STAMFORD, Conn.--(BUSINESS WIRE)--Today, Land & Buildings Investment Management, LLC (together with its affiliates, “Land & Buildings”), a holder of more than 3% of SmartRent, Inc.’s (NYSE: SMRT) (“SmartRent,” “SMRT” or the “Company”) outstanding shares, issued a public letter to the Company’s Board of Directors (the “Board”).
The full letter is below:
May 14, 2024
SmartRent, Inc.
8665 E. Hartford Drive
Suite 200
Scottsdale, AZ 85255
Attention: Board of Directors
Dear SmartRent Board of Directors,
Land & Buildings has owned SmartRent (NYSE: SMRT) shares for two years and holds over 3% of the outstanding shares. During this time, we have been patient, passive investors. Yet, SMRT shares are down over 80% from their 2021 highs, and nearly plumbing new all-time lows, as the Company has consistently failed to execute on its growth strategy, regularly missing one guidance metric after another – while overpromising and underdelivering (see charts below).
We have not only been patient and understanding but have tried to constructively work with CEO Lucas Haldeman and the management team as they have navigated what seems like a continuous stream of disappointments, delays and negative surprises. Our desires for more consistent communication, better management of expectations and superior execution have not been met.
SmartRent is the dominant PropTech company in the US multifamily industry, providing its smart home technology and software to nearly 4,000 apartment communities with 750,000 units deployed. Its customers are the largest and most sophisticated multifamily landlords nationally with 15 of the 20 largest apartment owners choosing SmartRent. These top customers include the largest public multifamily REITs, which can be found routinely raving about the remarkable ROI SmartRent provides through both higher rents and lower operating costs. The Company’s existing customers alone own 7.1 million apartment units, providing an unrivaled opportunity to deploy, cross-sell and upsell its numerous IoT hardware and software solutions – including smart locks, smart thermostats, water leak detection sensors and smart hubs – for years to come. The bottom line is that SmartRent has an incredible business model, customer base and growth opportunity. Its assets are very valuable if put in the right hands.
However, SmartRent has lost the confidence of the financial community and is at a critical crossroads. There comes a time in a company’s life cycle when the board must decide if the best path forward is to remain public or consider strategic options, including becoming part of a larger company or going private to maximize the value of the business. Since SmartRent has persistently failed to achieve its growth targets, we believe the Company has no choice but to fully explore strategic alternatives. Based on our channel checks, we believe a sale of the Company would garner a steep premium, likely earning shareholders a ~150% or greater return from today’s share price.
To see the potential upside for shareholders, look no further than CoStar Group, Inc.’s (Nasdaq: CSGP) announced acquisition of Matterport, Inc. (Nasdaq: MTTR) (“Matterport”) last month at a 216% premium to the last share price and an approximate 10x EV/revenue multiple. Matterport, a 3-D spatial mapping company, shares many similarities with SmartRent as a SaaS business model focused on real estate, including multifamily. We believe there would be a long list of potential suitors for SMRT, including both strategic buyers and private equity. The fact that nearly half of the Company’s equity market capitalization is cash (with no debt), significantly reduces the amount of equity a potential acquirer would need and widens the buyer pool.
The Company has not put forth a compelling path to achieve such a return in the public markets, nor does management have the track record to convince investors that any forward guidance is credible.
Let’s look at the facts: the Company has massively missed the expectations it set at the time of its listing, and 2024 appears poised to be another year of disappointing results relative to already lowered expectations. Initial projections at SMRT’s listing quickly became unachievable, and the Company has been walking down revenue and EBITDA expectations steadily since then. SmartRent’s public history has been littered with negative surprises, shifting key performance indicators (KPIs), disclosure changes and inconsistent messaging and business strategy. The Company has lost credibility with shareholders and analysts.
What’s most discouraging about these results is that there have been substantial tailwinds for the Company’s business and increasing structural advantages that have not led to strong revenue growth or profitability as projected. The Company’s first-mover advantage has been solidified, we are in the midst of a significant apartment development cycle that has meaningfully increased the total addressable market, and the embedded growth opportunity within existing customers remains substantial.
In SMRT’s fourth year, there are no excuses. SmartRent’s business should be thriving, not plodding along. Clearly, it is time for a new direction.
There are several specific issues we could point to justify a course correction for SmartRent. Paramount is the Company’s disappointing operational execution, which includes routinely missing its own ever-changing target metrics, poor expense management, a failure to sufficiently ramp the pace of IoT deployments and a lack of explosive SaaS revenue and SaaS ARPU growth. Excessive executive turnover, including multiple new CFOs and investor relations professionals in the Company’s short public history, has reduced investor confidence in management. And corporate governance concerns, such as SmartRent’s employment of Sarah Roudybush (CEO Lucas Haldeman’s spouse) as Chief of Staff, have added to shareholders’ angst.
We believe these concerns and serious issues should be readily apparent to the Board, but we have little interest in litigating the past. We want to focus on the future of SmartRent and what can be done now to benefit shareholders. Accordingly, we believe the Company must explore strategic alternatives to maximize shareholder value.
To further our constructive engagement, we would like to speak with the independent members of the SmartRent Board to discuss the contents of this letter. We look forward to a prompt response.
Sincerely,
Jonathan Litt
Founder and CIO
Land & Buildings
***
Sources: Company SEC filings, Bloomberg, and Land & Buildings’ views and analysis
Disclaimer
The views expressed are those of Land & Buildings as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable.
