Investing in Communities Q2 2018 Earnings Presentation August 2018 - - PowerPoint PPT Presentation

Investing in Communities

Q2 2018 Earnings Presentation August 2018

General

You are advised to read this disclaimer carefully before reading, accessing or making any other use of the information included

• herewith. These materials are not an offer or the solicitation of

an offer to purchase any securities or make any investment. This presentation includes information about Tricon Capital Group Inc. and its subsidiaries and investees (together, the “Company”) as of June 30, 2018, unless otherwise stated. These materials should also be reviewed in conjunction with the Company’s Financial Statements and Management Discussion and Analysis for the periods ending June 30, 2018. All dollar amounts are expressed in U.S. Dollars unless

• therwise stated.

The Company measures the success of its business in part by employing several key performance indicators that are not recognized under IFRS. These indicators should not be considered an alternative to IFRS financial measures, such as net income. As non-IFRS financial measures do not have standardized definitions prescribed by IFRS, they are less likely to be comparable with other issuers or peer companies. A description of the non-IFRS measures used by the Company in measuring its performance is included in its Management Discussion and Analysis available on the Company’s website at www.triconcapital.com and on SEDAR at www.sedar.com. This presentation may contain information and statistics regarding the markets in which the Company and its investees

• perate. Some of this information has been obtained from

market research, publicly available information and industry

• publications. This information has been obtained from sources

believed to be reliable, but the accuracy or completeness of such information has not been independently verified by the Company and cannot be guaranteed.

2

Forward-Looking Statements

This presentation may contain forward-looking statements and information relating to expected future events and the Company’s financial and operating results and projections, including statements regarding the Company’s growth and investment opportunities and the performance goals and expectations of its investees, including, in particular, targeted returns, that involve risks and uncertainties. Such forward- looking information is typically indicated by the use of words such as “will”, “may”, “expects” or “intends”. The forward- looking statements and information contained in this presentation include statements regarding expected or targeted investment returns and performance including project timing and cash flow; the ability of the Company to generate fee income from investments and the quantum of these fees; the ability to attract third-party investment; the timing and availability of new investment opportunities, future net income from investments; expectations for the growth in the business; and the availability and quantum of debt reduction opportunities and the Company’s ability to avail itself of them. These statements are based on management’s current expectations, intentions and assumptions which management believes to be reasonable having regard to its understanding of prevailing market conditions and the current terms on which investment

• pportunities may be available.

Projected returns and performance fees are based in part on projected cash flows for incomplete projects. Numerous factors, many of which are not in the Company’s control, and including known and unknown risks, general and local market conditions and general economic conditions (such as prevailing interest rates and rates of inflation) may cause actual investment performance and fee income to differ from current projections. Accordingly, although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information. If known or unknown risks materialize, or if any of the assumptions underlying the forward-looking statements prove incorrect, actual results may differ materially from management expectations as projected in such forward- looking statements. Examples of such risks are described in the Company’s continuous disclosure materials from time-to- time, as available on SEDAR at www.sedar.com. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

Financial Review Wissam Francis Executive Vice President and Chief Financial Officer

4

IFRS Results

For the three months ended June 30

In millions of U.S. dollars

Q2 2018 Q2 2017 YoY% PF&A Revenue $7.5 $6.4 TAH Investment Income 40.7 (2.0) THP Investment Income 3.3 6.6 TLR Investment Income 2.5 2.8 Total Revenue 54.0 13.8 290.8% Compensation Expense (10.0) (9.8) G&A Expense (2.7) (2.1) Interest Expenses (8.6) (6.5) Other Expense (10.9) (21.5) Realized and Unrealized FX gain 1.3 1.8 Total Operating Expenses (30.8) (38.0) 18.9% Income from Discontinued Operations 19.6 1.4 NMF Net Income $39.8 ($21.7) NMF Diluted Earnings Per Share $0.29 ($0.17) NMF

Q2 2018 Results

Non-IFRS Results

For the three months ended June 30

In millions of U.S. dollars

Q2 2018 Q2 2017 YoY% PF&A Revenue, net of NCI $6.8 $5.8 TAH Adjusted EBITDA 67.7 42.0 THP Adjusted EBITDA 3.6 6.2 TLR Adjusted EBITDA 3.3 2.2 TLC Adjusted EBITDA 23.2 2.3 Adjusted EBITDA before overhead 104.5 58.5 78.5% Adjusted Compensation Expense (8.9) (8.9) Adjusted G&A Expense (2.7) (2.1) Adjusted EBITDA $92.9 $47.6 95.3% Adjusted Interest Expenses (27.3) (21.3) Adjusted Other Expenses3 (1.1) (1.1) Adjusted Tax Expense (4.4) (3.4) Adjusted Net Income $60.1 $21.8 175.5% Diluted Earnings Per Share $0.39 $0.17 129.4%

1 Includes transaction costs and formation costs. 2 Includes non-controlling interest, unrealized foreign exchange loss or gain, LTIP expense, change in fair value of derivative, and tax adjustments. 3 Includes adjusted stock option expense and adjusted amortization expense.

