Key Takeaways: We reviewed replays and notes from last week's NAREIT, and wanted to share our thoughts on items from AMH's presentation, which we believe is very supportive of our long thesis for the stock. The presentation and data update were among the most bullish in the space, along with peer INVH. We continue to see the need for numbers to move higher and expect an upward estimate revision cycle, particularly for 2023 and beyond. The stock has been repricing for that likelihood.
- The supply of SFR has increased from 13 million homes to 17 million homes over the past decade; meanwhile Freddie Mac recently estimated that the U.S. housing stock is ~4mm units short of what is needed to provide housing for all Americans – this translates into a multi-year (perhaps 5-10 years?) runway of growth above-trend for SFR and AMH versus traditional housing sectors
- Increasing expectations on what AMH can acquire from traditional acquisitions program this year by ~$200 million, for total external capital deployment of ~$1.4-$1.8 billion; extremely bullish on external growth channels which led to the recent oversubscribed forward equity offering. As a reminder, we had built in an assumption for ~18 million shares issued through mid-2022 when we presented AMH three weeks ago, as the company will require capital to hit growth objectives
- AMH doesn’t see much opportunity from the national builder program right now (one of three external growth channels) – there is much less inventory available for wholesale to AMH and other rental companies at reasonable prices. Have been offered some homes, but yields are unattractive at sub-4%. The highest and best use of capital continues to be to focus on sourcing as many lots as possible (economically feasible of course) for construction and delivery through the development channel
- AMH is developing homes for 20-25% less than what they can acquire a comparable home – consistent with traditional homebuilder requirement for developer profit, but AMH is not required to incur the sales and marketing costs and is effectively a permanent owner
- Building in 25-200 home cluster communities, which provides opportunities to provide amenities including some enjoyed in traditional multifamily (gyms, entertainment centers, etc.). Between the cost to build + amenity fees, AMH is still hitting ~6% or higher yields on delivered homes, which represents a ~200bp or higher spread to most traditional acquisitions. We have assumed mild yield compression over time through 2023, but the spread advantage is clear
- AMH already hit the low-end of the 11-13k lot inventory target for 2021, so targeting acquisition of another ~2k lots at least this year, and this inventory will cover the next 3-4 years of development deliveries. We estimate the current lot inventory represents about ~$1-1.5 billion of investment, assuming ~275k of total investment per home and ~50% of that amount attributable to land cost. It is critically important to factor in lot inventory value (we assume ~$800 million, with the remaining balance in CIP) into NAV estimates and to adjust cap rates/multiples for comparability purposes to INVH
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
Cell:
