Rebranding efforts and housing trends accelerated by COVID-19 helped push Tricon Residential to a strong 2020 financially and operationally.
The Toronto-headquartered, publicly traded company changed its name from Tricon Capital Group Inc. last May. It has just completed the rebranding process, bringing its single-family, multifamily and investment verticals under a singular brand with the creation of a new resident-centric website.
“In the past we were essentially a small conglomerate that had different verticals with different names.” Tricon Residential president and chief executive officer Gary Berman told RENX.
“That, over time, I think became somewhat confusing internally and even externally as we communicated our story to the outside world.”
Tricon Residential (TCN-T), founded in 1988 and listed on the Toronto Stock Exchange since 2010, is a rental housing company focused on serving the middle-market demographic. It owns and operates approximately 30,000 single-family rental homes and multifamily rental units in 21 markets across the U.S. and Canada, managed with an integrated technology-enabled operating platform.
The company has $8.2 billion of assets under management.
New Tricon Residential website, operations
Tricon Residential has embraced a centralized and harmonized approach to its operating structure, revamped its supplementary disclosures to conform with its real estate peers and adopted consolidated accounting.
The final step in its rebranding was developing the new website, which was designed with all stakeholders in mind, but with an added focus on residents.
“Over time, that should lead to significant efficiencies and also allow us to provide better service to our residents,” said Berman, who joined Tricon Residential in 2002.
The new website provides a leasing storefront for both single-family and multifamily rentals and uses geo-tagging to prioritize home options based on the user’s location. It also features an investor portal with information on operational performance and Tricon’s approach to acquiring and developing.
Strong financial and operating results
While Tricon Residential hasn’t yet released its fourth-quarter results, its third-quarter net income of $58.1 million was $24.7 million higher than a year earlier and Berman said the last three months of the year were also strong.
Ninety-six per cent of Tricon Residential’s properties are located in the U.S. Sun Belt. This has worked well for the firm as the COVID-19 pandemic accelerated the trend of people from the U.S. Northeast and Midwest moving to single-family homes there.
“Fairly quickly, de-urbanization and de-densification trends took hold,” said Berman. “When people were all of a sudden mandated to work from home, why not move to a more affordable locale with better weather and lower taxes?”
Demand metrics for Tricon Residential’s single-family rental housing were up by approximately 40 per cent in 2020, while its occupancy rate increased to between 97 and 98 per cent.
Rental growth was up five per cent and could have been higher, but Berman said Tricon Residential held back on renewal increases because it didn’t want to take advantage of residents facing financial struggles during the pandemic.
Rental growth on new leases was more than 10 per cent and up to 20 per cent in some markets. Turnover was significantly lower than normal because people were staying in their homes.
U.S. single-family rental homes
“I don’t think I’ve ever been more bullish,” said Berman, who believes single-family rental housing demand will continue to increase, resulting in higher home prices and rents.
While Berman said Tricon Residential likes the entire Sun Belt as a market for its properties, he specifically named Nashville, Raleigh, Charlotte, Tampa, Atlanta, Phoenix, Denver and Austin. Houston and Orlando are a little weaker now, but are still strong markets, he added.
A syndicate of investors led by Blackstone Real Estate Income Trust, Inc. agreed to make a $395-million preferred equity investment in Tricon Residential in August, which Berman said “injected a lot of liquidity into the company” and left it well-capitalized.
“We’re planning some major capital raises for all of our businesses, which is going to allow us to grow and take advantage of opportunities,” said Berman.
Tricon Residential is also in the advanced stages of selling a majority interest in its American multifamily portfolio to sovereign wealth fund investors, which will add to its liquidity to accumulate more existing and new homes under its umbrella.
Toronto multifamily market
Tricon Residential’s multifamily business in Toronto was a little weaker than its U.S. operations, but represents a very small part of its overall portfolio.
“The fundamentals driving Canada are a little bit different,” said Berman. “I think 2021 will continue to be a tough year, particularly in urban cores. But I think as soon as we all get vaccinated, Canada’s going to open the spigot back up and drive immigration.”
While Tricon Residential will look at new Toronto opportunities more critically because of the uncertainty the market is currently experiencing, Berman believes Toronto will emerge from the pandemic as a winner.
“Our longer-term thesis on rents hasn’t changed. There are short-term dislocations with rents, but I expect that they’ll start to stabilize and go right back.”
With increased immigration and the return of thousands of international college and university students to Toronto, Berman expects the same apartment supply and demand imbalance that existed before the pandemic to return.
He anticipates the city’s rental housing market to be “booming” by 2024, which will be good news for property owners, if not for tenants.
Tricon Residential isn’t interested in other Canadian markets because Berman said economies of scale with property management are needed to be effective and his company doesn’t have that anywhere else.
“We think that the fundamentals in Toronto and the GTA (Greater Toronto Area) are the best long-term, so this is where we want to be.”
Tricon Residential’s Toronto multifamily projects
The Selby, a 50-storey, 441-unit luxury apartment at 592 Sherbourne St., was completed in 2018. Its occupancy remained essentially flat last year, which Berman considers a significant achievement considering the weakness of the downtown condominium rental market.
Tricon Residential also has approximately 4,000 units at various stages in the development cycle scheduled to be delivered from 2022 to 2025.
“All of our projects are largely on time and on budget,” said Berman, who noted they’ve lost no more than a couple of weeks to COVID-19-related construction delays.
Construction of The Taylor — a 36-storey, 286-unit apartment with retail and commercial space at 57 Spadina Ave., just south of King Street West — is up to the 15th floor and should be completed in early 2022. It will be Tricon Residential’s next project to be leased up.
Tricon Residential has approximately 12 acres in the West Don Lands where it will develop approximately 2,500 rental units, with about 30 per cent categorized as affordable.
The company has three buildings comprising about 800 units under construction and now above grade on one block. Construction will soon start on another project on the site of a large parking lot north of the Distillery District.
Construction on other blocks will begin later this year or next year and most of the West Don Lands buildings are expected to be delivered in 2023.
“I think it will be one of the finest examples of city-building in the world when we’re done with it,” said Berman.
The Ivy — a 34-storey, 232-unit apartment located at 9 Gloucester St., near Yonge and Bloor streets — has begun excavation and shoring. It should be delivered in 2023.
The James, a 21-storey, 141-unit apartment at 10 Price St. in the upscale Rosedale neighbourhood, has received all permitting approvals and plans are to begin demolition and construction imminently. Berman said it’s a very complicated project that will take several years to complete.
Tricon Residential is finalizing entitlement for 7 Labatt, a 38-storey project near Queen and River streets to be developed with TAS. It will have purpose-built rental and condo units along with a commercial element.