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Home / Business / Who needs the 3 Ts? Just Buy American Homes 4 For Rent – American Homes 4 For Rent (NYSE: AMH)

Who needs the 3 Ts? Just Buy American Homes 4 For Rent – American Homes 4 For Rent (NYSE: AMH)



In the next issue of My Newsletter Forbes Real Estate Investor I decided to help REIT investors with the fear that many seem to be suffering due to fear or rising interest rates. I call the upcoming April issue the "Fear Factor" issue, and the hope is that the content can mitigate some of investors' concerns about REIT market sentiment since the beginning of the year.

It is important that investors should not do this Paint all real estate sectors with the same brush, because in this environment, higher yielding sectors are expected to outperform others. Due to the increased number of real estate sectors within the REIT sector, investors have the opportunity to become tactical snipers. If earnings growth is strong enough, certain REITs are better prepared to outperform in an environment of rising interest rates.

If you look at the REIT valuations and year-to-date performance of the various sectors, you can see and shopping malls are likely to have the weakest performance (or AFFO growth) in 2018:

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In these real estate sectors, however, we still recommend REITs with more favorable growth profiles. We consider this part of the tactical advantage of being a do-it-yourself investor and still have many health and hotel REITs that generate robust earnings and dividend growth.

The average AFFO growth for all of the above property sectors is ~ 5.0%, and an advantage of being a tactical (and intelligent) REIT investor is to study all property classifications, including many new sectors such as infrastructure , Wood and family houses.

As Matt Warner, CFA, explains with Chilton Capital Management:

"SFR REITs have several unique traits that could position them to outperform cash flow over the next few years, complementing our overweight in housing REITs . " [19659009] One of the biggest catalysts for the single-family home segment is the tax reform, as Matt Warner explains:

"The recent bill on tax reform is also likely to increase demand for rental housing, and for years the government has favored homeowners in the tax code However, legislation doubled the standard deduction, limited state and local income and property tax deductions to $ 10,000, and reduced mortgage deductions on loans of $ 750,000 or less.

It is estimated that 95% of US tax depositaries will vote Without the need to enumerate deductions, the majority of homeowners and tenants will eventually receive the same tax treatment, thereby eliminating many of the tax benefits of owning a home. "

As part of the Marketplace service looking for Alpha and including in the Forbes Real Estate Investor, I have decided to begin coverage on American Homes 4 Rent (NYSE: AMH) and Invitation Houses (NYSE: INVH). This research report focused on America Homes 4 Rent.

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The Business Model

Back in 2013 I wrote:

"I'm just not convinced that a REIT up However, some of these concerns are muted due to the fact that AMH has so much experience. (Wayne) Hughes and his team have such an incredible track record of building up (and the introduction) of a scalable brand. "

Of course, I'm referring to Wayne Hughes, the founder or Public Storage (NYSE: PSA), who was lucky enough to roll out the largest self-storage chain in the world. He founded American Homes 4 Rent in 2011 with the goal of consolidating this fragmented industry.

Since that time, AMH has expanded its portfolio by investing in high-growth markets and the focus on high-quality properties in sought-after residential areas and high-rated school districts attract an ideal tenant profile: (1) high credit quality, (2) propensity to stay longer and (3) mentality to look after property as "home".

From Q4-17 AMH has 51,239 high-quality properties in 22 states and ~ 200,000 inhabitants:

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The single-family house model offers a convincing macro landscape. This accelerating demand is supported by fundamental shifts in demographics and consumer preferences:

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Demand for single-family homes remains stable, driven by strong economic growth in the markets, driven by the job and wage growth and continued new fiscal formations. Matt Werner points out:

"An SFR portfolio typically requires more maintenance and attention as there are more roofs, exterior walls and courtyards in. There is also more space between the units, so SFR maintenance technology often Miles to the next unit, not a few steps, and a SFR leasing agent has to leave a central office to show houses in the city, and there are the homeowner community fees and rules that must be paid and met.

Although the SFR REITs have worked diligently over the past five years to mitigate some of the disadvantages compared to homes (for example, "advanced door entry systems" that allow home visits without a representative ", SFR REITs operate their businesses with one) much lower net operating income (or NOI) margin than apartment REITs.

The balance sheet

In 2017, AMH a raised nearly $ 1 billion in long-term capital, which combined with a return of more than $ 200 million enabled the company to finance acquisition acquisitions and further strengthen its best-in-class balance sheet.

