Tricon Residential Inc Analyst Day Highlights
Our view: TCN’s 2022 analyst day largely focused on operations, tech, and details supporting its longer-term targets. With the company’s broader goals left unchanged, our estimates and price target are unchanged as well, although TCN is signaling that some goals are on pace to be achieved sooner than expected.
Key points:
Ahead of plan on capital deployment. TCN maintained its target of expanding the gross portfolio to 50K homes in 2024, from 29K at the end of 2021 and a goal of 37K at the end of 2022. However, TCN noted that it is ahead of pace on this target. The company expects to acquire 8K homes in 2022, representing nearly 40% of the three-year goal, and TCN noted that supply could easily loosen up from current levels and allow more acquisition acceleration in 2023–24.
Next JV conversation could happen in 2023. TCN’s SFR JV-2 is currently roughly one-third deployed, which is ahead of pace. As a result, TCN noted that discussions around a JV-3 could start in 2023 rather than the prior expectation of 2024. TCN expects that the existing JVs will likely be extended when they reach their 7- to 8-year terms given institutional investors’ continued appetite to deploy capital in the SFR space. However, if they are wound up, TCN does have the right to acquire the partner interests based on a third-party appraisal.
Growing cash flow obviates need for equity in the medium term. As of 4Q21, TCN had roughly $72 million in annual cash flow available to fund growth. The company also estimates that it will generate an additional $50 million in annual NOI in each of 2022–24. This suggests total cash flow exceeding $500 million for the three-year period, compared to outstanding equity commitments of $550 million. TCN also plans to keep its leverage levels roughly flat. As a result, there is no need for equity in the current plan, although it would be considered on an opportunistic basis for an attractive deal.
No plans to convert to REIT structure. TCN continues to be a c-corp. Management noted that it does not have any medium-term plans to convert to a REIT structure, and there would be no benefit from doing so, as TCN’s REIT subsidiaries currently generate sufficient operating losses to allow the company to pay no taxes. TCN expects this to continue for the foreseeable future. TCN also likes retaining cash to fund its growth, which would not be possible as a REIT.