SMRT - Old West - SmartRent: No Serious Competition And Rapidly Riding To Profitability

2023-07-23 11:15:00 ET

Summary

• SmartRent, a fast-growing smart home technology company focused on rental housing, is nearing profitability with products like smart access keyless entry and water leak detection.
• The company, which went public in April 2021, has attracted top multi-family operators as customers, including the top seven apartment REITs and Invitation Homes.
• With 600,000 units installed and 45 million rental units across the U.S., SmartRent's growth potential is significant, particularly given its lack of serious competition.

The following segment was excerpted from this fund letter.

SmartRent, Inc. ( SMRT )

You never know where you might find a new investment idea, and one of my favorite sources of new ideas is friends and clients that I consider experts in their fields. Our client list includes executives in biotechnology, real estate, heavy equipment, agriculture, construction, professional sports, entertainment, and more.

A friend and client are in the multifamily real estate business, AKA apartment buildings, owning hundreds of luxury units. He called my attention to a young, fast-growing company, SmartRent, whose products increase efficiency and reduce costs for the property owner. His biggest complaint is the product is so popular he's having difficulty getting supply. We began investing in the company over one year ago and decided to write about it in this quarterly letter. It's a bit unusual for us to invest in a money-losing growth company, but it's about to become profitable, and we find the idea very exciting.

SmartRent is the leading smart home technology company focused on rental housing in the U.S. Multifamily owners and operators love their products which include smart access keyless entry, water leak detection, and smart thermostats/climate control. They also offer self-guided tours for prospective tenants to see units, resident and staff management software, and parking flow optimization. Based in Scottsdale, AZ, the company sells hardware devices and software that generates recurring revenue as they monitor their services.

At Old West, we are always looking for great owners/operators of companies to partner with. Lucas Haldeman founded SMRT in 2017 after serving as CTO at Colony American Homes, at the time a large owner of single-family rental homes. It was in that role that he realized the need for technology solutions to provide more efficient property management. Haldeman owns $15 million of SMRT stock, ranking him as the company's largest shareholder.

Over the past five years, SMRT has attracted the top multifamily operators in the country as customers, including the top seven apartment REITs. Invitation Homes, the largest owner of single-family rental homes, is one of SMRT's 500+ customers. As far as competition goes in this space, SMRT has said they have more units deployed than all their competitors combined.

SMRT is rapidly riding the road to profitability. Revenue grew by 53% from 2021 to 2022 and is forecast to grow by 43% in 2023 to $240 million. Gross and net margins continue to improve, and CEO Haldeman has repeatedly said they will be EBITDA positive by this yearend. The company has $200 million of cash on its balance sheet, with no debt. SMRT went public in April 2021 as a SPAC at $10 per share. The share price quickly went to a high of $14 and then, like most SPACs, dramatically fell to a low of $2.15 per share. Our average cost is $3.70, and it currently trades at $3.82. The market cap is $762 million, and the $200 million of cash equates to $1.00 per share.

To give you an idea of their growth potential, SMRT has installed 600,000 units and there are 45 million rental units across the U.S., and with no serious competition today it's going to be exciting to watch SMRT grow.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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