Tricon Residential Inc T.TCN

RBC

[retiredcf]

October 17, 2023

Tricon Residential Inc. Thoughts on Activist Presentation

NYSE: TCN | USD 7.05 | Outperform | Price Target USD 10.00

Sentiment: Positive

Overall thoughts: We think the activist campaign is a clear positive for TCN given the recent underperformance, lack of investor interest and wide discount versus peers. However, we think more of the discount is related to size, lack of a natural investor base, high complexity and near-term maturities versus the revenue management/G&A concerns called out by the presentation.

News: Land and Buildings (L&B) released a presentation for an activist investor summit targeting TCN. The presentation suggests 65% upside for the stock, largely driven by a calculated trading discount of 46% for TCN's underlying homes (we most recently calculated this at 42% here). L&B also suggested improvements to revenue management given a 13% loss to lease, reduced G&A (more than triple peer G&A per home according to L&B) and a sale of the Canadian multi-family business to pay down debt. While we agree that TCN's G&A screens high, we also think there are some reporting differences versus peers, and the high G&A is also somewhat attributable to a larger private funds business as well as smaller scale. We see the large loss-to-lease figure as more of a benefit than an impediment. We agree that TCN should sell the Canadian multi-family assets as soon as possible as we believe they are too small to add much incremental value for shareholders in the near term and largely serve as a distraction.