Stocks

Tricon Residential to Repay Debt And Begin Share Buy Back With The $315 Million Banked From Asset Sales

On Thursday afternoon post market close, residential home and apartment rental company Tricon Residential Inc (CA:TCN) announced in a press release to investors that they had completed the sale of a 20% equity interest in a portfolio of 23 Sun Belt apartment buildings.

The firm will net about $315 million in gross proceeds from the transaction and plans to use most of the funds to repay outstanding debt on its outstanding corporate credit facility.

At the most recent Q2 result in August, the company reported a drawn balance on the credit facility of about $129 million and pro-rate net debt of $2.7 billion. The pro-rata net debt-to-asset ratio for the REIT was 36%.

If we were to assume that the credit balance had not changed since the result, this would leave about $186 million of funds left for use.

Management noted that the rest of the funds will be used to enhance balance sheet flexibility to help seek future growth in the core single-family rental business.

This includes a portion of funds that will be used to buy back TCN shares on market which are currently trading -37% lower year to date.

Last week on the 13th of October, Tricon announced that they had received approval from the Toronto Stock Exchange for a normal course issuer bid to repurchase up to 2.5 million shares.

Other developments around the street included Citibank analysts upgrading TCN to buy from hold in mid-September while maintaining their $12.50 price target. They view the 15x core FFO forward 2023 valuation as relatively attractive with a wide discount to peers in the sector.

Analysts at Jefferies currently believe REITs at current valuations can act as a bond proxy in the current environment. Fintel journalists unveiled their top picks in an article found here.

The REIT has received below-average institutional accumulation when screened against global peer securities. This is described by a low Fintel ownership accumulation score of 42.16, ranking Tricon in the bottom 43% when compared to 36,056 other securities.

Despite the below average institutional interest, TCN still has 663 institutions on the register that collectively own a total of 315.1 million securities. This is well above average for mid-cap stocks.

Some of these institutions include the Bank Of Nova ScotiaBank Of MontrealWellington ManagementCohen & SteersRoyal Bank Of Canada, T Rowe Price, and Capital Research Global Investors.

The chart below shows the level of institutional ownership against the TCN share price over the last few years. The stock boomed and so did its level of institutional interest during the pandemic.

TCN chart

Tricon will next update investors during its third quarter results which are scheduled for the 9th of November.

The street is expecting the REIT to report core funds from operations of 15 cents per share, falling from 16 cents generated in the second quarter.

For the full year, TCN has guided that they expect to generate FFO of between 60 to 64 cents per share.

By Ben Ward for Fintel.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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