Core Viewpoint - The Single-Family Rental (SFR) REITs have experienced a significant decline due to potential regulatory changes regarding institutional investors' ability to purchase single-family homes, marking a challenging year for the sector [1][54]. Industry Overview - SFR REITs have shown strong fundamentals, with consistent growth in AFFO (Adjusted Funds from Operations) per share [4]. - The sector has historically achieved robust rental rate growth and high occupancy rates, particularly as renting became more economical compared to owning due to rising home prices and mortgage rates [16][19]. - The influx of new supply in 2022 and 2023 has created headwinds for rental rates, leading to increased competition for existing properties [20][23]. Company Analysis - Invitation Homes (INVH) and American Homes 4 Rent (AMH) are now considered to be in value territory after recent price drops, prompting the company to add them to active coverage [3]. - INVH and AMH own over 85,000 and 61,000 homes, respectively, allowing them to leverage scale for improved margins and customer satisfaction [13][14]. - AMH reported a rental operating margin of 55% and INVH at 56% for Q3 2025, showcasing their operational efficiency [14][15]. Valuation Metrics - The market price of SFR REITs has dropped significantly since late 2021, while AFFO has continued to rise, leading to lower trading multiples that align with the REIT index [40][44]. - INVH is trading at 16.0X AFFO and AMH at 17.8X AFFO, indicating a shift from their historically premium valuations [45]. - Both companies are trading at substantial discounts to their net asset values, with INVH at 68.7% and AMH at 75.7% of NAV [52]. Future Outlook - The near-term AFFO growth is expected to be subdued due to the supply wave, but demand remains healthy, suggesting a potential return to organic growth rates post-2025 [36][37]. - The proposed ban on institutional buying of homes could have mixed implications, potentially reducing new supply while benefiting existing properties [56][57].

Core Viewpoint - The Single-Family Rental (SFR) REITs have experienced a significant decline due to potential regulatory changes regarding institutional investors' ability to purchase single-family homes, marking a challenging year for the sector [1][54]. Industry Overview - SFR REITs have shown strong fundamentals, with consistent growth in AFFO (Adjusted Funds from Operations) per share [4][36]. - The sector has historically achieved robust rental rate growth and high occupancy rates, particularly as renting became more economical compared to owning due to rising home prices and mortgage rates [16][19]. Market Dynamics - The SFR market is highly fragmented, with many small operators struggling to compete with larger REITs like Invitation Homes (INVH) and American Homes 4 Rent (AMH), which own over 85,000 and 61,000 homes, respectively [9][13]. - The scale of larger REITs allows for improved margins and customer satisfaction, as they can employ experienced property managers and mechanics [14][19]. Recent Performance - AMH reported rental revenue of $478.5 million and NOI of $263.5 million, achieving a rental operating margin of 55% in Q3 2025 [15]. - INVH reported rental revenue of $666.2 million and NOI of $370.1 million, with a rental operating margin of 56% [15]. Supply and Demand Factors - A surge in new SFR developments in 2022 has created a competitive environment, leading to pressure on rental rates, particularly in markets like Phoenix and Atlanta [20][23]. - Same-store NOI growth for INVH has decreased to about 1% from an average of 4%, while AMH has maintained a ~4% growth rate due to its diversified property locations [29][32]. Valuation Insights - The recent decline in market prices has brought SFR REITs into value territory, with INVH and AMH trading at multiples of 16.0X and 17.8X AFFO, respectively, aligning them with the REIT index [44][45]. - Both companies are trading at significant discounts to their net asset values, with INVH at 68.7% and AMH at 75.7% of NAV [52]. Future Outlook - The near-term AFFO growth is expected to be subdued due to the supply wave, but demand remains healthy, suggesting a potential rebound in organic growth rates post-2025 [37][51]. - The proposed ban on institutional buying could negatively impact external growth but may enhance organic growth by reducing competition from new supply [56][57].