Key Takeaways: Last night the CDC announced HERE that it would be extending the COVID-19 eviction moratorium for renters/tenants by 30 days to 7/31. The measure was set to expire in 5 days, and in recent days we talked about how we expected another extension from the Biden administration following Fannie Mae/Freddie Mac's extension of multifamily renter protections, but that it was still possible it could expire in 2021. Without making too bold of a call, it is increasingly likely that one of two scenarios is playing out here as each extension period shortens: (1) the CDC is moving to a month-to-month framework post-vaccine and will re-evaluate, or (2) this is the final extension of the measure. Regardless, we believe this signals that national renter protection will likely end before the end of this year, at which point landlords will have more leeway to churn out non-paying tenants and re-lease units to new tenants, which is BULLISH for revenue growth rates.
Recall this is a significant component of the Long Thesis on AMH, specifically the company's very clear path to accelerating realized rental rate growth (for INVH as well) through 1H22. Both companies are signing new leases at rates that are accelerating from the high-single-digit growth rate range to the low-teens growth rate range in May. Rental rate growth on new leases typically leads an acceleration of growth rates on renewal leases as market asking rates move up, with renewals representing the larger share of activity in any given period given ~30% average turnover rates. At the same time, the ability to finally "churn" the portfolio at high-90% occupancies will lead to a normalization of bad debt expense, which has been running ~150-200bp above normal since the start of the pandemic and continues to represent a headwind to SSRev growth. We had assumed a 12/31 expiration of the moratorium, but that assumption looks increasingly conservative and it is now more likely that the bad debt normalization commences in 2H21. This is supportive of our thesis, and a bullish read-across for the traditional multifamily REITs as well. All else the same, acceleration in growth moves forward in time.
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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