Key Takeaways: This morning INVH released its pre-NAREIT deck and announced several key operating metrics for May, all of which showed sequential improvement from April and are supportive of the bull thesis on rate growth for the space heading into 2022 (and a very positive read across for AMH). Specifically:
- SS Average Occupancy continuing to hover above 98% at 98.3% in May (vs. 98.4% in April and a historical ~96% for seasonal Q2)
- SS New Lease Rate Growth (~30% of leasing) up +14.1% (+10.8% in April and +7.9% for all of Q1)
- SS Renewal Rate Growth (~70% of leasing) up +5.9% (+5.5% in April and +4.4% for all of Q1)
At the same time INVH took up 2021 Core FFO to a range of $1.38-$1.46 (vs. Hedgeye at $1.44 and FactSet at $1.41), or a $0.04/share increase (+3% at the midpoint). We had thought that both companies were conservative on 2021 guidance coming into 2021 and post-Q1, particularly on SSExp ranges, and as such positioned ourselves above the Street. The big takeaway, however, is that 2H22 and 2023 is where earnings power will likely really take off to the upside, as it takes time for newer higher rates to blend into the portfolio and drive actual results given turnover rates below 30%. Renewal rates also tend to lag new lease rates, while at the same time being constrained by eviction limitations, so expect an acceleration there as well. Long story short - Street estimates need to come up over 2021-2023, and we are still early in the upward revision cycle.
Separately, we will be in the studio on Wednesday to record thoughts around the CDC eviction moratorium and implications for normalization of bad debt expense, which is the second of three components to the AMH Best Idea Long thesis (the third being AMH's development contribution). Recall bad debt is running ~160bps above normal and is a direct offset to gross revenues, thereby dragging down SSRev growth.
Finally, traditional multifamily REITs AVB and ESS also put out NAREIT updates - no change for AVB Q2 expectations but improving rate of change on effective rent change and average move-in rents should increase 2H21 expectations and we would hope for full year 2021 guidance soon; ESS took up 2021 Core FFO guidance marginally by <1% at the midpoint. We think that Coastal Gateway names AVB and EQR can work on the long side here, hence their inclusion on the Long Bias list, but have higher conviction on the degree and certainty of upside in AMH.
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
@HedgeyeREITs
