Tricon Residential Inc T.TCN

RBC

[retiredcf]

November 8, 2022

Tricon Residential Inc.
3Q22 Core FFO/sh In Line; Guide Higher On MF Sale and Lower Expenses

NYSE: TCN | USD 8.24 | Outperform | Price Target USD 12.00

Sentiment: Positive
Overall Thoughts: We think the results are a slight positive for TCN given a 4Q22 guide above our expectations and expense control that looks to be the inverse of the pressures AMH/INVH reported this quarter.

Earnings Results: TCN reported 3Q22 core FFO/sh of $0.15, in-line with consensus but below our $0.16 estimate. Nominal core FFO of $46.4 million was 9% below our estimate, with most of that delta due to lower fee income, which tends to be volatile. Nominal same-store revenues and expenses were both in line with our estimates.

Release Highlights:

• Guidance: TCN updated its 2022 guidance, lowering its same-home revenue growth guidance by 50 bps at the high end to a new range of 8.0-9.0%, lowering opex guidance by 275 bps at the midpoint to 4.5-5.5% and increasing NOI growth guidance by 125 bps at the midpoint to 10.0-11.0%. When combined with the expected FFO from TCN's sale of its U.S. multi-family portfolio in October, TCN increased overall core FFO/sh guide by $0.14 at the midpoint to $0.75-$0.77. RBC's estimate was the only one that appeared to reflect the impact of the multi-family sale, making comparisons with consensus difficult, but the implied 4Q22 core FFO/sh range of $0.30-$0.32 is above our prior estimate of $0.28.

• Operating expenses: TCN's same-home operating expenses were up 2.9% YoY, with property taxes (+16%) representing the largest increase, and turnover (-53%) and R&M (-9%) contributing the most on the downside. TCN noted that a higher-than-usual number of expenses came through in 3Q22 that were capitalized rather than expensed. TCN's updated 2022 expense guidance implies 5% growth in 4Q22, well below what AMH/INVH are anticipating given an apparent lack of property tax true-ups.

• Leasing stats: October same-home rent growth was 7.6%, with 13.0% growth on new leases and 6.8% growth on renewals. The blend is slightly below 3Q22 at 8.4%, although this likely represents a mix shift as the renewal figure is 20 bps higher. Occupancy ticked up by 30 bps in October to 98.2%. Loss to lease is currently estimated at 15-20%, down from the 20-25% quoted with 2Q22 earnings.

• Acquisitions: TCN acquired 1,988 homes in 3Q22 for a total acquisition cost of $700 million ($213 million net to TCN, above RBCCMe $175 million). TCN expects to significantly slow its quarterly pace of acquisitions to 850 in 4Q22, and likely further in 2023.

• Hurricane Ian: TCN expects $3.0 million of damage from Hurricane Ian, of which $1.2 million is expected to be covered by insurance.

  Exhibit 1: Quarterly Earnings Summary