|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|
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.
|Subject||Stock Conversion and 9% Cap|
|Entry||11/22/2016 02:39 PM|
Thank you for sharing such a fun idea.
I whipped thru the documents and see:
- They can redeem in stock with a 1 day VWAP. If I understand, they would need to announce before market open. Is this your understanding? This might be a significant negative.
- Otherwise, I am getting (ballpark) an expected index appreciation of 40%. We get half of that at liquidation. So we get $30 ($25 * 1.2) plus the dividends (5% * $25 = $1.25) on the Series A . . . BUT . . .
- There is a 9% IRR cap that effectively caps the HPA appreciation at 4% per year, or about 17% over the 4.25 years. Note: there is some timing issues such that can be slightly greater than 18%. But I do think the 9% IRR cap is going to come into play here.
- The Series B redemption is 3 months later and the Series C redemption is another 3 months later.
- As well, the Series C cap is 9% but dividend is 5.5% so cap even more relevant on Series C.
|Subject||Re: Stock Conversion and 9% Cap|
|Entry||11/22/2016 03:15 PM|
You have 4% per year from 25. For 4.25 years that is about 18%. 1.18x25=29.50. Do you have different math than that? Note that because you had basically no HPA the first couple of years we IRR cap is probably a bit higher and around $30.
We see As and Bs as both callable 9/30/17. Do you see different? Yes the C's are slightly later and one bids a bit lower on them.
It is possible that they redeem in stock. The current market cap of the company is 5B so a stock redemption wouldn't be some catastrophically large issuance. You could short some AMH common on Sept 29, 2017 to hedge yourself. Regardless, in my base case the company issues corporate level debt to redeem. Since these prefs were issued I believe they have far greater access to debt markets at reasonable levels.
|Subject||Re: Re: Stock Conversion and 9% Cap|
|Entry||11/22/2016 03:50 PM|
I do not think the path of the HPA appreciation is relevant since we do not get the money until redemption. But I get that we are going to get about $29.50, yes. I can build an IRR model and get exact amount (assuming the cap is hit), but not needed.
I see B's as redeemable 12/31/17. and C's as redeemable 3/31/18.
Otherwise, we are in agreement on all the numbers.
Great idea. Thanks for sharing.
|Subject||Re: Re: Re: Stock Conversion and 9% Cap|
|Entry||11/22/2016 04:23 PM|
Based on when they issued these, it seems to me that the IRR calculation involved in the cap will be from 10/18/13. So let's just say 4 years.
Assuming we hit the cap (requires greater than 35.1% HPA Index Appreciation) and the time period is exactly 4.00 years, I think the kicker will be $4.39 on the Series A. Plus four 5% qtly dividends plus the $25.
Through June 30, 2016, the appreciation is a bit higher than 30% so we will probably come close to the cap.
|Subject||HPA numbers show very strong appreciation in AMH markets|
|Entry||11/23/2016 10:47 AM|
Home Price numbers out (http://www.fhfa.gov/DataTools/Downloads/pages/house-price-index.aspx) and AMH's key markets running double-digit annualized hot
|Subject||Re: HPA numbers show very strong appreciation in AMH markets|
|Entry||11/23/2016 12:35 PM|
I threw them in a spreadsheet and get that the pfd's HPA Index is up +2.163% (NSA) and +2.264% (SA). The NSA is the one to use formally.
So I have the relevant HPA index up +24.86% thru Q3 2016.
Another issue: After reading the legal language of the preferred, I believe there is an ambiguity about what index level to use. For example, if they redeem on Sept 30, 2017, do they use the Sept 30, 2017 level (which will not be published until Nov 2017) or do they use June 30, 2017 level?