highlighting Tricon's exposure to our local markets on this call.

On our consolidated balance sheet of Tricon's CAD167 million of assets, only CAD5.3 million is currently invested in Canada, with a maximum exposure of CAD20 million through our co-investment in Tricon XII. Put another way, if the full CAD20 million is invested in Canada, this would amount to just 12% of our existing assets, of which 50%, or 6% of total assets, would be in Toronto. In addition, less than 7% of our projected revenue in 2013 will be derived from our Canadian funds.

Finally, with regards to the Toronto condominium market, while we expect the current downtown slowdown to result in a soft landing, less than 8% of our current portfolio of Toronto condominium developments is unsold, with essentially minimum -- minimal unsold units in funds Tricon VIII and Tricon X, the two Canadian funds that are slated to deliver performance fees in the next few years.

Obviously, there is some risk that a prolonged downturn could impact the performance of Tricon XII. However, we have been extremely careful in making new investments in Canada, and particularly in Toronto. And are structuring all investments to minimize downside risk as opposed to maximizing potential upside. I believe that this cautious and pragmatic approach is in the best interest of our private fund investors, and will also benefit our public company shareholders in the long run.

As an aside, it should be noted that since 2008, Tricon and Tricon's funds have made only three investments in Toronto, prior to which we were one of the largest financiers of condominium developments in the city. In short, while we believe that investing in Canada is an important part of our current and future business model, our near-term focus is on the United States, where the stressed opportunities are much more pervasive.

To recap, I'm extremely satisfied with our results this quarter and year-to-date. We continue to grow both our asset management and principal investing businesses, and have focused the Company to capitalize on the distressed but recovering US housing market.

I would now welcome any questions from participants on this call.

(Operator Instructions) Jenny Ma.

Jenny from Canaccord. Just wanted to get some more detail on your strategy of selling certain homes within your portfolio in the US. You have targets in which -- since a proportion of the portfolio is slated for flipped homes, if you will, and how do you determine what kind of return you want in the holding period?

Jon, would you care to answer that one?

Sure, David, not a problem. And Jenny, thanks for the question. In our portfolio right now, the vast majority of our capital is slated for for-rent homes. And we'd expect that to continue throughout the course of the strategy. But from time to time, we do see homes which we think are better slated for flip. Typically, those homes are slightly more expensive than the homes that we're buying for rental. So, it generates a slightly lower cap rate than what we're targeting on a rental basis, but would still generate, call it, an 8% to 10% profit margin on a flip basis.

And that's really what we're looking for -- at 8% to 10% profit margin per home. And if we can turn a home -- our capital three times a year, we can generate a 25% to 35% annualized return on those flip homes. And if you look at our earnings for this quarter, that's what we've done. We've been able to generate upwards of a 45% annualized return on our flips, and we expect that to continue for the quarters to come.

(multiple speakers) Jenny, just to say -- so, go ahead.

No, I was just going to ask, is it fair to say that you're targeting the return as opposed to the investment period? So, if you're getting the 8% to 10% in a month or three months or six months, that is when you plan on selling this property?

It's not a capital appreciation game. We really expect in the flip strategy that it will take anywhere from two to four months to sell the home. And it's really more a matter of the time it takes to renovate and sell and close the home. It's not buying and then holding for any appreciation. It's really just taking advantage of a dislocation in the market, whereas we can put the improvements cheaper than the end-user. And we're -- because we see so many homes on a daily basis, we know which homes are most desirable to end-users.

Okay, now when you see these homes, is it more opportunistic? Or do you actually spend some time looking for homes specifically for flipping, as opposed to the longer-term rental strategy?

It's just part and parcel of the rental strategy. Because our operators see so many homes, both at auction and through the MLS, they look at every home, and they gain a very keen sense of which homes will be appropriate for rental and which will be appropriate for flip. It's just because they're reviewing every home already, they know which will fit each box.

Yes, but Jenny, just to continue Jon's vein of thought over here, we are not targeting those homes. The strategy is very much a rental strategy. And even to the extent that we see these homes, we do limit the percentage of homes that can be acquired by our operating partners.

Do you have a certain number as far as that percentage goes?

Generally not more than 3% to 5%.

Okay. Great, thank you very much.

Wojtek Nowak.

It's Wojtek Nowak from Fraser Mackenzie. Just further on to Jenny's question, are you still targeting 20% roughly of your home portfolio to be flip homes?

No. Gary?

Yes. Hi, it's -- we are targeting -- in certain of the portfolios, David may be correct on average, but in certain portfolios, we are targeting up to 10% to 20% of the homes for flip. And again, as John said, we see all the homes on a given day, and there's some homes which just make better -- are better homes for flip than they are for rent, partly because of the price. So, that is correct. We're still continuing to do that in certain portfolios.

Okay. Thanks for that. Secondly, for the homes that you're renting out, what kind of rental expense ratio are you targeting over the medium long-term?

