American Homes 4 Rent's major source of growth will be taking over smaller competitors’ houses as the companies leave the market, Chief Executive Officer David Singelyn said.
Already the second-biggest U.S. single-family landlord, the company bought Beazer Pre-Owned Rental Homes Inc. for about $263 million in debt and stock. The purchase, announced earlier this month, included more than 1,300 houses and was the landlord’s largest bulk acquisition so far.
As large investors such as American Homes gain access to lower-cost capital and develop greater management efficiencies, they will be positioned to buy smaller operators, said Singelyn, whose Agoura Hills, California-based company owned 25,505 homes at the end of the first quarter. Rising home prices and the costs of managing scattered rental properties are causing some landlords to seek an exit, he said.
“You’re starting to move into that consolidation phase,” he said in a telephone interview. “There’ll be more and more transactions by us and others as time goes on.”
Private-equity firms, hedge funds and real estate investment trusts have raised more than $20 billion to acquire as many as 200,000 rental homes since early 2012, according to Jade Rahmani, a Keefe Bruyette & Woods Inc. analyst. Investors took advantage of home prices that fell as much as 35 percent from their June 2006 peak, and demand rose for rentals after more than 5 million homes were lost to foreclosure.
Now that housing prices have rebounded 26 percent from their post-recession trough in March 2012, some single-family landlords are seeking buyers for their properties.
‘A Problem’
Beazer Pre-Owned, whose investors were led by Beazer Homes USA Inc. and buyout firm KKR & Co., “ran into a little bit of a problem because they didn’t have the scale, having 1,350 homes or so, to be able to compete for financing capital with players like ourselves,” Singelyn said.
American Homes 4 Rent raised $812 million in its initial public offering almost a year ago, and issued $481 million of debt backed by its rental properties in May. Blackstone Group LP's single-family rental unit, Invitation Homes, is the industry’s largest landlord, having spent $8.5 billion on about 45,000 homes.
American Homes has the advantage of being able to offer stock to smaller landlords who want to sell properties while keeping a stake in the rental-housing market, according to Steve Stelmach, an Arlington, Virginia-based analyst with FBR & Co.
Taking Stock
“The pool of available buyers is relatively small relative to a very large pool of potential sellers,” Stelmach said in a telephone interview. “When we look at potential sellers, and those sellers who will accept stock as a form of payment for their homes, they’ll want to partner with the best operators or the stock that trades with the best prospects of going up.”
Singelyn said his company will continue to buy about 2,000 homes per quarter one by one at foreclosure auctions and in the open market. Acquisitions through company takeovers are “going to be lumpy,” he said.
American Homes yesterday rose 0.2 percent to $18.21, a record. The company went public last July 31 at $16.
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