AMERICAN HOMES 4 RENT Prefs AMH.PA
November 22, 2016 - 1:01pm EST by
cfavenger
2016 2017
Price: 27.25 EPS 0 0
Shares Out. (in M): 237 P/E 0 0
Market Cap (in $M): 5,014 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

Sign up for free guest access to view investment idea with a 45 days delay.

* Idea not eligible for membership requirements

Description

This is a really short/quick idea and I don't need it to apply towards VIC quotas but there is a catalyst on the short-term horizon so I wanted to share it with the group.

AMH Preferred A,B, and C shares have a very interesting Home Price Appreciation linked structure which is misunderstood and undervalued by the market.  

1. We expect these are going to be called in about a year.  This is very expensive capital for the company which they do not need.  The HPA markets the securities are linked to are getting hot and the company can now finance much cheaper.  Also, in 2020 there is a massive coupon step-up so you have duration protection even if we are wrong on a call in September 2017.
 
2. Coupon pays 5% + 50% of HPA in FHFA index weighted by AMH's ownership.  By our math this should produce a Yield to Call of approx 8.5-9.5%.
 
3. You are getting this for a very low levered company with a ton of tangible collateral below you.  We see very minimal credit risk for this yield.  At Q316 AMH had 8B of assets and only 2.8B of debt. The assets are single family homes.  You would need some utterly draconian credit issues to impair the prefs.  Thus, you don't need to be a true believer in the single-family REIT model to like this idea.  
4. Opportunity exists because Home Price Appreciation linked structure is an oddball security which doesn't screen properly on a Bloomberg yield screen and people don't understand the embedded yield.  The HPA numbers flow through into Bloomberg at a significant time lag so the real value of the security is understated.
 
5. Latest HPA numbers will be out any day now.  The relevant sub-markets for the AMH securities (Dallas, For Worth, Atlanta) are running very hot.  At that time the new numbers feed into Bloomberg and the security will screen differently so there is an imminent catalyst. 
 
 
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

HPA numbers 

    show   sort by    
      Back to top