May 15, 2020
Tricon Capital Group Inc.
In line Q1; Residential transformation complete
Impact: Neutral/Positive
Tricon Capital Group Inc. ("TCN") reported in line Q1 results, encouraging Q2 data points, significantly improved financial disclosures, and a proposed re-branding to Tricon Residential Inc.
Highlights (all amounts in U.S. dollars)
• FFO/share: $0.13, vs. $0.05 in Q1/19 and RBC/Street at $0.12E/$0.10E • IFRS NAV (pre-tax): $8.40, -$0.31 QoQ (-4%) and -$0.20 (-2%) YoY.
First impression
Our view: TCN reported an operationally in line quarter, with broad- based strength in single-family rental ("SFR"), tempered by: 1) mixed- results in multi-family rental ("MFR"); and, 2) largely expected fair value write-downs on for-sale housing development of $80MM ($0.41/share). More importantly, early Q2 data points are trending well. And new financial disclosures, together with a unified and realigned operational structure, complete the ten-year evolution from Tricon “Capital” to Tricon “Residential”. For details on the transformation, please see our Feb. 13th note "A tech-enabled rental housing company".
Core rental housing business performing well. While disclosure changes make segmented comparisons with our estimates difficult, FFO/share of $0.13 was a touch ahead of our $0.12 forecast, aided by a $5.1MM ($0.02/ share) fair value gain on rental residential developments, compared with our estimate for nil. Looking through the noise, rental housing NOI of $64.1MM (at TCN's share) was in line with our $64.5MM estimate.
Organic growth of 4% was in line with rental housing peers. In Q1, the portfolio delivered SP-NOI growth of 3.8%, comprised of 5.5%/-0.3% from SFR/MFR, which represent 72%/28% of SP-NOI. Organic growth moderated, as expected, from the TTM average of 7%. This was ahead of 4% for SFR peers, yet below 5% for MFR peers. Thematically, SFR exhibited broad-based strength, while MFR weakness in Houston/Orlando (-5% SP- NOI) was a -100 bps drag on overall SP-NOI. Similarly, a significant MFR tax hike and property damage in Denver (-17% SP-NOI) was a 30 bps drag.
Good April/May rent collection; TCN a net beneficiary of mix-shift to SFR.
In April, TCN collected 98% of its SFR and MFR rents, including deferral plans for <1% of SFR tenants and ~3% of MFR tenants (i.e., 97%/95% excl. deferrals). Over the same period, 1) SFR occupancy increased 90 bps to 97.4%, with rent growth of 5.0%; while, 2) MFR occupancy slipped 80 bps to 93.6%, with rent roll-downs of 2%. In May, SFR/MFR rent collection was 90% (at T+13) and tracking slightly ahead of April, with early signs of MFR occupancy/rents stabilization. See our April 7th note for more colour.
Conference call Friday, May 15, at 10:00 a.m. ET. Dial-in: +1 (647) 427-2311; toll-free: +1 (866) 521-4909, passcode: 4539588