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Tricon sells 80% stake in $1.33B US multifamily portfolio

Tricon Residential (TCN-T) is selling an 80 per cent interest in its 23 wholly owned U.S. multifa...

IMAGE: Tricon Residential logo.Tricon Residential (TCN-T) is selling an 80 per cent interest in its 23 wholly owned U.S. multifamily apartment properties to two institutional investors in a transaction which values the assets at $1.331 billion (all figures US, unless otherwise stated).

Tricon will retain a 20 per cent interest in the properties and will continue to control the day-to-day operations of the 7,300-apartment portfolio. The two investors will pay Tricon about $425 million for their stakes in the portfolio, when debt is taken into account.

“When we first acquired the portfolio in 2019, we knew from Day One we were going to syndicate it,” Tricon managing director, capital markets Wojtek Nowak told RENX in an interview.

“The reason why we wanted to syndicate it is we could use the proceeds to a) de-lever which has always been an important aspect for us, and b) it’s continually attracting third-party capital in order to allow us to continue to grow.”

Separate venture for future acquisitions

Nowak said Tricon cannot identify the institutional investors due to confidentiality restrictions.

The two partners are “global” investors, he said, and will be expanding the venture through a separate growth-oriented initiative to acquire additional U.S. Sun Belt multifamily properties to add scale and diversify the portfolio.

“We will be growing in the same markets that are familiar to our investors and to us. The idea is to round out this portfolio,” Nowak said. “We’d like to round it out in geographies where we don’t have scale and potentially look at other Sun Belt markets that are familiar to us.”

The existing properties are distributed across several states: 10 in Texas, five in Florida, five in the Carolinas and Georgia, and one each in Phoenix, Denver and Las Vegas.

Founded in 1988, Tricon is a Toronto-based rental housing company catering to the middle-market demographic throughout the United States and Canada. The firm owns and manages over 30,000 single-family rental homes and multifamily rental units.

It currently has about $8.2 billion of assets under management.

Tricon to use proceeds to reduce debt

“When we acquired our U.S. multifamily portfolio in 2019, we saw an opportunity to create a platform for growth within the largest investible property type in residential real estate and to explore synergies with our single-family rental business,” said Tricon president and CEO Gary Berman in the announcement.

“Our intent has always been to pursue this strategy in partnership with third-party investors and we are thrilled to work with two leading investors to add scale to our portfolio and to harness operational efficiencies over time.”

Tricon plans to use the $425 million primarily to repay outstanding debt and for general corporate purposes. As a result, it will reduce leverage by over 500 basis points to approximately 50 per cent net debt/assets, which will enhance its balance sheet flexibility.

“Today’s announcement marks a significant step in our commitment to deleveraging our balance sheet,” Berman said in the announcement.

“In the midst of a pandemic, we have been able to not only grow our business but also, upon closing this syndication, reduce leverage to ~50 per cent net debt/assets, a reduction of approximately 1100 basis points over the past year.”

Tricon will be paid asset management fees, property management fees and potentially performance fees for managing the joint venture.

Tricon seeking $1.2 billion in new equity

The transaction is also the first major move in Tricon’s plan to raise about $1.2 billion in equity. Originally, that time frame was about two years. Now, it is being accelerated.

“We are looking to raise a lot of money in 2021, this is just one piece,” Nowak said. “There is more news to come. We are looking to add more joint ventures on the single-family side. There’s a few options there.

“We were looking to raise $1.2 billion of equity over the next two years, but really we are looking for it in the next nine months. . . . The big news is we are attracting a lot of third-party capital.”

Nowak said future equity will be destined for growth via joint ventures rather than asset sales.

The transaction remains subject to closing conditions including obtaining the necessary lender consents and is expected to close in March.

The joint venture is the latest in a series of significant organizational moves by Tricon during the past year.

The firm just completed a major reorganization of its operations which included a rebranding to Tricon Residential. The move brought all its verticals – single-family, multifamily and investment – under one consistent brand.

A syndicate of investors led by Blackstone Real Estate Income Trust, Inc. made a $395-million preferred equity investment in Tricon Residential in August, which Berman told RENX in a recent interview “injected a lot of liquidity into the company” and left it well-capitalized.

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