August 21, 2020
Tricon Residential Inc
Structural tailwinds abound; our takeaways from the IMN Single Family Rental Forum
Event:
Earlier this week, we (virtually) attended the IMN Single Family Rental Forum, which reinforced our conviction in the multi-year growth outlook for Tricon Residential Inc. (“TCN”).
First impression
Our view: On August 18–19, we heard from over 50 different private and public single-family rental (“SFR”) executives. Representing TCN, was COO Kevin Baldridge, EVP of Operations Alan O’Brien, and SVP of IT Gregg Knutson. The key themes that stood out to us were: 1) the number of structural tailwinds for the sector; 2) demand from both tenants and investors; and, 3) an under-allocation to SFR by institutional investors.
Structural tailwinds abound for single-family rental. While increased demand for space and privacy during a pandemic is natural, we also see tailwinds that include: 1) a lack of affordable housing, with sub-$250,000 homes representing 30% of U.S. construction over the past 5Y vs. 50% in 2010–14; 2) demographic tailwinds, with 24MM millennials aged 25–29 (7% of US population) in the early years of family formation; 3) southern migration, with population growth of ~1.3% in TCN’s SFR markets vs. the U.S. average of just 0.5%; 4) a lasting WFH impact, with 65% of SFR homes having 3+ bedrooms vs. 11% for apartments; and, 5) a more resilient tenant base, with Q2 SFR rent collection of 98% vs. 95% for U.S. apartments, and positive SFR rent growth every year since the mid-1980s.
SFR is seeing immense demand from tenants. On his panel, COO Kevin Baldridge commented that TCN is receiving ~3,300 phone calls per weeks for its 175 lease ready homes—not including online leads. Not surprisingly, occupancy is sitting at an all-time high and rent growth on new leasing is accelerating. For details, please see pages 3–4 of our latest note.
Wall of capital chasing SFR to benefit TCN’s asset management business.
While participants commented on the amount of capital chasing SFR, we found it interesting that Amherst Residential has yet to come across any institution that is overweight SFR. Indeed, investors such as Brookfield, J.P. Morgan, & Koch Industries, have all recently raised or deployed capital in SFR, according to Bloomberg (7/21/20). In our view, this bodes well for a 2nd TCN SFR JV announcement that could come sooner than some expect.
An attractive discount to NAV, with positive catalysts ahead. TCN's shares are trading at an 11% discount to our US$8.50 NAVPS (~C$11.22) vs. parity over the past 3Y and an 8% premium over the past 5Y. Moreover, we see an attractive entry point with: 1) forecast SP-NOI growth of 4% set to underpin ~12% NAV growth; and, 2) potential positive catalysts from the syndication of TCN's multi-family portfolio and 5–7pp of deleveraging.