For the three months ended June 30

In millions of U.S. dollars

Q2 2018 Q2 2017 YoY% Net Income $39.8 ($21.7) NMF Non-recurring adjustments1 10.7 30.0 Non-cash adjustments2 9.6 13.5 Adjusted Net Income $60.1 $21.8 175.5%

Bridge from IFRS Results to Non-IFRS Results Tricon reported strong year-over-year growth during the second quarter

$2.1B $2.2B $3.3B $3.6B Q2 2017 Q2 2018 Debt Assets

Look-through Leverage

(excluding Convertible Debentures) Tricon Lifestyle Communities Divestiture of 14 park portfolio Tricon Lifestyle Rentals U.S. Divestiture of U.S. multi-family assets (in progress)

Financial Position

Equity

5

Cash Generation

CORPORATE LEVEL

TCN

Sources of Liquidity

As at June 30, 2018

In millions of U.S. dollars

Revolving Facility $365.0 Less: Amount Drawn 194.6 Amount Available 170.5 Cash on Hand 21.8

There can be no assurance that these liquidity events will occur in line with current expectations or at all.

INVESTMENT LEVEL

TAH TLR THP Debt Convertible Debentures

2017 2018 2019 Completed Tricon American Homes Disposition of non-core homes

Tricon has a flexible balance sheet with considerable cash flow visibility

Tricon Housing Partners Strong net cash flow profile Private Funds and Advisory Recurring fee income related to third-party capital in all verticals 2020 Tricon Lifestyle Rentals Operating cash flow Tricon American Homes Operating cash flow 60% 63%

Operational Review Gary Berman President and Chief Executive Officer

Increasing Contribution from Recurring Fee Streams

7

For the three months ended June 30

In thousands of U.S. dollars

Q2 2018 Q2 2017 YoY% TAH $441 NMF THP 3,114 2,950 6% TLR 745 579 29% Johnson 2,733 2,475 10% Performance Fees 838 355 136% Total $7,474 $6,359 18%

1 Fees earned in Q2 2018 are from the TAH JV, which commenced on June 27, 2018 . 2 Performance fees are based on current business plans for the projects. There can be no assurance these estimates will remain accurate.

Tricon now earns fees from all its investment verticals and aims to grow its fee revenue by attracting more third-party AUM

Drivers

$498M third-party AUM $1.08B third-party AUM $268M third-party AUM

+ fees earned on development cost

3-5% development fees on land sales $66M+ projected over life of

investment vehicles2

Solid results at TAH were driven by rent growth, continued cost efficiencies and realized acquisition synergies

For the three months ended June 30

In millions of U.S. dollars

Q2 2018

% of revenue

Q2 2017

% of revenue

YoY% Rental Homes 15,995 16,660 Stabilized Occupancy 97.1% 97.2% Blended Rental Growth 6.4% 4.9% Annualized Turnover 30.9% 31.2% Total Revenue $58.9 $45.4 30% Repair, Maintenance & Turnover (6.7)

11.4%

(5.4)

11.8%

Property Taxes (8.8)

14.9%

(6.8)

15.0%

Property Management Fees (4.1)

7.0%

(3.2)

7.1%

Insurance, HOA & Other Expenses (2.7)

4.6%

(2.4)

5.3%

Total Operating Expenses ($22.4)

38.0%

($17.8)

39.2%

26% Net Operating Income $36.5 $27.6 32% NOI Margin 62.0% 60.8% 120 bps Core FFO $11.3 $7.3 56%

TAH Consolidated Operating Results

8

Q2 2018 Annualized Core FFO of ~$45.2 million

Consolidated Portfolio Metrics

9.4% on new leases 4.8% on renewals

9

Same Home Portfolio Metrics

For the three months ended June 30

In millions of U.S. dollars

Q2 2018

% of revenue

Q2 2017

% of revenue

YoY% Rental Homes 6,628 6,628 Stabilized Occupancy 96.1% 97.0% Blended Rental Growth 6.3% 4.5% Annualized Turnover 32.5% 34.1% Total Revenue $25.5 $24.5 4.0% Repair, Maintenance & Turnover (3.2)

12.4%

(2.8)

11.6%

Property Taxes (3.7)

14.5%

(3.7)

15.1%

Property Management Fees (1.8)

7.0%

(1.7)

7.1%

Insurance, HOA & Other Expenses (1.3)

