“You miss 100 percent of the shots you don’t take.”
– Wayne Gretzky (The Great One)
Except maybe you don’t want to take the shot right here, in this particular spot?
I am one of the few members of the Hedgeye team that has never played a single shift of hockey in my life. Put a golf club in my hand and the course record is 100% guaranteed safe, but at least I can keep it moving. Have me lace up skates, however, and things get ugly, FAST.
But those who know me best will tell you how much of a maniac I am about sports in general, and hockey in particular. Baseball was (and is) my first love, but something happens to me in May when my beloved New York Rangers are in the playoffs. I still breakout the old Mike Richter, Jeff Beukeboom and Steve Larmer jerseys circa ’94… but ONLY in May and hopefully in June.
Anyone who loves sports as much as I do knows the subjective nature of our debates on stats, greatest teams, most loved players, etc. It’s what makes it all so fun and engaging. I am going to go out on a limb here, however, and make a call on what I think to be the most incredible stat of the 4 primary North American professional sports. Wayne Gretzky scored 894 career regular season goals across a 21 year career, passing Gordie Howe’s 801 goals on March 23, 1994 before going on to burry another 93 prior to retiring with the Rangers in 1999.
That alone is incredible, but nowhere near THE GREATEST STAT OF ALL TIME. Gretzky also happens to be the all-time NHL assists leader… with 1,963 assists. Let me say that again… 1,963 ASSISTS, or more than 2x the next highest goal scorer has goals. Let that sink in for a second. I honestly don’t even know if there is a comparable achievement that COULD be reached in another sport. Baseball is a lot about 1-on-1 matchups. The reality is no QB will ever set the career rushing record, or play on the other side of the ball. I suppose the closest comparison would be in the NBA, but when you look at the career leaderboards there isn’t as much overlap between top-10 points and assists leaders, save for Lebron James.
Why do I bring this up? Because right now is the exact time to NOT TAKE A CERTAIN SHOT and pass the ball, puck or whatever you are playing with. Wayne Gretzky would never have gotten close to that accomplishment without a keen awareness of when someone else was in a better position to score, along with possessing the humility to let it happen. To be clear, the MATH and my time with REITs lead me to believe that we are going to wake up in a decade and American Homes 4 Rent (AMH) will be a top-15, perhaps a top-10 component of the XLRE. The stock is on sale here in the grand scheme of things. I just came across Radius Global Infrastructure (RADI) and wish I could own it (I can’t, so that you guys can).
But you know what? It doesn’t matter here, because it's #Quad 4. And any shot I take here on those names is OBJECTIVELY likely to be a miss, waste my team’s time, and waste your time. AMH because of the signal, RADI because of its size, leverage and probably a million other reasons. So I am passing the puck and preparing for the next shift when they will work, and for now let’s focus on what does tend to work (at least relatively) in REITs in #Quad 4. We have talked about this before, but in terms of median returns focus in on the Towers, Data Centers, larger-cap Triple-Net (NNN) and Retail. Apartments (AVB) and Industrial (PLD, REXR), aren’t too shabby either…
Back to the REITS Grind…
Let’s take a closer look at some of the other names in the REIT space in Hedgeye’s Investing Ideas…
AVB: The next catalyst for Best Idea Long AVB will be 4Q21 earnings results to be released on 2/2. We look for a modest beat on the quarter, but more importantly an above-consensus guide with the Street at Core FFO of $9.39, including SSNOI growth likely to shake out in the low-to-mid-teens range. It is possible that all of SSRev, SSNOI and Core FFO earnings growth show RoC acceleration throughout 2022 and into the final quarter of the year, and likely that both AVB and peer EQR post the highest SSNOI growth numbers in each of the companies’ histories. One of the biggest advantages for the Coastal Gateway Apartment REITs is the relative lack of supply, which is much easier to develop across the Sunbelt where rental rate RoC is already rolling over. AVB’s large representation in the XLRE index is important in Quad 4.
AMH: Like AVB the next catalyst for Best Idea Long AMH is 4Q21 results on 2/24. A week ago the company announced a 23 million common share offering, with 10 million shares sold current and an additional 13 million shares to be settled through year-end 2022, causing near-term dilution in the stock. We expected this and had assumed 20 million shares issued this year in our model, as AMH needs to raise external capital to fund its accretive development program. Investors will recall a similar raise in May of last year, and what did the stock do over the next 9 months? The simple math is as follows: trading at a ~4.4% unlevered cap rate (~23x multiple) and using that capital to acquire ~6.5% or higher yielding (~15x multiple) assets is value-accretive before leverage, so a sound capital allocation decision by AMH. If you have the ability as a capital allocator (which is what REITs are at the end of the day), you pull the trigger on that trade all day.
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Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.70-1.89% (bullish)
UST 2yr Yield 0.93-1.22% (bullish)
SPX 4 (bearish)
NASDAQ 13,016-14,280 (bearish)
RUT 1 (bearish)
Tech (XLK) 146-160 (bearish)
Housing (ITB) 65.06-74.84 (bearish)
Consumer Staples (XLP) 73.75-77.31 (bullish)
Utilities (XLU) 65.30-70.17 (bullish)
Financials (XLF) 37.08-39.40 (bearish)
Shanghai Comp 3 (bearish)
Nikkei 26,007-27,492 (bearish)
DAX 14,918-15,693 (bearish)
VIX 21.93-36.43 (bullish)
USD 95.24-97.48 (bullish)
EUR/USD 1.111-1.133 (bearish)
USD/YEN 113.73-115.90 (bullish)
Oil (WTI) 80.98-87.91 (bullish)
Gold 1 (bullish)
Copper 4.30-4.58 (bearish)
Have a great weekend,
Rob Simone, CFA
