UpgradesIn addition, Denis Mitchell also spoke favourably about TCN on BNN this morning. He's very upbeat on US housing. GLTA
In a research note titled Big moves, in all the right directions, RBC Dominion Securities analyst Matt Logan thinks Tricon Residential Inc.’s upsized U.S. initial public offering and notable private placement “move the needle on deleveraging.” “We’re pleased to see Tricon Residential Inc.: 1) dual list its shares on the NYSE; 2) complete its initial public offering in the U.S.; and, 3) execute a concurrent private placement to Blackstone REIT Inc. (’BREIT’),” he said. “At a high level, we see meaningful deleveraging progress, a wider base of potential investors, and little impact to key financial metrics (e.g., NAVPS, AFFOPS). This is set against the backdrop of accelerating organic growth and a substantial external growth opportunity, as TCN moves toward becoming a pure-play single-family rental operator.”
Mr. Logan sees Tricon poised to benefit from “robust” residential demand south of the border, which he anticipates will lift its organic growth profile.
“In Q3, U.S. re-leasing spreads were 18 per cent, per RealPage, up from 10 per cent in Q2,” he said. “With TCN outperforming the U.S. average, and its SFR peers, we see a mark-to-market opportunity of about 20 per cent, up from the mid-teens. Together with 20–25-per-cent turnover and renewal spreads near the high-end of TCN’s 3–6-per-cent self-governed range, we think this supports: 1) mid- to high single-digit top-line growth; and, 2) high single-digit to low double-digit SP-NOI [same-property net operating income] growth over a 4+ year horizon.”
“Over the next 3 years, TCN aims to acquire/build 7,200 homes, increasing its SFR portfolio to 25,900 homes (at share). This carries a total investment and equity commitment of approximately $2.0-billion and $600–650-million. Of which, we estimate TCN can fund $250–275-million from retained earnings and a further $25–30-million from for-sale housing distributions. With cap rates of 5.0–5.5 per cent for individual homes and 3.5–4.5 per cent for ‘rolled up’ SFR portfolios, we think capital deployment could create $1–3 of NAVPS — not including growing fee income.”
Mr. Logan sees the offering, which involved the issuance of 46.2 million shares for net proceeds of US$540-million, having little impact on Tricon’s key metrics, including being “neutral” to net asset value per share.
He raised his target to US$15.50 from US$14, citing continued cap rate compression, with an “outperform” rating. The average is $17.07 (Canadian).
Elsewhere, BMO Nesbitt Burns analyst Stephen MacLeod resumed coverage with an “outperform” rating and $19 target, up from $18