Key Takeaways: Last night in a 5-4 decision SCOTUS denied a request by a group of landlords and real estate trade associations to block the national eviction moratorium by the U.S. CDC, which was just extended by 30 days and is now set to expire 7/31. A few takeaways and some background:
- This was the third extension since the start of the pandemic, and notably the length of each extension has shortened. Our assumption is that the SCOTUS decision comes at a time when the moratorium is about to expire anyway, so the news isn't that impactful
- We missed this comment last week, but CDC Director Dr. Rochelle Walensky labeled the extension as "final," and at worst we believe the CDC has moved to a month-to-month model where the moratorium is re-evaluated on a rolling basis. The probability is very high that it is allowed to expire earlier than our initial assumption of 12/31/21
- By way of background, the moratorium was initiated under the Trump administration and branded as a way to reduce population mobility and mitigate spread of COVID, but in reality we always viewed it as a backdoor method to alleviate pandemic-induced economic hardship. The move aided renters but was an obvious burden for landlords, who were forced to forego cash rent collection in some cases, increase A/R allowances on balance sheets, and in some cases service their own debt without the benefit of normal rent collection levels. The REITs were largely insulated, given the institutional quality and diversification of their portfolios, and collected cash rents in the high-90% range versus "normal" levels throughout the pandemic
- Certain state and local moratoriums remain in place, particularly in California (recall AMH has no CA exposure), but just reading the tea leaves the national momentum has shifted towards lifting exceptional tenant protection
- As it relates to Best Idea Long AMH specifically, our assumptions for bad debt will likely need to be revised post-2Q, and it is not unreasonable to now assume numbers begin to normalize in 3Q/4Q. We estimate the Street is still 10% low on 2023E Core FFO estimates, so numbers need to come up. Following the stock's run-up we still see a ~1.5x upside/downside ratio here, given our initial assumption that AMH would re-price into the mid-$40/sh range within 6-12 months when we added on 5/12 at $36/sh
Lastly, we moved our Black Book on the Industrial/Logistics REITs to Monday, 7/12 at 12:30pm ET, so as to have a wider audience as people return from the July 4th holiday.
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
Cell:
