American Homes 4 Rent Stands To Benefit From Outsized Rent Growth In The Coming Years

American Homes 4 Rent AMH seems poised to benefit from “outsized” rent growth and NOI expansion over the next two to three years, JMP Securities’ Aaron Hecht said in a report. He initiated coverage of the company with a Market Outperform rating and a price target of $25.

American Homes 4 Rent currently has the largest public single-family rental portfolio in the US, Hecht noted.

Rental Rate Growth

Rental rates for single-family homes would likely keep rising for two to three years. Over the past three years, this rental group had focused on leasing assets since occupancy needed to improve. With occupancy improving from 40.0 percent in 2012 to 96.4 percent, operators are now putting an upward pressure on rental rates.

“We expect outsized rental growth to continue for 2-3 years based on annualized turnover on the portfolio's average of ~35.0%,” Hecht wrote.

Capital Structure Optionality

American Homes 4 Rent enjoys capital structure optionality due to its FCF generation. While the company’s leverage is slightly higher than what is ideal for the long term, leverage is expected to decline over the next three years, with the expected FCF generation of $500 million being used to grow the portfolio without needing to expand debt balances, the analyst pointed out.

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