Two call outs this morning on the residential REIT front:
INVH:
- Last night Long Bench INVH announced a secondary offering of 14.4 million shares (includes 1.9 million share green shoe) at $40/share for total gross proceeds of ~$575 million and expected to close 9/28. The sizing of the offering is largely consistent with our expectations vis-a-vis INVH's funding needs, and net proceeds will likely be used primarily for acquisition activity and investment in the existing portfolio. We have modeled ~$1.1 billion of acquisition activity in FY21, which is slightly above INVH's guidance for at least ~$1 billion, followed by $800 million in each of FY22/23.
- We lay out our modeling assumptions for Best Idea Long AMH and INVH in Figure 1 below. Although INVH is likely to grow its same store results modestly faster than AMH through FY23, three observations: (1) total Core FFO earnings growth will likely be higher for AMH due to its "external growth" from the captive development program, (2) regarding the "expensive/cheap" argument the market is actually commanding a higher price per unit of earnings growth for INVH as represented by the simple PEG, and (3) there is more upside to Consensus numbers for AMH. We note this as the valuation debate and multiple disparity always comes up, but we think misses the point that AMH is the "fastest horse" in this very fast race in SFR. We think both can be owned on the long side as they are highly correlated and signaling bullish, but prefer AMH.
AVB:
- Last night Best Idea Long AVB provided a 3Q21 operational update showing that SSRev will likely come in up +1% y/y, or +180bps above the guidance range provided on 7/28. In Figure 2 below we highlight in the Chart of the Day the trend in AVB's same store effective lease rate changes by submarket, which is clearly accelerating and likely to continue to do so well into FY22. This is the key forward-looking operating metric for SSRev, SSNOI and earnings growth, with 3Q21 likely to be the first of several consecutive quarters of y/y acceleration following an awful 18-month period.
- We are finalizing our model for this update + a careful look at the development schedule and will have an AVB note out later today. The math tells us that consensus numbers are too low and supportive of the long thesis.
Figure 1: Hedgeye SFR Modeling Assumptions
Figure 2: Chart of the Day - AVB 3Q Operational Update
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
Cell:
