CIBC ReportEQUITY RESEARCH
August 11, 2022 Earnings Update
TRICON RESIDENTIAL INC.
Carry On, And On, And On
Our Conclusion
TCN reported another strong quarter, in line with our and consensus
estimates. The company continued to benefit from very tight rental markets
which have limited available supply, resulting in near record high leasing
spreads (+6.4% on renewals and +19.6% on new move-ins). The afore noted
spreads resulted in another quarter of double-digit SPNOI growth, with
average monthly rents increasing +8.4%, far outstripping a +3.7% increase in
operating expenses, further highlighting our preference for markets with no
rent controls. Additionally, TCN’s asset management platform (which we
believe the market is ascribing no value towards) continues to gain
momentum, generating $20.4MM (+56%) in fees, with a third-party AUM
base increasing 25% since Q4/21 (to ~$8.5B).
We are maintaining our Outperformer rating, and maintain our 4.75% cap
rate, reflecting the initial 25 bps increase we utilized in Q1/22. We do
increase our NAV to $16.50 (C$21.00) based on revised estimates and
higher AUM, and accordingly adjust our price target to C$21.00, implying
NAV parity.
Key Points
Operating Fundamentals: Q2/22 FFO per share was $0.16, slightly ahead
of our estimate ($0.15), and an increase of 14.6% from the comparable
period in 2021. SPNOI for the SFR portfolio grew by 10.5%, driven by an
increase in occupancy (+80 bps), modest rental lifts (+8.4%), and margin
expansion (+130 bps). Additionally, fees earned from their asset
management platform continue to be a driver for growth, increasing +56%
when compared to Q2/21.
TCN reported an AFFO payout ratio of ~44.6%, an improvement compared
to Q2/21 (~50.9%). As such, we view its $0.232 annual dividend to be quite
stable, with potential for future distribution increases. Additionally, the REIT
acquired 2,489 homes during the quarter at an average cost of $364K, for a
total acquisition cost of $274MM at the company’s proportional share.
Liquidity and Balance Sheet: We note that the REIT recorded a
~$395.9MM fair value gain on rental properties, reflecting the low supply of
existing and new homes for sale throughout the U.S., and in particular in the
company’s target markets. Additionally, the REIT had ~$517MM of liquidity at
quarter end (as measured by undrawn facilities + current cash).
Guidance Update: Amidst the Trust’s strong performance, management
updated guidance to reflect the continued strong rent growth trends,
increasing same home revenue growth guidance from 7.5%-9.5% to 8.0%-
9.5%, and reiterating its core FFO per share guidance between $0.60-$0.64