Best Idea Long AMH's 3Q21 results showed a comparable beat to our model relative to peer and Long Bench name INVH, with Core FFO of $0.35/share a penny above both Hedgeye and Consensus. The raise at the midpoint of FY21 Core FFO was also comparable at +3% vs. +3.5% for INVH. Where the companies differ are on the SS growth metrics (consistently +100bp or so higher for INVH and expected) and the leasing spreads, which were positive and accelerating but diverged a bit this quarter:
- Blended AMH spreads at +9.1% (+5.7% renewals and +15.9% for new leases) which were in-line with our +9%, vs. +10.6%/+7.8%/+18.4%, respectively, for INVH. These figures had been in-line-to-favoring AMH over the last three quarters but inflected in 3Q21. In general its not a huge deal and one quarter does not a trend make, but we would like to learn more on the call tomorrow as it appears that Jacksonville, FL was the only shared major market where AMH outpaced INVH on blended spreads. Bigger picture the forward same store growth metrics are accelerating for both names, just a little faster for INVH at this point.
- SS bad debt expense moved -85bp lower sequentially and -22bp lower y/y to 165bp - its nice to see this metric moving in the right direction as expected with further SSRev tailwind to the 75-100bp normalized run rate likely to be reached mid-FY22.
- 368 homes delivered through the AMH Development Program in the quarter (+299/256 delivered in 1Q/2Q) for an annual run rate of ~1,500 homes or just under ~$500 million of total investment, so the business continues to ramp towards the target run-rate of 3,500+ homes delivered annually by the end of FY23 (~$1.1 to $1.3 billion of annual deliveries into the system). Thinking through that math a bit, applying a ~6% yield on cost would translate to +$0.20/share of annual Core FFO earnings accretion before any share issuance, and an estimated ~$0.15 to $0.16/share annually on a fully diluted basis. This would represent +12% earnings accretion from FY21 base levels before SSNOI growth + non-same store stabilization + acquisition activity, and this math tells us that FY23 consensus of ~$1.64/share still makes no sense and needs to come up. We have also been of the view and the math tells us that ~3,500+ annual development deliveries + a very short average "cash to cash" lease-up period of ~30 days per home could split the all-in earnings growth trajectories of AMH and INVH, with AMH becoming the "faster horse." We like both names heading into FY22, but we like AMH more over a Tail duration.
- We continue to see a glidepath to well-over ~$1.70/share on Core FFO earnings power for the company by FY23, and the market is getting there as Old Wall numbers have clearly been moving higher over the last few months but still have room to go. Level-setting expectations, we would guess that when AMH introduces its FY22 outlook next year they set a conservative and low bar initially for Core FFO around ~$1.45-$1.50/share, but then gradually take that number up towards ~$1.55/share throughout the year.
Figure 1: AMH 3Q21 Earnings Variances
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Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