We're targeting -- so what we're seeing in our current portfolio is we're seeing expense ratio of about 26%. So, if we said that our gross cap rate is roughly 12%, we're seeing a property level expense ratio of 26% and that is -- that's on a stabilized basis. But what we are seeing is, because certain homes take time to get leased -- and obviously, during that period of time, you still have to pay your property taxes -- that amounts to roughly 36%.

But we believe that once the properties are fully stabilized, that will come down to roughly 26% on our current portfolio. And that's, again, just at a property level. That does not include operator management fees.

Okay. Thanks for that. And just lastly, you've arranged a CAD15 million credit facility at the corporate level. What's going to be the use of that?

So, the [CAD50 million], are you referring to the convertible debenture?

No, no. (multiple speakers) No, fifteen -- one-five million.

That's a day-to-day operating facility, I mean, that the Company might have. It's not really for any specific purpose.

Okay, thanks very much. That's it for me.

(Operator Instructions) And currently, Mr. Berman, we have our next question coming from Jimmy Shan -- no, I'm sorry; the question was withdrawn. We have a follow-up from Mr. Nowak. Please go ahead.

So while we have the time here, I guess -- can I ask you on your Canadian fund Tricon XII, I guess, is there any contractual obligation for you to invest the funds by a particular date, at which point you would have to refund some of those funds to your investor? Or is it kind of an open investment horizon with a roughly three to four-year time period?

The funds have an investment period, which, in this case, is three years. And we have up until that time to actually invest the capital. There is nothing contractual within the fund which says that we have to invest the capital. But we do have to invest it by a certain date.

If we don't invest the capital, then the two things could happen. One, first of all, the fund would just be smaller in terms of the amount of invested capital; or two, we could potentially go back to our limited partners and ask them to extend the investment period.

And I could tell you, we've had conversations with our limited partners, which has gone -- which has said, you know, we do not expect to rush the money out, given the flux in the market. And the feedback we've received has been very positive. They've thanked us for that, for being careful with their money. And we've actually heard from some of them, which is to say that they would consider extending the investment period if it came to that.

I think the other important thing to take into account is the fact that the fee -- we get paid management fees on the amount of committed capital during the investment period, plus the amount of capital committed.

Okay, that's great, thank you.

Jimmy Shan.

It's with GMP Securities. Just wanted to go back to the single-family rental. So it looks like the market is moving pretty quickly in terms of prices. So just wondering what are you seeing in terms of appreciation and value on the rental homes that you have bought maybe earlier in the year?

I would definitely say they have moved up in value. At this point in time, Jimmy, I'm a bit loathe to put a percentage number on that one. I think you can draw some conclusions from the comments that the guys made about overall price increases over the period of time, recognizing that we have been buying through this period, but not all at the beginning and not all at the end.

But we will be doing a valuation at the end of the year. And that at the same time, as we look at that valuation, look at the valuations, one thing we are very careful about is we don't want to sort of basically lead people along and say we have significant capital appreciation, to then have to move that down, down the future from our perspective. We've [really] made money when it's realized, not so much on the expectation of an increase in value.

Right. And remind me again when you're valuing those homes at the end of the year, what would be the approach? Would you be hiring general appraisers to do a sample? Or what's the approach there?

Jimmy, we're currently looking at a couple of different processes, but we are leaning towards third-party appraisals.

Okay. And you would do that on the entire portfolio?

We would look at possibly the entire portfolio or close to the entire portfolio.

Okay. And then on the credit facility there, when do you expect to finalize and secure that credit facility?

The credit facility has actually closed, Jimmy. (multiple speakers)

Oh, I'm sorry. I meant the one that Jonathan mentioned on the single-family homes.

Okay, Jon, I'll let you take that.

Sure, Jimmy. We're actively working with several different banks, and our target is really in Q1 or early Q2, to have something in place. Part of it, obviously, depends on their ability to move with speed. But we have active dialogues with several different groups recognizing that, you know, we still haven't picked one horse to go with. We're still working to get best terms for our shareholders.

Okay. And if I heard correctly, you said it was LIBOR plus 300 or 400 BPS with 60% to 70% going to cost?

correct.

Okay. And then on the fund management side of the business, I just want to understand the timing of the movements of the various funds going in and out. So, like when exactly in the quarter did Tricon VI and VII come out? And when did Tricon XI came into effect?

We took them out -- Tricon VI and VII came out at the end of the quarter, just before the end of the quarter. So we report the assets under management at the end of the quarter. It's not a weighted average; it's a number at the end of the quarter. Tricon XI -- and, so effectively, the fees that we earned wins for Tricon VI and VII were earned through the end of the quarter, Tricon XI effectively started as of July the 1st, even though we closed in September.

Okay. And then, as we look out to '13, do you expect any maybe Tricon VIII to be running off in '13? Or what's the outlook there?

I think Tricon VIII's -- well, we will have some runoff in terms of assets under management, because we are -- you know, we're beyond the investment period. And some of the projects are starting to close, so we will have run-off, plus we will not be like Tricon -- effectively, the way we account for our funds is if we are earning fees, then those funds stay in as assets under administration, even those fees might be declining.

In the case of Tricon VIII, we will continue to earn fees for -- probably for a couple of years maybe, and then we'll go into performance fees. We'll hopefully go into (multiple speakers) performance fees.

(multiple speakers) Okay -- sorry. And then lastly, just on Tricon XI. So given your discussion, which sounds to be pretty positive, do you -- what's your expectation in terms of hitting a CAD300 million or CAD400 million additional commitment on that fund?

The expectation is still there. Though, I think the one thing that I must caution you is it's a very tough fund-raising environment in the US at this particular point in time. We are having discussions with investment managers who see the underlying or the potential profitability from this strategy, but it's still in that in many instances of also convincing their Boards.

So we see it as being a slow process. We expect that we have effectively a 15-month period between the first close and the second close. So we see the commitments coming sort of -- I would say evenly over the course of 2013. We would not expect anything in 2012. We would see the -- given where we are at this time of year, we see it coming evenly over 2013, with the expectation that we'll get to the CAD300 million to USD400 million. The one thing to remember, of course, is that to the extent that we do get commitments, the fees are retroactive to July 1 of 2012.

Right. Okay, thank you.

[Maury Meloff], private investor.

Unfortunately, I missed the presentation of -- my loss. I'm wondering who will be your typical renter? Are they people who have lost their homes and their capital through foreclosure? And if so, what kind of a reduction in monthly costs would they have compared to trying to own a house?

Jon, do you want to take that?

Sure. You know, a lot of our portfolios -- so you're correct that the typical renter is someone who has been displaced. You know, in a lot of cases, it's a family with a couple of kids and maybe a pet, and they've lost their home to foreclosure. And the last thing that that family wants is to have to move into an 800 or 900 square foot apartment in a building with kind of more transient types. And so they're very, very happy to stay in a home.

In terms of affordability, they're typically seeing a big reduction in their payment, because they would have been at a higher home price basis as well as a higher mortgage rate. But in terms of what they're paying in rent compared to what their costs would be today to own the home, it's actually usually slightly more than the home ownership costs.

What we're seeing now is really a dislocation in the US market, where the ownership costs are lower than the rental costs. That's part of our underlying thesis, where we do expect those to come more into equilibrium in the future, which will result in higher home prices. People can afford to pay; it's just more of a credit issue at this point in time than anything.

Yes. And do you see -- is your -- the success of your strategy then tied fairly closely to estimates of the employment rate?

Well, we do see the US employment rate improve -- unemployment rate reducing over time. And so, there is some correlation, obviously, if unemployment continues to tighten in the US, that our home prices will go up. But in general, we're also underwriting all of our homes to a strong current yield. And we're trying to target, call it, 8% across the entire portfolio. So regardless of whether there's long-term home price appreciation or not, we still would generate a very strong return, just from the rental yields.

If I can add to that, it's not entirely tied to the employment picture, because we have the view that people need to live somewhere. And in this case, again, because of a foreclosure crisis, they've been misplaced and can't own homes, but they still need to have a roof over their heads. So, instead, they're renting.

But on the other side, what we are seeing is that this actual investment strategy, unto itself, is creating a huge amount of jobs. I mean, we recently read a report that said that the investor to-rent model could create upwards of 1 million jobs in the US, as the homes are purchased by investors and then rehabbed and leased. It is a [huge job mention].

And I will remind you that if you look at the jobs that were lost, the roughly 8 million or 9 million jobs that were lost during the Great Recession, almost half of them were related to housing or spin-off activities related to housing. So, a single-family rental becomes institutionalized. And as the overall housing market improves, we're going to see gains on the housing side. And so, that should be a real positive.

But it's not -- you know, this strategy in some ways -- one of the beauties of this strategy is, to a certain extent, the ongoing operation is independent of the employment picture. Obviously, we want to try and acquire homes in markets that have better prospects for job growth. And to the extent that we have more job growth, we're going to see more appreciation in the underlying prices of the homes.

Yes. Could I ask you one more question?

Sure.

What will your distressed property project -- I think it's Tricon XI; I'm not sure in the states mean to Tricon's overall bottom line? Or can you invest separately in the Tricon XI?

Yes, and Tricon XI is a private fund. The exposure that the public company has is really the co-investment. So, the public company is making a CAD25 million co-investment. This first close is CAD125 million, so we ourselves are investing CAD25 million. So that is, from a shareholder's perspective, the exposure, and obviously, the income earning capital appreciation that comes from that investment. In addition to that, as with all our other funds, the public company gets the benefit of the fees, the management fees, and also the potential performance fees if we hit our hurdles.

Yes. Okay, thank you.

(Operator Instructions). And at this time, Mr. Berman, we have no other questions registered.

Thank you, Operator. So, in concluding, I would like to thank all of you on the call for your participation. We look forward to speaking to you in March when we discuss our results for the fourth quarter. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, we do like to thank you for attending and ask that you please disconnect your lines. Enjoy the rest of your day.