5.0%

(1.4)

5.8%

Total Operating Expenses ($9.9)

38.9%

($9.7)

39.5%

2.2% Net Operating Income $15.6 $14.8 5.1% NOI Margin 61.1% 60.5% 60 bps

TAH Same Home Operating Results

Same Home NOI growth of 5.1% was driven by revenue growth of 4.0% and expense growth of 2.2%

8.9% on new leases 5.0% on renewals

Joint Venture Announcement

Tricon recently announced a transformational JV partnership with two leading global real estate investors to create a portfolio of single-family rental homes to be acquired and managed by TAH

10

TAH OpCo

Property Management Platform

TAH Existing Portfolio

15,995 Homes $2.9B value 100%

$750 total equity commitment

Leverage not to exceed 65% loan-to- value

100%

JV Portfolio

10,000 – 12,000 Target Homes ~$2B value

Joint Venture Partners

67% 33% Asset management fees and potential performance fees Property management fees, acquisition fees, and construction management fees

Target of 10,000 – 12,000 homes acquired over a three-year investment period Tricon entitled to asset management fees, property management fees (via the TAH operating platform), and potential performance fees

Anticipated JV portfolio size and value based on current market conditions and continuing availability of acquisition opportunities. There can be no assurance that actual results will align with expectation.

• LAS VEGAS

NORTHERN CALIFORNIA SOUTHERN CALIFORNIA PHOENIX SOUTHEAST FLORIDA RENO DALLAS-FORT WORTH CHARLOTTE HOUSTON COLUMBIA ATLANTA INDIANAPOLIS JACKSONVILLE ORLANDO TAMPA SAN ANTONIO

TAH Growth Opportunities

11

TAH Acquisition Funnel1

Planned acquisition pace of ~700-900 homes per quarter with the TAH JV

Mature Market Active Acquisition Market

15,995 Total Homes Owned Single Family Home Sales in TAH’s Active Markets3

Atlanta Charlotte Columbia Dallas-FW Houston Indianapolis Jacksonville Orlando San Antonio Tampa Total 1H 20184 54,086 17,632 6,365 32,267 42,934 18,778 15,191 24,903 16,556 36,681 265,393 2017 106,604 34,419 12,139 66,229 84,277 40,343 29,144 47,874 32,467 71,207 524,703 2016 103,912 31,753 11,041 63,910 80,808 37,500 27,780 47,265 31,289 71,722 506,980

181,434

New Q2 MLS Homes

filtered by proprietary TriAD platform

7,880

Underwritten Homes

505

Purchased in Q22

1,808

Offers

There continues to be a vast opportunity to acquire homes within TAH’s target markets at a blended cap rate of ~6.0%

1 Q2 2018 figures may not represent available opportunities in the future. Planned acquisition pace is estimated based on current market conditions and continuing availability of acquisition

• pportunities. There can be no assurance that actual results will align with expectation.

2 Includes homes purchased through MLS and other channels. 3 Source: John Burns Real Estate Consulting LLC. 4 Reflects data until June 2018.

Tricon Housing Partners

12

THP continues to work through budget updates to reflect rising costs and extended timelines, and is seeing a stabilization of quarterly results

+29%

Y/Y

Johnson Third-Party Home Sales

+19%

Y/Y

Active Adult Home Sales at Tricon Projects

10.3% 7.6% 2.3% 5.2% 5.7% Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Adjusted EBITDA % of Invested Capital

Adjusted EBITDA as a % of Invested Capital at Cost

Q2 2017 Q2 2018 Q2 2017 Q2 2018

TLR New Investment: West Don Lands

13

Canary District By Dream and Kilmer Distillery District Cherry and Mill Neighborhood: Distillery District Closing Date: April 2018 Partner with: Dream and Kilmer Units: ~1,500 Update: Currently in design development stage with construction expected to commence in 2019 West Don Lands Project Sites

TLR New Investment: 6 Gloucester

14

Neighborhood: Yonge and Bloor Closing Date: June 2018 Site Size: 0.4 acres In-place zoning: 220,000 SF Storeys: 34 Units: ~200 Artist Rendition Northeast corner of Yonge and Gloucester

With the recent additions of West Don Lands and 6 Gloucester, TLR now manages a development pipeline of ~2,700 multi-family units representing a clear path to scale and industry leadership

TLR CA Existing Project Update

15

The Selby Scrivener Square Gloucester West Don Lands 57 Spadina Projected Completion1 Projected Total Cost1 Number of Units TLR Ownership The Selby Q4 2018 $138M 502 15% 57 Spadina Q1 2021 114M 286 20% Scrivener Square2 TBD TBD ~200 50% West Don Lands2 2021− 2023 TBD ~1,500 33% 6 Gloucester2 2022 103M ~200 47% TLR Canada Total 2018− 2023 ~$1.0 Billion ~2,700 ~30%3

1 Projected costs and timelines are based on current business plans for the projects. There can be no assurance these estimates will remain accurate. 2 Scrivener Square, West Don Lands and Gloucester remain in the design and approval phase. 3 Based on weighted average project committed equity.

