Zenolytics Goes Full Buy Mode On KKR For Conservative Portfolios
Discussions about KKR on this site have been numerous over the past few years. KKR has all the attributes that an investor should pursue in a conservative investment: Adept management Steady history of producing returns Aligned with shareholders in seeking appreciation of equity through creative corporate manuevering A transformed, long-term shareholder base with their recent conversion from partnership to corporation Almost exactly one year ago KKR was discussed here in an article titled, KKR Has Long-Term Compounder Written All Over It. Zenolytics continues to view KKR as a long-term compounder driven by earnings power levered to low interest rates. The stock has immediate intermediate-term upside to approximately $30 per share for a gain of 20% from current levels. In the recent earnings calls that took place on April 30th, management painted an appealing picture for investors built on acceleration in assets under management, fees derived from those assets and opportunities available given their sizeable amount of dry powder. Among the highlights: Book value of $16.99 has increased by 17% over the 12 months Earnings have increased by 29% over the past 12 months Fee paying assets under management has increased by 23% over the past 12 months Additionally, with the recent steep decline in long-term rates, KKR gains significant advantages in that it allows the company to obtain leverage at more attractive rates AND it further differentiates KKR's overall ability to produce returns, as competitive fixed income yields decline, creating greater demand for enhanced returns. Overall, given the relative weakness in the financial sector, KKR's ability to outperform should be viewed by investors as a reflection of their earnings power in the face of an otherwise difficult operating environment for financial companies, mid to large sized banks especially. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity issues. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction,...
Sector Highlight: Single Family Rental REITs – Bullish
Zenolytics is bullish on single family rental REITs for conservative portfolios: AMH - American Homes 4 Rent INVH - Invitation Homes The largest homeowners in the country post financial crisis are private equity firms and corporations. Single family rental REITs purchase portfolios of homes for the purpose of renting them out and capital appreciation on the underlying real estate assets. Rental REITs thrive in a low interest rate environment due to a cheap cost of capital to expand their real estate portfolios and appreciating real estate prices incentivizing consumers to seek out rentals. The 11% decline in the ten year yield thus far in 2019 has created an attractive situation. The negative correlation to rates (rates decline, single family rental REITs appreciate) has been showing up in performance YTD: AMH +21% INVH +26% The uptrend in the sector is set to accelerate. AMH and INVH are conservative, low volatility plays on the sector. Growth at INVH is accelerating while operational efficiencies are taking place: 18% growth in funds from operations in Q1 Highest ever average occupancy of 96.5% in Q1 A 9% decrease in net cost to maintain properties in Q1 In the most recent earnings call the CEO stated: Fundamentals are fantastic. New single-family supply is not keeping pace with demand, especially in Invitation Homes markets where household formations in 2019 are expected to grow at almost 2% or 90% greater than the U.S. average. With the millennial generation aging toward our average resident age of 40 years old, we are convinced more and more people will continue choosing the convenience of a professionally managed single-family leasing lifestyle. He goes on to state: Now our operating teams continue to get more efficient. Our asset management teams continue to enhance the portfolio. And our capital markets teams continue to reduce leverage on our balance sheet. Across the sector, the message is the same: Economic tailwinds Demographics tailwinds Operating efficiencies Portfolio enhancements Reduction in leverage AMH is experiencing much of the same benefits: 11.6% growth in funds from operations in Q1 96.7% occupancy AMH has the most conservative balance sheet in the industry, with no significant maturities until 2024. Additionally, there has been significant insider buying taking place at AMH over a considerable period of time, led by the original founder of the company. The low volatility, income producing nature of INVH and AMH make them a conservative portfolio investment. Zenolytics is adding AMH and INVH to its conservative portfolio with a quarterly review period for further allocation or liquidation. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity...