Tricon Residential Inc.
(TCN-N, TCN-T) US$8.72 | C$11.53
Tricon Prices $416mm SFR Securitization at 5.86% Event
Tricon announced the pricing of its $416mm 2023-SFR1 securitization at a weighted average coupon of 5.86%.
Impact: SLIGHTLY POSITIVE
Our Take: We view the transaction positively. The ~184bps spread was largely in line with past deals and the all-in 5.86% coupon was also in line with indicative pricing from management on the Q1/23 call as was the lower LTV (57%) needed to get favorable pricing. We also view the strong demand for the deal (3.5x subscribed) favorably in light of the current credit environment. The securitization allows Tricon to lower floating rate debt by ~500bps to 21% and in turn frees up the line for further SFR acquisitions this year. We expect Tricon to complete the current SFR JV-2 this year (68% of capital deployed as of Q1/23) and potentially announce a new one shortly after, which in our view, could be a positive catalyst for the share price. At a 5.86% coupon, we believe the math works to buy homes in the 6% cap-rate range with 5-7% SPNOI growth. Looking ahead, should management attain financing in the lower 5% range in the future, we believe it would allow Tricon to accelerate acquisitions meaningfully. We are currently forecasting acquisitions totaling ~3,700 homes this year with a significant move higher to ~9,000 homes in 2024.
2023-SFR1 Securitization. The transaction has five tranches of fixed-rate certificates and a term to maturity of five years. The proceeds are expected to represent 57% of the value of Tricon's securitized portfolio which includes 2,116 SFR homes within Tricon's SFR JV-2 portfolio. The proceeds of the transaction will be used to repay floating rate debt and is expected to close on or around July 11, 2023.
Valuation. TCN is currently trading at a 37% discount to our $13.90 estimated NAV and 6.0% implied cap rate. Versus its book value, TCN is trading at 0.6x (long-term average 1.1x).