Corporate owned SFH rentals

How do you guys feel about these home rental companies? The big publicly traded ones are American 4 Rent, Colony Starwoood, and, of course now, Invitation Homes (but there are probably a bunch of smaller ones out there too). Do you think they are good investments? Better than other kinds of REIT’s?

http://www.cnbc.com/2017/01/31/invitation-homes-raises-154-billion-in-ipo-source.html

Cool one, this is also REIT.

I read the prospectus and here are the summary.

Black stone is trying to rent all the 50000 homes they purchased during 2008-2011 mass foreclosures. In fact, they are renting them since 2012. They own these properties in 12 states, mainly east and west coast.

INVH is offering only a part of shares 77M shares while they can offer additional 11.5M further, then balance 313.5M shares are owned by Blackstone (BX).

At present, all the rent equals the PITI+expenses, expecting the rental market will go up when mortgage rates are increased.

Appx Cap rate is 4.5% (assumed 25% expenses), and avg home value is $318500. Average GRM is 16.35%.

We need to wait & see how it is going to go as of now the rent matches expenses and they filed loss for last two years.

Here is the prospectus link. It gives full clarity what they are doing.

https://www.sec.gov/Archives/edgar/data/1687229/000119312517014636/d260125ds11a.htm

BTW: This is the so called SHADOW INVENTORY (old redfin forum viewers angle) being rented across the nation.

IMO, this stock may go down initially as they dilute the shares with 11M or additional shares. Better to watch, buy when it goes down. In the long run, the value may increase as homes are appreciating and they may sell some assets.

This has been discussed here.

For me, this looks better than snapchat. Trying to get some INVH. It is unlikely help short run, but may help in the long run when homes are appreciated.

I read that such companies are experiencing problems now. SFRs don’t scale so well. They are learning that now. Above average eviction rates. They spent $ to built good software platforms… etc… doesn’t help with real world problems (repair requests etc)

I don’t have the source at hand

Just a word of caution.

Edit: @jil not sure what appreciation to expect in their markets. It is not going to be CA style. Maybe 20% in 5 years.

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ptiemann, thanks for the information.

They took these 50000 homes during 2010-11 and slowly they are trying to sell it off the market and keep their money with them.

While blackstone equity list is 77M+11M, they still hold 300M+ equity and full control.

Blackstone’s main benefit is from real estate appreciation (and their depreciation benefits). The current state, they show income = expenses level. Their asset base will increase as long as home values are appreciating.

On any case, I will hold a small portion, review and come out when It is appropriate to come., Such stocks may up initially for few months and then stabilize or fall after the first quarters.

This is a much older article (10/2014)… I had read about their problems in late 2016… looks like they could not solve it

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This is the article that I had read more recently. I would be cautious about investing in these SFR rental companies. Besides the financial risk (loss of investment), there’s the moral aspect (they don’t treat tenants right?)

If a company acts morally questionable, they better make huge profits. Foreclosure business between 2009 and 2011 was such a business. One could comfortably double his money between January and December (I’ve done it), but one would have evict a family every other month or so (yes, I’ve done it).
Invitation Homes etc seem unable to do repairs/ maintenance, evict families, but are not going to double your investment (at least not in a year)

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Thanks again posting additional references. Thanks to caiguycaiguy too!

Correct, I am not expecting INVH to produce 100% in an year.

I went to their site http://www.invitationhomes.com/ and they have taken homes at low cost and high cap areas

Atlanta
Charlotte
Chicago
Jacksonville
Las Vegas
Los Angeles | Inland Empire
Miami
Minneapolis
Orlando
Phoenix
Sacramento
Seattle
Tampa

It is a nice trail by BX that solidifies real estate market during 2008-2011.

If it gives 10% over my money, that is more than sufficient. Normally, such IPOs, good asset based, may provide a 10% return within 3 months.

They have even listed discovery bay homes like this

http://www.invitationhomesforrent.com/apartments/ca/discovery-bay/2464-wayfarer-court/index.aspx

It gives us an idea what kind of homes they have taken and how are they maintaining and what is their likely current price is !

@ptiemann’s article gave some reasons why large landlords are evicting more often:

Tomb, of the National Rental Home Council, said institutional investors at times buy large blocks of homes from other landlords and inherit tenants who can’t afford to pay rent. They also buy foreclosed homes whose occupants may refuse to sign leases or leave.

Those cases make the eviction rates appear higher than for smaller landlords, according to Tomb, whose group represents Colony Starwood, American Homes 4 Rent and Invitation Homes. The largest firms send notices at rates similar to apartment buildings, which house the majority of Atlanta renters.

But Blackstone is actually the good guy here:

Not all investment firms file evictions at higher rates. Invitation Homes, a unit of private equity giant Blackstone Group (BX) that is planning an initial public offering this year, sent notices on 14% of homes, about the same as smaller landlords, records show. In Fulton County, Invitation Homes works with residents to resolve 85% of cases, and less than 4% result in forced departures, according to spokeswoman Claire Parker.

Here is the complete review given by Forbes:

When the credit crunch struck in 2008 and created a tidal wave of foreclosures across the United States, private equity giant Blackstone Group was among a number of Wall Street firms that saw an opportunity to bet on an eventual housing recovery. The firm, under the guidance of its billionaire head of real estate Jonathan Gray, created a company called Invitation Homes in 2012 that spent an estimated $9.6 billion dollars scooping up thousands of properties nationwide and turning them into rentals.

