American Homes 4 Rent: A Highly Beneficial Agent with a Moderately High Cost (NYSE:AMH)

27 Mar 2023

In my experience, it is uncommon to find a company whose name directly reflects its business operations. However, American Homes 4 Rent (NYSE:AMH) is an exception. The organization operates as a REIT, which means it acquires, develops, renovates, leases, and manages homes for rent. Its primary focus is single-family homes, and it has a presence in 21 states with nearly 59,000 rental properties. The company has achieved impressive financial results recently and has several growth drivers that could boost revenue and profits in the coming years. While the business appears to have a promising future, I still believe that the stock is too expensive to justify a bullish outlook. Therefore, I would rate it as a 'hold.'

The current financial performance shows promising results.

The most recent article I wrote about American Homes 4 Rent was posted in July of last year. In that instance, I recognized that the company was prospering based on fundamental aspects, with virtually all of its vital statistics indicating year-over-year growth. But, during that time, the company's stock appeared to be a bit overvalued, particularly with increasing economic uncertainty. As a result, I adopted a more careful strategy towards the business, culminating in a 'hold' rating. Nevertheless, since then, stock values have declined by 14.5%, generating losses of investors, while the S&P 500 has increased by 3.6%.

Rewritten - Writer Factual Records of the SEC The writer is known for compiling accurate data from the Securities and Exchange Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.

Although the company's returns may seem unequal, the actual state of the business has not worsened. Looking at the final quarter of the 2022 fiscal year, where data is available, it is evident that the business was performing well. With sales amounting to $380.9 million, there was an increase of 12.7% from the previous year's $338.1 million. The rise in sales may partly be due to the occupancy rate of properties increasing slightly from 95.7% to 95.8%. However, the primary factor was the number of properties in the company's portfolio, which increased from 57,024 to 58,993. This does exclude the 659 properties that were for sale at the end of 2021 and the 1,115 that were for sale at the end of last year.

The increase in revenue mostly resulted in better profits, except for a decrease in operating cash flow. This quarter, operating cash flow was $68.7 million, which is lower compared to the $97 million from last year. Nonetheless, other metrics show improvement. Core FFO, meaning funds from operations, rose from $143.9 million to $160.5 million. On an adjusted basis, FFO increased from $130.8 million to $143.8 million. The metric called NOI, or net operating income, climbed from $192.4 million to $216.4 million. Lastly, EBITDA's growth for the company surged from $180.8 million to $204 million.

Writer - SEC EDGAR Information The Securities and Exchange Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system is an online database where companies must submit filings required by the SEC. EDGAR contains a vast collection of financial reports, annual reports, prospectuses, and other documents. Investors, analysts, and other stakeholders use EDGAR to gain insight into a company's financial health and performance. The EDGAR system is vital to the SEC's mission of promoting transparency and accountability in the financial markets. By mandating that companies disclose critical financial information, the SEC ensures that investors have access to reliable data to make informed investment decisions. To access the EDGAR system, go to the SEC's website and click on the "Filings & Forms" tab. From there, you can search for a specific company's filings by using the company's name or ticker symbol. Overall, EDGAR is an essential tool for any investor looking to research a company's financial history and performance. It provides a wealth of information that can help investors make informed investment decisions.

The company didn't just expand in the final quarter of 2022. According to the chart above, their results for the whole year were better than in 2021. Management predicts that their core NOI will be 3-5% higher this year compared to last year. However, their core FFO per share is expected to weaken, dropping from $1.77 to $1.58-$1.64 per share this year. Despite this, the company anticipates delivering between 2,200 and 2,400 units in 2023.

Writer - SEC EDGAR Records The SEC EDGAR database stores important financial information such as annual and quarterly reports, proxy statements, and prospectuses. This information is publicly available online and can be accessed easily by investors and other interested parties. By using the SEC EDGAR system, companies can efficiently file their required financial documents in a timely manner, allowing for greater transparency and accountability. This helps maintain trust between companies and their stakeholders, including shareholders, employees, and customers.

Although the company isn't perfect, it appears to be in good shape. However, it may not be the best time to invest in it. Take a look at the chart above which shows the company's pricing metrics for 2021 and 2022. The table below also shows how the company is priced compared to five similar businesses based on two of those metrics. These companies have trading multiples ranging from 13.4 to 35.6 on a price to operating cash flow basis. Among the five firms, two were less expensive than American Homes 4 Rent. Using the EV to EBITDA approach, the range is between 15.8 and 25. In this case, three of the five firms were less expensive than our target.

