First stock in the clip. Again the consensus is 12/12 Buys with a $19.27 target. GLTA

Tricon Residential (TCN TSX)

Tricon Residential Inc. is a rapidly growing single-family rental (SFR) operator owning over 33,000 homes located primarily in the U.S. sunbelt. Tricon also operates two other smaller and peripheral business lines comprised of multi-family rentals and residential development.

The SFR industry continues to benefit from favourable supply-demand dynamics. Population growth of the 35-44-year-old age group, the primary cohort requiring housing, is projected to grow at twice the rate of broader population growth over the next five years, resulting in strong demand for homes. At the same time, the production of new single-family homes remains well short of historical levels, resulting in a significant supply deficit. In addition to these tailwinds for the sector, the escalating cost of homeownership has pushed an increasing number of families and individuals toward renting. These favourable dynamics have resulted in strong cash flow growth for Tricon, with the company expecting to achieve same home net operating income growth of over nine per cent this year.

In addition to being a more affordable product, there are several defensive factors that may mitigate against a decline in the SFR business’s cash flows, relative to other real estate sectors. First, it is estimated that the average monthly institutional-quality SFR rents for about US$1 per square foot, approximately 36 per cent lower than the average three-bedroom apartment rent. Second, Tricon’s business benefits from the strong demographics of its tenants, serving largely middle-market families usually with one or more children that not only require the space and convenience of a home but also tend to be longer-term renters than other household income segments, resulting in lower turnover and more stable cash flows. Lastly, with Tricon’s estimated 20 per cent gap between in-place and market rents, market rents would need to decline by a significant amount for there to be a negative impact on rent growth on new leasing and renewals.

Despite the defensive and currently strong growth that Tricon’s SFR business generates, the company’s shares are attractively valued as they trade at a mid-30 per cent discount to private market values and an implied cap rate that is approximately 150 basis points greater than its peers.

Tricon Residential (TCN-TSX)
27/09/2022 at 08:00pm
Believes company is a good defensive real estate pick. Focuses on single family (35-44 years old) owners who cannot afford to buy a home. High growth in single family renters (priced at cheaper price than condo). Higher demand than supply in terms of single family homes. Trading at discount to net asset value of real estate holdings. Excellent management team.
Andrew Moffs