CIBCEQUITY RESEARCH
May 11, 2022 Earnings Update
TRICON RESIDENTIAL INC
Tighten Your (Sun)Belt, More Growth Is On The Way
Our Conclusion
TCN printed another in-line and overall strong quarter, featuring unabated,
double-digit organic growth in the SFR portfolio. The material spread
between in-place rents and market rents remains, and we are of the opinion
(given where TCN trades relative to its peers) that investors are affording no
value to TCN’s growing and return-enhancing asset management platform.
The growth prospects for TCN remain, we believe, unmatched by the
residential REITs within our coverage universe, and, as such, a material
valuation premium appears to remain warranted (with units trading
significantly below our revised NAV estimate, valuation optionality drives our
Outperformer rating). We are (and perhaps conservatively) increasing our
cap rate on the SFR portfolio to 4.75% (based on the current rate
environment), and rolling our NOI to 2023E. Despite a modestly higher cap
utilized rate, and owing to the outsized NOI growth we anticipate, our
USD-denominated NAV remains unchanged at $16. We apply a ~7%
premium to our CAD-equivalent NAV (C$20.64) in deriving our price target,
which remains unchanged at C$22.00.
Key Points
Earnings Results: Q1/22 Core FFO was $0.14/share, slightly below our
estimate of $0.15/share and in line with consensus, driven by strong
operating fundamentals, continued growth in the single-family rental portfolio
and higher fees generated from new Investment Vehicles created over the
past year, partially offset by the 26% increase in weighted average diluted
shares outstanding from the U.S. public offering in 2021. We note that TCN’s
BVPS increased an additional 5% sequentially, largely reflecting fair value
gains of ~$215MM (on a proportionate basis) on the SFR portfolio.
Operationally, the results were in line with our expectations.
2022 Outlook: Management reiterated guidance for 2022 FFO of between
$0.60 to $0.64 (current consensus is at $0.62) and increased the SP-NOI
range by 50 bps. Same-home revenue growth was also increased 50 bps, as
was same-home expense growth. SFR home acquisitions remained flat at
8000+. Somewhat (actually exactly) offsetting the higher expected SP-NOI is
the headwind of increased borrowing rates, resulting in no change to the per
unit FFO expectations.
AUM Update: During the quarter TCN increased its total AUM by ~6% to
$14.6B. Third-party AUM is now $7.2B, an increase of $425MM Q/Q (~6%).
Third-party AUM and JV activity materially picked up in the quarter, with fees
from private funds and advisory up 39% to $12.4MM. We view this as a
potential catalyst (as we have been detailing for quite some time).
Debt And Liquidity Position: Net debt to assets (proportionate share) was
35.7% as at quarter-end, compared to 34.9% as at Q4/21. Liquidity consists
of $415MM of undrawn credit facilities and $143MM of unrestricted cash.