Rewritten: The following companies have varying Price to Operating Cash Flow and EV to EBITDA metrics: American Homes 4 Rent has a 18.3 P/OCF and a 22.0 EV/EBITDA, Equity LifeStyle Properties (ELS) has a 20.9 P/OCF and a 24.1 EV/EBITDA, Sun Communities (SUI) has a 22.0 P/OCF and a 20.8 EV/EBITDA, Invitation Homes (INVH) has a 17.6 P/OCF and a 18.9 EV/EBITDA, UMH Properties (UMH) has a 35.6 P/OCF and a 25.0 EV/EBITDA, and lastly Essex Property Trust (ESS) has a 13.4 P/OCF and a 15.8 EV/EBITDA.

A compelling catalyst for future expansion

While I agree that American Homes 4 Rent is a respectable company that has potential for growth in the future, I don't think the stock is a bargain for investors who focus on finding undervalued opportunities. However, I can see why some investors are attracted to the company. Beyond the financial performance, American Homes 4 Rent has some advantages. One of the key benefits is the lack of available housing inventory in the market. In fact, the current inventory is at an all-time low since 2011. To compare, in 2011, there were about 2.8 million homes available whereas today there are only around 900,000 homes on the market.

American Houses for Rent is a company that offers single-family homes for lease. the company was founded in 2012 and it is based in Agoura Hills, California. They have properties available in over 20 states across the United States. The company has a wide variety of homes available for rent, perfect for individuals and families alike. Their homes come in different sizes and styles, with options of 2 to 5 bedrooms, open floor plans, large kitchens, spacious living rooms and backyards among other features. They have properties located in different areas, from bustling city centers to quiet suburbs. American Houses for Rent provides great customer service, with 24/7 maintenance support and online payment options. They also offer a free online portal to tenants where they can pay rent and submit maintenance requests easily. If you are looking for a leased home in the United States, you should definitely check out American Houses for Rent. They offer high-quality properties at affordable prices, plus with their excellent customer service, renting from them is a hassle-free experience.

The housing market is quite competitive and there aren't many permits for single-family homes available. These permits have been increasing every year since hitting a low of 400,000 in 2011, with almost 1.2 million in 2021. Unfortunately, 2022 broke this trend and it appears that the number of permits will continue to decline in the upcoming years. This means that even though the population is growing, the supply of housing will remain limited. As a result, the demand for housing is likely to increase and the price of buying properties will rise, which could benefit property owners who rent out their properties.

"American Homes 4 Rent" can be rephrased as "Properties for Rent in America".

Given the data we have access to, especially in the top 20 markets that American Homes 4 Rent covers, we can see positive developments that will help the company. As depicted in the chart below, renting is currently more cost-effective for tenants than owning a home in those particular markets. This, in conjunction with the other data I previously mentioned, indicates that companies like American Homes 4 Rent can increase their prices without any adverse effects on their occupancy rates.

Blog Section: The blog on the website of American Homes 4 Rent provides useful information and updates on rental properties. Here are some of the recent topics: - Tips for First-Time Renters: The blog offers advice for those who are renting a home for the first time. It suggests creating a budget, reading the lease carefully, and communicating with the landlord. - How to Make Your Rental Feel Like Home: This blog post offers ideas to make a rental property feel more comfortable and personalized. Suggestions include adding wall decor, using curtains or blinds, and investing in cozy bedding. - Renting with Pets: Many renters have pets, and this blog offers tips for living with them in a rental property. It suggests finding a pet-friendly home, obtaining renters' insurance, and training pets to be well-behaved. By reading these blogs and other posts, renters can gain valuable insight into how to make their rental experience more enjoyable and efficient. American Homes 4 Rent is committed to providing high-quality properties and excellent service to its tenants, and the blog is one way it reaches out to them.

In simple terms, American Homes 4 Rent seems to be doing really well. I think they will continue to do so in the long run and make more money for shareholders, unless something major changes. They have something that should help them make more money and they are growing their business, even though the market for single-family properties is limited. All of this means they are likely to succeed. However, I don't want to recommend buying their shares yet because they are too expensive right now. If the price fell more, I might think differently. For now, I think there are other better options and it's best to just keep an eye on American Homes 4 Rent.

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