Tricon Capital Group (TSX:TCN) only started trading on the Toronto Stock Exchange in 2010, but it was actually founded in 1988. Its market cap has increased to about $1.53 billion.
What Tricon does Tricon is a principal investor and asset manager, which is like a much smaller version of Brookfield Asset Management. Tricon Capital Group is focused on North American residential real estate with about US$5.7 billion of assets under management (AUM).
About 91% of its assets are in the U.S. and about 9% are in Canada. About 68% of its AUM are principal investments and 32% are third-party investments.
2018 results Tricon had a good year in 2018. Adjusted diluted earnings per share increased by 32% to US$1.45. AUM climbed 23%, including 39% growth in third-party managed assets, which indicates strong demand in that area. Adjusted EBITDA rose 35% to US$364 million.
Is the acquisition good news or bad news? The stock just fell about 7% last week. The reason for the drop may be related to news about Tricon’s latest $1.4 billion acquisition of Starlight US Multi Family No 5 Core Fund, which has a 23-property, 2012 vintage U.S. multi-family portfolio. To fund the acquisition, Tricon will be issuing about $496 million of common shares to the fund’s unitholders.
The transaction gives Tricon a U.S. multi-family rental platform with immediate exposure to attractive Sun Belt markets and enhances its exposure to high-growth markets.
Management expects the transaction to be meaningfully accretive to Tricon’s earnings per share and book value per share.
After the transaction, Tricon will be a more liquid stock with a market cap of about $2.3 billion and roughly 194.2 million shares outstanding.
Is the dip a buying opportunity? The stock has been range bound since 2017. The stock dropped from the resistance of about $11.50 per share last week and is close to neutral territory with the stock not being overbought or oversold.
The dip is a decent buying opportunity. Thomson Reuters has a 12-month mean target of US$10.30 per share on Tricon, which represents about 25% near-term upside potential based on the more conservative exchange rate of US$1 to CAD$1.30. Additionally, Tricon also offers a safe yield of about 2.6%.
Technically, Tricon stock should have some support at $10.50-10.60 per share. If it falls through though, the stock can dip under $10 per share, at which time it would be a strong buy.
Investor takeaway Tricon is a great idea for investors who are looking to gain exposure to the North American residential real estate sector, particularly with a focus in the U.S. The stock is a good buy now with attractive upside potential, but it would be a stronger buy under $10 per share.
Fool contributor Kay Ng owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV. The Motley Fool owns shares of Brookfield Asset Management, BROOKFIELD ASSET MANAGEMENT INC. CL.A LV, and Tricon Capital. Tricon Capital is a recommendation of Stock Advisor Canada.
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