Sept. 5, 2012Join The Canadians Buying U.S. Housing 

At the depths of the New York commercial real estate market the Reichmans bought a group of office towers .  The New York Times described that purchase as occurring at 11:45 before the day the market turned up.Warren Buffett was recently quotes as saying that if he had the capacity he’d buy up 1000’s of homes to take advantage of the market.

Today many predict that there is about to be the long  sought/ predicted turn in housing in the U.S.  In Canada there are weekend seminars on buying  U.S. properties but individual investors have few choices outside of home builders. .  Self anointed gurus are promoting  ( mainly ) Arizona and California single family homes  and multi-unit investments.  An individual is limited if their option is one home .For an investor there is a publicly traded Canadian company buying properties on a national basis and in amounts that offer both diversity and leverage.

Tricon Capital ( TCN on Toronto – website www.triconcpital.com)  describes itself as a leading residential real estate investment company with over $1 billion in assets. It offers a size and diversity which is large by Canadian standards but a small cap by U.S. measurement. In addition to Canadian assets it has raised capital for projects in California , Texas, Arizona , Georgia and Florida. A caution is that – in addition to predicting a turn in the market – these U. S. investments are only at a starting point . The Company through partnerships has purchased more than 400 homes with the intention of renovating  and renting properties – awaiting a turn in valuations . Some properties will be listed for sale after renovation. In July it raised $51 Million in convertible debentures to fund the acquisitions. That money will go into several projects as the company contribution and as with most real estate ventures the funds are leveraged by way of mortgage financing .The results of the first series of purchases – the company states – will not benefit its financials until the last quarter of 2012 because it will take two to three months to upgrade the newly acquired homes.

The Company raises funds through partnerships and then earns a fee as a manager and a further fee based on performance – in addition to the return it sees as an investor. One recent example is a partnership to purchase 242 homes in Florida. This is the fourth such partnership  in 2012 in the U.S. The company’s U.S. distressed single-family strategy appears to be progressing well. In its Q2/12 results (reported August 13), Tricon had advanced $32 million towards the purchase of 185 distressed single-family homes with its three operating partners. Currently, the total number of homes has grown to 420, of which approximately 50 homes will be renovated for immediate sale and the remainder will be held as rental units. This business appears to be the key growth driver for Tricon, and management expects to have $90-100 million invested in this strategy by the end of 2012.

The Company reported a profit of $2.159,000  (  $.08 )for the quarter ending June 30,2012 compared to a loss of $ 509,00 ( $.03) the prior year. Assets under management were $ 1.2 billion – up $200 Million ( all figures are reported in Canadian dollars).

There is a further caution. In addition to these U.S. housing projects being at a start-up stage the shares trade at a very modest daily number ( 25,000 plus).  Therefore use market orders and stage your investment  if you are going to make a purchase in Tricon ( $5.32 on August 31) .

Insider Buying : CEO David Berman purchased 100,000 Tricon shares in the public market at an average cost of $5.50. Berman now holds 3,930,355 shares representing 12.6% of Tricon. In addition to his stock holdings, Berman also holds $1 million worth of Tricon’s recently issued 6.375% Convertible debentures due 08/31/2017 

I own shares in Tricon but will not be making any additional purchases in the next 72 hours .