What does Latch’s public debut mean for Multifamily Owners?
On the first day of trading as a publicly listed company, Latch saw a 4% increase in its stock. Latch’s merger to go public was one of the early announcements in the flurry of Proptech listings through a Special Purpose Acquisition Company. Latch’s beginnings as a smart home solution to rental apartments make it especially interesting to the Multifamily Owners who are looking towards technology to modernize their offerings but also understand their own position in a market which starting to bestow heavy multiples to proptech.
When Latch announced its merger with the Tishman Speyer vehicle, it was offered an Enterprise Value of $1.05 Billion on reported Net Revenue of $18 Million. The EV multiple of 58.5x is higher than any current publicly trading comparable. The deal also represents a transaction that is underwritten and executed by an industry incumbent like Tishman Speyer to create value from new startups in Property Technology. They are not alone. Lennar which is the largest homebuilder in the US has invested over $300 Million in startups which goes beyond the typical corporate innovation checks.
Most of Latch’s revenue comes from booked revenues which capture 6-year contract terms in the pipeline but not currently represented in cash flow. It also showed a growth rate of around 50% for 2020 with losses of $66 Million. Latch’s product suite includes multiple modules but its resident access software remains its most popular product. Its growth prospectus, thus, is based on future successes of an API-driven operating system and additional focus on software integrating with multiple aspects of the asset and its residents.
The Latch merger makes it very clear that the public markets are betting on industry instead of a product. There is an expectation of double-digit growth in the market of technology for apartment and rental living operations. The right platform approach to technology-driven operations for multifamily operations can help reduce operating expenses and improve flexibility to gain operating income. As Latch prepared to ring the NASDAQ bell, it also announced a variety of products for other verticals of the property market including offices and apartment upgrades. This is indicative that Latch’s success on the public markets is a test of the market it serves and its ability to translate to the whole asset-based industry. As a multifamily owner or operator, Latch’s performance on the public markets will be an indication of the appetite for change within the industry. As they grow to new segments, the percentage of revenues from these other segments will be an important metric to track the recovery and tech adoption from other verticals of the industry.