Tricon Residential announced it has reached an agreement with two institutional investors to invest in its portfolio of 23 U.S. multifamily apartments. Under the agreement, the investors will acquire a combined 80 per cent interest in the existing portfolio, with Tricon retaining a 20 per cent interest. The transaction reflects a total portfolio value of $1.331 billion.
In addition to the joint venture, Tricon and the investors are in discussions to form a separate growth-oriented joint venture to acquire additional multifamily properties in the U.S. Sun Belt, adding scale and diversification to Tricon’s portfolio.
Tricon intends to use the ~$425 million of gross proceeds from the sale of its 80 per cent equity interest primarily to repay outstanding debt and for general corporate purposes. As a result, Tricon expects to reduce its leverage by over 500 basis points to approximately 50 per cent net debt/assets (excluding convertible debentures), significantly enhancing its balance sheet flexibility.
“When we acquired our U.S. multi-family 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 Gary Berman, President and CEO of Tricon Residential. “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.
“Moreover,” he continued “[this] announcement marks a significant step in our commitment to deleveraging our balance sheet. 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.”
Under the terms of the joint venture, Tricon will control day-to-day matters and the two Investors will invest ~$425 million in aggregate for an 80 per cent interest in Tricon’s U.S. multi-family portfolio. The Joint Venture will have an initial term of ten years.
Throughout the term of the JV, Tricon and the Investors will each earn their proportionate share of investment income or net cash flow from the properties. Tricon will also be entitled to receive asset management fees, property management fees and potentially performance fees for managing the JV.
The transaction remains subject to finalizing definitive documentation and customary closing conditions including obtaining the necessary lender consents, and is expected to close this month.