Tricon Residential Inc.
(TCN-T) C$9.90
Tricon Announces $300MM Investment Led by Blackstone Event
This morning, Tricon announced that a syndicate of investors, led by Blackstone REIT (BREIT), agreed to make a US$300mm (C$395mm) exchangeable preferred equity investment (14% of fully-diluted common shares). Closing is expected late- August/early-September.
Impact: SLIGHTLY POSITIVE
Tricon will create a new series of prefs to be issued on a private placement basis. The shares are exchangeable into a minority investment in Tricon at the option of the shareholder. The new shares will have an exchange price of US$8.50/ share (~C$11.18), which represents a 16% premium to the 30-day VWAP and is in line with the company's Q2 reported IFRS value. The prefs have a 5.75% yield (quarterly cash dividend) through the seventh anniversary and are subject to increases subsequently. They do not carry voting rights. Tricon has a forced conversion option in year 4 if the stock is trading 35% above the conversion price (year 5: 15% above conversion price or cash redemption at $105). We expect Tricon to convert the shares to equity as soon as possible.
Net proceeds will be used to reduce leverage. Management expects the net debt/ asset ratio to decline to ~56%, down ~500bps versus Q2. Management remains committed to further reducing its leverage through the syndication of 67% of its U.S. multi-family portfolio, which we expect to generate net proceeds in the $280mm range. We believe the syndication could be a further catalyst for the stock.
BREIT will acquire $240mm of the shares, or 80% of the total offering (12% of pro forma common shares). We see Blackstone's investment as positive, given its reputation as a global leader in real estate. We believe this "vote of confidence" from Blackstone could attract both new investors and additional investments from existing shareholders.
Tricon will enter an investor rights agreement with BREIT, which includes the right for the REIT to nominate one director to Tricon's board. Mr. Frank Cohen, Chairman and CEO of BREIT, will join the board as BREIT's initial nominee on closing of the private placement. Mr. Cohen has been Chairman and CEO of BREIT since July 2016, and serves as a director for Equity Office Properties and Hudson Pacific Properties.