Now, Blackstone’s big bet on the U.S. residential real estate recovery is planning to list on stock markets in an initial public offering that may fetch a valuation north of $5 billion. The move comes as home prices touch new highs in many cities and amid continued upward pressure on rents. For Blackstone, the IPO will mark the beginning of an exit from one of the biggest bets in its history.

Using a mix of its own investor capital and novel asset backed securities tied to rental streams, Blackstone spent billions to buy nearly 50,000 homes nationwide, building the largest private portfolio of single family homes in the country. Most of its purchases came in areas hard hit by the real estate downturn like Southern California, Florida, Phoenix, Atlanta, Chicago and Las Vegas.

“We realized in studying the sector that there were already 13 million homes in the United States that were being rented out, but just done so on a mom-and-pop basis. And so could you build a scale institutional single-family business much like what happened in the multifamily business in the 1990s,” Gray said of the idea at a mid-2015 investor conference.

As housing rebounded and demand for apartments surged in urban areas, Blackstone quickly filled its homes. Invitation Homes now boasts a 96% occupancy rate and an average monthly rent of $1,623. To boost occupancy and income, Blackstone also plowed $1.2 billion into home improvements, or $25,000 a home. This spending was more than Blackstone initially expected, Gray has said in public comments over the years. But it’s now likely to give Blackstone a bigger bounty than it ever dreamed of when creating Invitation Homes.

To date, Invitation Homes has paid out nearly $1.5 billion in dividends to Blackstone and its limited partners. American Homes 4 Rent, which owns roughly the same number of single family homes as Invitation Homes, presently carries a market capitalization north of $5 billion.

Invitation Homes is listing its shares as a real estate investment trust (REIT), meaning it will have to pass the majority of profits onto investors in the form of dividends. For now, Blackstone will be the main beneficiary as the company’s controlling shareholder. As of the third quarter, Invitation Homes generated nearly $700 million in revenues and core funds from operations of $192 million. Its net operating income nine months into 2016 rose to $418 million from $362 million this time a year ago.*

Comparable single family rental firms like Colony Starwood Homes and Silver Bay offer solid dividend yields of around 3%. However, the value some investors see in these stocks comes from home price appreciation, which bolsters net asset values, in addition to rising rents that translate into dividend increases. Invitation Homes may get a strong reception due to its exposure to many of the hottest real estate markets such as the the Southeast, California and cities like Seattle and Charlotte.

When discussing Blackstone’s plans to IPO Invitation Homes, Gray said in mid-2015 he expected a listing in late 2016 or early 2017. “We want to have really great metrics for public market investors. We want to show how strong the retention rates are. We want to be able to show you how much CapEx needs to be spent. We want it to be a very clean, simple business that pays dividends and has appreciation from the underlying assets,” he said. (Forbes used AlphaSense to locate Gray’s comments)

The decision to stay put long after competitors like Colony American Homes, Starwood Waypoint, American Homes 4 Rent and American Residential Properties listed their shares may have been a wise maneuver.

Once on public markets, single family home stocks faltered as investors began to understand the expenses associated with managing broad portfolios of individual homes. Returns didn’t match up with capital spent on the post-crisis distressed home buying gold rush. Some stocks became the target of activist investors, who urged consolidation as a means of building scale and steadying profits.

In 2015 Starwood Waypoint acquired Colony American Homes for $1.5 billion and in December of that year American Residential Properties merged with American Homes 4 Rent.

Invitation Homes intends to pay down some of its $8 billion in debt through its share offering. It will list shares on the New York Stock Exchange under ticker ‘INVH.’ But the move may also fuel a new runway for growth.

The home buying opportunity isn’t what it was when Gray & Co. stepped into the market after the crisis. Banks aren’t foreclosing on homes and portfolios of assets are no longer being disposed at bargain prices. It’s likely the best available purchases will come from continued M&A among public and private landlords.

Using IPO proceeds to de-lever and create a public market currency may eventually spawn a second growth spurt for Invitation Homes. According to an analysis from KBW, there are presently eleven private single family home rental businesses with portfolios of over 1,000 homes apiece, including businesses built by Cerberus, Apollo Global and PIMCO. Many of these firms may see a better exit opportunity by selling to a public peer, rather than going down the IPO route alone.

Source: http://www.forbes.com/sites/antoinegara/2017/01/06/blackstones-big-bet-on-the-u-s-housing-recovery-files-to-go-public

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Cool, after the FED rate is hiked, I have been looking for physical assets owner REIT, instead of MBS related REITs.

Now, I have 5 companies, SHO, MPW, INVH, SFR and AMH.

First two are leading companies, but later three are new REITs.

Now, I walked out of INVH with 4.75% profit, let me review after six months !

Almost one month over, INVH gets stabilized around $21. There is a lock period expiry (need to check expiry date), we can expect a dip after expiry for further stabilization. Once it is over, we can invest in INVH as a long term provided we are satisfied with fundamentals and performance of this REIT.

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My friends started Waypoint with one house in antioch in 2009… $500k seed momey…They road one helluva a wave…Cloin Weil and Doug Brian…

Any familiarity with their new property management company, Mynd?

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I wonder why everybody here talks about real estate, investment, blah, blah, blah. But never realized they can create something as good or better than the above.

Me wonder.

I’m sure Americans would love their corporate landlords more than their mom-and-pops.