These are all USD figures. GLTA
TRICON RESIDENTIAL INC.
You Had Me At Hello
Our Conclusion
TCN reported another strong operating quarter, highlighted by a combination
of stable occupancy (read: full) and healthy rental growth. As elevated
financing costs have resulted in a slowdown in acquisitions (something we
expected), TCN tightened its forward guidance. It reduced its acquisition
spend to the lower end of its original forecasts and expects to acquire
~800 homes for the remainder of 2023 with target cap rates between
5.75%-6.0%, while completing JV-2 and JV-HD investment programs with a
lower (and more prudent given the current environment) leverage profile.
As the cost of owning continues to become increasingly more expensive
compared to the cost of renting, TCN’s portfolio is positioned to capture the
heightened demand, as evident by healthy leasing spreads and a stable
~15% estimated loss-to-lease. Heading into Q3, observed rental trends
remain a positive, with same-home blended leasing spreads of +7.2% being
reported for July (+8.2% on new leases and +6.8% on renewals). As such,
and despite slowing acquisition spend, we maintain our Outperformer rating,
increasing our NAV to $13.50 (from $13.00) and price target to $11.50 (from
$11.00), using a 5.75% cap rate (previously 5.50%).
Key Points
Earnings Results: TCN reported diluted FFO per share of $0.14, in line with
estimates. The SFR portfolio continues to demonstrate strong operating
results, partially offset by increased borrowing costs and the loss in FFO
contribution from the divested U.S multi-family assets (Q4/22).
Balance Sheet And Debt: Net debt/total assets for the period was a
conservative 36.2%, Net Debt/EBITDA was ~8.3x, and available liquidity (as
measured by undrawn credit facilities and available cash) is ~$462MM. The
company’s weighted-average interest rate is 4.39%. Further, subsequent to
quarter-end, TCN closed a new securitization issuance for ~$416MM at a
weighted-average yield of 5.86% over a term of five years within its
SFR-JV2.
Acquisition Activity: TCN acquired 805 homes at an average cost per
home of $326K, including upfront renovation costs, for a total acquisition cost
of $263MM (~$137MM proportionate share). Management has indicated that
acquisitions will moderate to ~400 homes per quarter due to higher debt
financing costs.
Updated Guidance: TCN provided updated guidance for 2023, tightening
the range previously reported as a result of the high rate environment. For
2023, core FFO per share has been updated to $0.55-$0.58 (prior
$0.54-$0.59) to reflect strong operating fundamentals and lower acquisition
fees, while same-home NOI growth tightened to 6.00%-7.00% (prior
6.00%-7.50%) to reflect elevated property taxes partly offset by lower
turnover. SFR acquisitions are also expected to be at the lower range of their
original guidance, at ~2,000 homes (prior 2,000-4,000).