Post by
retiredcf on Nov 10, 2022 10:29am
CIBC
EQUITY RESEARCH
November 9, 2022 Earnings Update
TRICON RESIDENTIAL INC.
A Game Of Homes: A Dance With Acquisitions
Our Conclusion
After the sale of their multi-family portfolio (see link to our recent note on the transaction), TCN reported yet another strong quarter, in line with our and consensus estimates. The company continues to feature double-digit organic growth (+6.6% on renewals and +16.3% on new move-ins) as a result of a very tight rental market (and ever-increasing home ownership costs). The current mark-to-market opportunity continues to remain intact, with management estimating the gap to be ~15%-20%. While continuing to be one of the best-in-class operators, the uncertainty surrounding the current interest rate environment provides a headwind for the company’s acquisition plans, as higher borrowing costs continue to weigh on the economics of acquisition accretion. Indeed, management has revised its guidance to 7,300 units for 2022, down from 8,000 units, and anticipates such reduced activity to persist for the near term. As such, we are making model adjustments to reflect the lower activity, and we are introducing our 2024 estimates.
We are maintaining our Outperformer rating, and increase our assigned cap rate by 25 bps to 5.25%. We are lowering our U.S. dollar-denominated NAV estimate to $14.75 (from $15.50) and correspondingly lowering our U.S. dollar-denominated price target from $14.00 to $13.00 while maintaining our price target of C$18.00 due to the strengthening of the U.S. dollar, implying a 10% discount to NAV. We believe the market continues to ascribe no value towards TCN’s rapidly growing asset management platform, and combined with their operational excellence, view TCN as one of our top picks.
Key Points
Earnings Update: Q3/22 Core FFO per share was $0.15 (+7%), in line with consensus estimates, but slightly behind our estimate of $0.16, with variance explained by lower-than-anticipated acquisition activity (1,988 homes acquired vs. our 2,500 estimate). We note that the company reported a $107MM fair value gain on rental properties.
Updated Guidance: TCN expects to reduce its acquisition volume to 7,300 homes in 2022 (from 8,000), citing significantly higher financing costs. Additionally, management increased the mid-point of SPNOI guidance by 125 bps to 10.5%, while increasing FFO guidance to $0.75-$0.77, inclusive of performance fees earned on the sale of its U.S multi-family portfolio.
AUM Update: TCN continues to grow its asset management platform,
increasing third-party AUM to $9.4B (+66% Y/Y), taking total AUM to
~$17.6B and fee-bearing capital to $2.9B. During the quarter, asset
management revenue totaled $5.8MM, compared to $5.3MM in Q3/21.
ESG Achievement: TCN continues to be a leader in ESG, improving its
GRESB rating by 24% relative to its inaugural 2021 performance, in addition to earning a Green Star designation, reflecting a 40% improvement Y/Y. The company also launched an industry-leading bill of rights for residents, the first of its kind among single-family rental housing providers in the U.S.