American Homes 4 Rent (AMH 1.34%) is in the right asset class at the right time. Single-family homes are in high demand, supply is tight, and home prices are rising over 10% a year, at least according to the latest numbers from CoreLogic. While COVID-19 has created some headwinds for single-family landlords in terms of struggling tenants, it has also increased demand for the company's rentals. American Homes 4 Rent recently reported full-year earnings and gave some color on how its business is looking.
One of the biggest single-family rental REITs
American Homes 4 Rent is a real estate investment trust (REIT) that buys and builds single-family homes for rental properties. As of Dec. 31, 2020, the company owned 53,584 single-family homes in 22 states. American Homes 4 Rent's biggest markets are Atlanta, Dallas, Charlotte, and Phoenix. The company also builds properties for rent, and was one of the pioneers in this business.
For the full year, net income came in at $85.2 million, or $0.28 per share. This was down from $85.9 million, or $0.29 per share, in 2019. The decrease was due mainly to COVID-19 issues, including uncollectible rent and utility reimbursements. There was also a non-cash charge that stemmed from some legacy issues. This explains why net income fell, but the more common measure of REIT profitability, funds from operations (FFO), improved. Core FFO increased 6.3% to $417.6 million and came in at $1.16 per share, a 4.5% increase.
Revenue increased 3.5% to $1.18 billion. Same-home rents increased 4% to $867.4 million, which was driven by a 3% rise in average monthly realized rent and an increase of 90 basis points (0.90 percentage points) in average occupied days. Same-home rents are a way to measure organic growth, and it is similar to how retailers measure same-store sales. American Homes 4 Rent collected 96.7% of fourth-quarter rental billings, which the company characterizes as "consistent with pandemic payment histories within the same time frame."
American Homes 4 Rent also doubled the quarterly dividend from $0.05 to $0.10 and guided for core funds from operations to come in between $1.22 and $1.28 per share for 2021, which is a 7.8% increase. Even at the doubled rate, the annual dividend of $0.40 is only 32% of core FFO guidance. The company is still investing most of its cash into future growth, but the increase in the dividend is welcome.
The migration out of the cities continues
On the earnings conference call, the company discussed the current demand for single-family rentals. The big takeaway is that COVID-19 accelerated some trends that were already in place. CEO David P. Singelyn said:
What the housing data and trends do tell us is that migration to suburban single-family rental homes was occurring before the pandemic is accelerating, and is here to stay. The pandemic did not change these trends. It simply shined a spotlight on the value proposition that single-family rental home living offers. Now, more than ever, people value extra living space, private yards, and a sense of neighborhood community.
Don't forget the asset appreciation angle
While rising rents and strong demand are part of the story, investors should keep in mind that single-family house prices are flying high. According to the Federal Housing Finance Agency, home prices rose 10.8% year over year during the fourth quarter of 2020. While the company won't "write up" the value of its properties on the balance sheet, it does increase the company's value and is monetized when the company sells properties. This is one of the few REITs where the value of the underlying assets is increasing at this sort of pace.
American Homes 4 Rent is trading at 23.7 times guided funds from operations per share. This is a reasonable multiple given the underlying asset appreciation. The company's dividend yield of 1.35% is still on the low side for a REIT; however, this is due to a prioritization on growth, not cash-flow issues. The company's guidance of 8% FFO per share growth may be conservative, especially if it begins to collect some of the back rent as things return to normal. American Homes 4 Rent is an interesting way to play the single-family home shortage, which will take years to correct.