TSX:TCN - Post Discussion
Post by
retiredcf on Nov 11, 2022 8:42am
TD
This is a USD target. GLTA
Tricon Residential Inc.
(TCN-N, TCN-T) US$8.81 | C$11.73
Macro Environment Weighs on Near-term Growth
Event
Forecast update. For our initial thoughts on the quarter, click here.
Impact: SLIGHTLY NEGATIVE
SFR fundamentals remained strong in Q3/22, with SFR SPNOI growth topping 10% for the fourth consecutive quarter, driven by blended rent growth of +8.4% and strong occupancies that remained elevated at ~98%. October was also strong at +7.6% blended rent growth (moderated slightly due to normal seasonality). Going forward, although demand remains robust, management expects a slight deceleration, with blended rent growth expected to be 7-8% in 2023 (on the back of a lower volume of turnovers, more than offset by healthy renewals in the mid-single-digits. With a loss- to-lease at ~18%, we view this as very achievable.
Turning to guidance, Tricon slowed the pace of SFR home acquisitions, and now expects to buy 7,300 homes in 2022 versus 8,000 previously. This is largely predicated on higher financing costs (now an -75bp spread to acquisition cap rates versus marginally negative spreads in July). Tricon intends to turn the acquisition tap back when more attractive economics surface. SFR SPNOI guidance has been raised +75bps at the midpoint to 10-11% on lower expenses (combination of more expenses being capitalized and lower property taxes than originally forecast). Core FFO/share guidance has been increased to $0.75-$0.77 from $0.60-$0.64, largely due to fees from the U.S. multi-family sale ($0.60-$0.62 excluding this). We also note that management has removed its previous "soft" 2024 Core FFO/share guidance of $0.83-$0.88 due to ongoing macro uncertainty and higher forecast interest expense.
Forecasts. Our revised 2022 FFO/share forecast of $0.75 is at the bottom end of management's guidance. For 2023/2024 our FFO estimates decrease 13%/10% on the back of higher interest costs and a slower pace of acquisitions in H1/23, but still represent a three-year CAGR of ~10%. Our NAV decreases 4% to $15.40 (higher cap rate).
TD Investment Conclusion
Tricon continues to deliver strong results on the back of favourable U.S. SFR fundamentals, combined with growth in its asset base and third-party AUM. We are maintaining our BUY rating, but our target price decreases to $13.00 from $14.00 on the back of reduced estimates.
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