Tricon Residential (TCN-T)

Takeover by Blackstone. Shareholder vote is next week. Expects deal to close next month. Still upside between trading price today and offer price. Don't expect a higher offer to come in.

Bid to take private by Blackstone. Trading very close to the offer price. Smidge of upside to buyout price, but not a lot. Higher bid not likely. Leave alone.

A favourite of his. US Sunbelt continues to see population growth. Exposure to variable rate interest costs muted earnings growth. Solving this via joint venture with institutional investors. As tenants leave, internal rent growth of 15%, quite attractive. Good setup heading into 2024.

Good management team. Brookfield in involved. Valuation is a huge discount to US peers. He's watching it, but hasn't pulled the trigger. Activist investor, but no guarantees with that. Significantly more upside than down, a good investment.

Still positive. Sector's doing well. Revised downward expectations of future growth, because higher cost of debt and growing externally with high home prices would have been punitive. Mismatch between NAV and earnings, should turn next year. 

Carries a lot of debt and real estate is a disliked sector, but this has potential as a yield stock.

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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They keep buying rentals. Rental demand will keep rising and there's a massive shortage of apartments. Immigration is rising. Shares are cheap and will rise in the coming year.

Great job on its portfolio, which focuses on 35-39 year olds who've chosen to rent. Likes the sector. Very wide discount to NAV, so it's a buy. High rates on high debt has prevented new asset purchases. Lower rates would be a positive, and would eventually open up the spigot to new purchases.

TCN pays a decent dividend yield of 2.3% and has grown its dividend by ~3% annually over the past five years. 
TCN is fairly levered, and we believe in a better market will be able to demonstrate its ability for high growth rates. 
We would consider the current prices to be good entry points - the price to book multiple is 0.5X and its forward price to sales is 4.0X, the lowest across 10 years.
Due to its higher debt balances and uncertainty around the real estate market, we would not consider this to be a screaming buy yet, but we feel that in a better market, these prices will likely look attractive.   
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TCN has $5.6B in debt, certainly an amount that can be considered high vs cash flow.
TCN has managed debt well. $3.8B of its debt is fixed rate. 
It has collars and caps on its floating rate debt, and its effective interest rate last year was 3.36%. 
This will increase somewhat, but because of its hedging it is less vulnerable to rates than others.  
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