Tricon Residential Inc T.TCN

RBC Notes

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September 14, 2022
REITs: SFR HPA Analysis – Price Declines Accelerate Further in August
Our view: We are updating our single-family rental home price appreciation analysis to incorporate August home price data. The home price declines that started in June and accelerated in July have expanded even more, and we estimate that the SFR portfolios declined in value by 0.6-1.1% in August. The Western U.S. continues to show the most acute weakness, particularly the West Coast, while the Southeast is holding in relatively well and select Midwest markets have actually seen a slight rebound. Despite the decline in portfolio values, current discounts are slightly wider than last month at 21-33% given the market selloff.

The single-family rental companies continue to trade at large discounts to their underlying home values
• We estimate that AMH, INVH, and TCN trade at 26%, 21%, and 33% discounts to their respective August portfolio values on an enterprise value basis.

• We think the market is including value for AMH’s development business as well, and a 1.5x book valuation would push the portfolio value from a 26% discount to a 27% discount.

• TCN’s $400+ million in future value creation potential from non-SFR businesses would imply a larger 36% discount, and while we do not think that the market will give full credit for this, we do think TCN's true discount falls in the mid-30% range.

• Current discounts are among the widest we have in our data history (back to 2017), and are significantly wider than the single-digit discounts seen for most of 2021.

  August home prices weakened the most on the West Coast, while the Southeast held in decently
  • Higher mortgage rates continued to affect home values in August, with price declines seen in more than half of focus SFR markets.

• Some select Midwest markets (Cincinnati and Indianapolis) saw a rebound in appreciation, while markets in the Southeast were generally flat.

• Home price declines were most acute on the West Coast, with California and Seattle seeing the weakest prices.

• We estimate that the SFR companies saw their portfolios decrease in value by 0.6%-1.1% sequentially, with varying exposures to the Western U.S. largely explaining the difference.