Opinions
Stockchase Insights
Tricon Residential
TCN-T
BUY
Jul 10, 2023
Stock price when the opinion was issued
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Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Good if you are looking for growth. Has seen a good level of growth. Pays a dividend yield of 1.6%. The company is somewhat leveraged. Unlock Premium - Try 5i Free
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Likes what they have done to set up the company well. Potential remains good. Likes the management and markets are starting to notice TCN. It is up 50% in the past year. Well positioned in the US market and their asset portfolio looks good. First pick in the Canadian real estate sector. Unlock Premium - Try 5i Free
The market has punished it too much. It is in the residential rental sector in the U.S., especially in the sun belt. The rentals are affordable and appeal especially to the 35 to 44 year old demographic who want to rent good homes rather than buy. The share price is at a 40% discount to the total value of all its homes. Good opportunities should emerge.
To assess the company's financial health, we look at its balance sheet. The company has a small cash balance of $142.4M, a decent equity position of $3.8B, a current ratio of 0.2X (quite low), and a high net debt/EBITDA ratio of 11.9X. The company generates a good level of free cash flow, more than is needed for its dividend, however, it issues shares frequently and takes on a lot of debt. Given its real estate holdings, it has a large asset base, but also it carries a significant amount of debt. It is not without its risks, but it generates good cash flow, and is profitable.
The company seldomly forms joint ventures to scale its business and acquiring housing, and via its expected joint ventures the company is anticipating doubling its portfolio of single-family rental homes to 50,000 over the next three years. In 2021, it entered a joint venture arrangement (SFR JV-2) with three institutional investors to acquire single-family rental homes targeting the middle market demographic in the US Sun Belt. TCN serves as the asset manager and property manager of the JV.
Despite its high debt levels, we continue to like the name here.
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