Exit of Manufactured Housing Vertical

16

In Q2 2018, Tricon completed the sale of its 14-park manufactured housing portfolio for $172.5 million ($56,000 per pad) The successful transaction exemplifies Tricon’s ability to create shareholder value by identifying housing themes with compelling fundamentals, implementing a value-add business plan, and

• pportunistically timing the entry and exit of an investment

25% Realized net IRR to Tricon 1.7x Realized ROI to Tricon 4 Year Investment period $172.5M Disposition price $85M Net proceeds (after debt repayment, partner

promote and transaction costs)

Book Value per Share Growth

17

Tricon has grown its book value per share (in C$) at a compounded annual rate of 22% since entering the single-family rental business in 2012

Foreign exchange rates used ($US:$CAD) : 2012 - $0.99; 2013 – $1.06; 2014 – $1.16; 2015 – $1.38; 2016 – $1.34; 2017 – $1.25; Q1 2018 – $1.29; Q2 2018 – $1.32. Past results are not necessarily indicative of future performance.

$3.40 $4.76 $5.23 $6.09 $6.47 $6.87 $7.53 $7.77 C$3.38 C$5.06 C$6.07 C$8.43 C$8.69 C$8.62 C$9.71 C$10.23 2012 2013 2014 2015 2016 2017 Q1 2018 Q2 2018

Book Value Per Share

22% CAGR in C$ (16% in US$)

Current Book Value Value Creation from Same Home NOI Growth

$1,064M (C$10.41 / share)1 $146M NOI run-rate2 x Same Home NOI growth Valuation cap rate

Selected Drivers of Shareholder Value

18

1 Calculated using weighted basic shares outstanding of 134.5 million at June 30, 2018. 2 NOI run rate is based on 15,995 homes with a 95% occupancy at $1,315 average monthly rent and a 61% NOI margin. 3 Range is based on analyst estimates, which are presented for illustrative purposes only.

Foreign exchange rate used $US:$CAD – 1.32 at June 30, 2018. There can be no assurance that these estimates remain accurate.

Incremental Book Value in C$ per share1, per year

Same Home NOI Growth 3 Valuation Cap Rate 3

3.00% 4.00% 5.00% 6.00% 7.00% 5.75% $0.75 $1.00 $1.24 $1.49 $1.74 5.50% $0.78 $1.04 $1.30 $1.56 $1.82 5.25% $0.82 $1.09 $1.36 $1.64 $1.91 5.00% $0.86 $1.15 $1.43 $1.72 $2.00 4.75% $0.90 $1.21 $1.51 $1.81 $2.11

Tricon’s existing investments have the potential to generate significant growth in book value per share over time

Current Book Value

Calculation of Projected Book Value

Projected Book Value in C$ per share1, upon completion

$107M (C$1.05 / share)1 $1.2B cost x development yield Valuation cap rate $313M (C$3.06 / share)1 $603M projected distributions net of advances remaining4 C$5.90 / share1

Selected Drivers of Shareholder Value

19

Tricon’s existing investments have the potential to generate significant growth in book value per share over time

1 Calculated using weighted basic shares outstanding of 134.5 million at June 30, 2018. 2 Based on 65% leverage, a 40% TCN blended interest in TLR Canada and US projects, and Company estimates based on current market conditions. 3 Range is based on current market projections in target markets. 4 Based on current project budgets. There can be no assurance that these estimates remain accurate.

Foreign exchange rate used $US:$CAD – 1.32 at June 30, 2018. There can be no assurance that these estimates remain accurate.

Development Yield 2 Valuation Cap Rate 2,3

4.50% 5.00% 5.50% 6.00% 6.50% 4.75% $1.56 $1.73 $1.90 $2.08 $2.25 4.50% $1.64 $1.83 $2.01 $2.19 $2.38 4.25% $1.74 $1.93 $2.13 $2.32 $2.52 4.00% $1.85 $2.06 $2.26 $2.47 $2.67 3.75% $1.97 $2.19 $2.41 $2.63 $2.85

www.triconcapital.com

Gary Berman

President and Chief Executive Officer 416.928.4122 gberman@triconcapital.com

Wissam Francis

Executive Vice President and Chief Financial Officer 416.323.2484 wfrancis@triconcapital.com

Wojtek Nowak

Director, Corporate Finance and Investor Relations 416.925.2409 wnowak@triconcapital.com