Tricon Residential Inc T.TCN

TD Report

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All prices are in US$. GLTA

Tricon Residential Inc.

(TCN-N, TCN-T) US$14.30 | C$17.84

Favourable SFR Fundamentals Driving Earnings Growth

Event

Forecast update. For our initial thoughts on the quarter, click here.

Impact: SLIGHTLY POSITIVE

Tricon reported another solid quarter, with all business segments reporting strong results. On the SFR front, Tricon is seeing exceptionally strong demand for its product offering, with ~9,000 leads per week for ~300 homes that are available at any one time. The favourable market fundamentals continue to drive impressive blended rent growth that was +9.1% in Q3/21 inclusive of +20.8% on new leases and +5.0% on renewals. This strength continued into October that saw +8.0% blended rent growth (+20.4% for new leases and +5.2% on renewals). Looking forward, management anticipates that blended rent growth will remain in the high-single digits, that is predicated on a continuation of current demand levels in Tricon's markets and the combination of an improving economy, wage inflation, and higher occupancy that allow Tricon to push its renewal rates higher. With an estimated 15-20% loss to lease in Tricon's portfolio and SP occupancy at a healthy 97.7%, we believe there is significant runway for consistent renewal rate increases in the quarters to come.We expect continued rent growth to continue to drive mid- to high-single-digit SPNOI growth through 2022.

Turning to acquisitions, with the closing of its recent SFR JV-2, management reiterated its goal to approximately double its portfolio to 50,000 homes in three years. Tricon's acquisition pace is expected to be maintained at ~2,000 homes per quarter. To achieve this, Tricon will use an expanded "Buy Box" that extends Tricon's targeted markets to 21 from 12 previously under SFR-JV-1, while targeting homes with cap rates between 5% and 5.5%.

Forecasts. Our 2022/2023 FFO/share estimates increase 7%/9% on higher fee revenue. Our $14.00 NAV estimate is +18% (lower SFR cap rate).

TD Investment Conclusion

In our view, Tricon is one of the best-positioned names in our residential coverage to benefit from the change in behaviour brought about by the pandemic, particularly its growing SFR business. We are reiterating our BUY rating and increasing our target price to $16.50 from $16.00.