Here’s Why Investors Are Bullish on SFRs in 2021
SFRs offer several hedges against headline risk, including home affordability headwinds, NAV upside as a result of inflationary pressure, and short-duration leases which allow rents to reset quickly.
The single-family rental market is poised for continued growth in 2021, according to a new report from Mizuho Securities. The firm kicked off the year overweight on the sector, and say SFR’s strong fourth quarter earnings and guidance outlooks for 2021 affirm that position.
The firm remains bullish on the sector, noting that SFR REITs American Homes 4 Rent and Invitation Homes both imply accelerating internal growth and strong upside pricing potential. Mizuho raised its earnings estimates for both firms, noting that the pace of new and renewal leases accelerated in the fourth quarter of last year while rent collections stabilized, albeit with some bad-debt drag.
It also took note of strong external growth for both REITs, noting that AMH acquired $160 million during the fourth quarter while selling $45 million with undisclosed yields. The firm also delivered around 1,600 homes during 2020 at an average monthly rent of $1,900. AMH expects to acquire $800 million in homes in 2021 with another $300 million via joint ventures, and expects to invest $300 million into wholly-owned land and development. Its guidance shows it expects to deliver 2,100 homes this year.
SFRs also have several hedges against headline risk, according to Mizuho, including home affordability headwinds, NAV upside as a result of inflationary pressure, and short-duration leases which allow rents to reset quickly.
Institutional investors are increasingly taking note of the asset class, with the most recent example being Transcendent Investment Management and Electra America, which established a fund to acquire newly built, single-family rental homes in suburban neighborhoods across the Southeast.
“Despite fuller valuations and the recovery trade/rate headwinds, we remain bullish on SFRs and think they should remain part of investors’ barbell approach to REIT investing given their proven resiliency, pricing power and external growth potential….with multiple expansion potential given accelerating earnings with upside and NAV upside from higher home values,” the report states.