This prudent lending plan allowed AMH access the first and only single-family investment grade rating

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At the end of 2017, the company became net d EBITDA to Adjusted EBITDA was 4.8x and Fixed Charge Coverage 3.0x. In February, it issued US $ 500 million of 10-year notes at 4.25%, representing the first issue of unsecured bonds, which traded at a spread of 10 basis bonds at 158 ​​basis points.

The proceeds were used to repay the revolving credit facility and for other general corporate purposes, including the financing of the acquisition program. Access to the high grade unsecured debt market offers AMH another attractive alternative for long-term, flexible capital.

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AMH continues to optimize its capital stock and uses the investment grade rating to lower its cost of capital. Here is a copy of the company's schedule:

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Recent Income Results

In Q4-17, the company's core FFO was $ 0.26 Dollar per share (unchanged compared to the fourth quarter of 2016) and AFFO was $ 0.23 per share (also unchanged year-on-year).

Q4-17 results reflect growth in real estate business offset by significant debt reduction Net debt reduced to EBITDA from 6.1 (end of 2016) to 4.8

In 2017, AMH acquired nearly 4,000 apartments at attractive returns and built a new growth channel with the National Builder and AMH development programs. The company also improved its operating platform and achieved improved efficiency and real estate management, repairs and maintenance, as well as lower insurance costs per household.

Combined with strong rental growth for the same home portfolio, it posted a core NOI margin of 64.5% for the full year, an improvement of 130 basis points from 2016, and cash flow growth for the year all year over 6%.

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AMH increased the number of dwellings occupied at the same time by 40 basis points to 94.8% at the end of the year and reached a new lease growth rate of 1.6% in the fourth quarter of 2017, as it focused on storage absorption.

The ability to increase renewal rents by 4.2% resulted in a blended-lease spread of 3.0% in Q4-17, which equals the Q4-16 blended spreads at a time when the company was not faced with the same inventory as in 2016 was 95% occupied at the end of January and 96.3% leased under the 2017er home portfolio.

2018 Guidance

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Who needs the 3-Ts?

As mentioned above, the single-family home market will rise by more than 12% in 2018 to an AFFO per share. Let's look at the AFFO forecast per share (data from FAST Graphs):

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As you can see, growth is enticing, and I believe that the company has achieved the first investment grade rating in single-family REIT sector, which suggests growth advantages, should drive the overall return. I find AMH particularly interesting given strong AFFO growth versus the REIT sector and superior SSNI growth (5% expected in 2018).

Of course, the dividend is not nearly as juicy as shown below:

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Given the below-average performance in the REIT sector since the beginning of the year, AMH appears to be a solid name, and I believe that a favorable risk-reward relationship exists when sentiment, valuation, growth and interest rate hedging complete Benefits

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In conclusion

I am starting a purchase via AMH.

At that time I was used to having about 20 houses, and I would always tell my friends that I hate the "3 Ts" – these are toilets, taxes and garbage. In fact, these are all the expenses that a single-family landlord has to spend, and that means that my homes earn around 10% a year (total revenue).

By investing in AMH I get access to the single-family house rental class without having to worry about the dreaded "3 Ts". From my research, the REIT should deliver above-average returns due to its strong earnings growth potential.

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Note : Brad Thomas is a Wall Street author, and that means he's using his or her predictions Recommendations are not always right. This also applies to his grammar. Please excuse all typos and rest assured that he will do his best to correct any errors if overlooked.

Finally, this article is free, and the only purpose for writing is to help research, while also providing a forum for second-level thinking. If you did not follow him, please take five seconds and click on his name at the top of the page.

Source: F.A.S.T. Graphene and AMH Investors Presentation

Disclosure: I am / we are long ACC, AHP, AVB, BRX, BXMT, CCI, CHCT, CIO, CLDT, KEG, CORR, CUBE, DDR, DEA, DLR, DOC , EPR, EXR, FRT, GEO, GMRE, GPT, HASI, HTA, INN, IRET, IRM, JCAP, KIM, LADR, LAND, LMRK, LTC, MNR, NXRT, O, OFC, OHI, OUT, PEB, PEI , PK, PSB, QTS, REG, RHP, ROIC, SBRA, SKT, SPG, STAG, STOR, TCO, TXRT UBA, UMH, UNIT, VER, VNQ, VTR, WPC.

I wrote this article myself, and it expresses my own opinions. I do not receive any compensation for it (except from Alpha search). I have no business relationship with a company whose inventory is mentioned in this article.


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