The REO-to-rental business is proving to be a successful one for American Homes 4 Rent (AMH), but company isn't rolling in profit.
At least not yet, anyway.
The company’s total revenue was up 22% in the second quarter of 2014, rising to $94.3 million from $77.3 million in the first quarter, but despite the sharp rise in revenue, the company still reported a net loss of $3.4 million in 2Q14.
Perhaps the lack of profit is due to the company increasing its footprint in the second quarter. In July, the company announced the acquisition of Beazer Pre-Owned Rental Homes, which added more than 1,300 single-family rental properties in Arizona, California, Florida and Nevada to the company's portfolio.
According to the company’s earnings statement, the company acquired over 2,000 single-family properties in July 2014, including the 1,300 from Beazer. Those acquisitions increased the company’s total portfolio to over 29,200 homes.
As of June 30, American Homes 4 Rent had 23,364 leased properties, an increase of 2,698 properties from March 31. The company also reported “continued strong occupancy,” with 94.7% of properties leased that have been previously leased or rent-ready for more than 90 days and total portfolio occupancy of 86.0%.
Leased properties increased by over 2,000 in July, including the leased homes from Beazer Rental Homes, increasing the number of leased homes to nearly 25,500 or approximately 87.0% of the total portfolio.
The company’s net operating income from leased properties was $57.1 million in the second quarter, an increase of 19.7% from $47.7 million in the first quarter.
Through the first six months of 2014, the company had total revenues of $171.6 million, compared to $24.68 million in the first six months of 2013.
The company said that its revenue growthwas driven by continued strong leasing activity, as its total leased portfolio grew by 6,036 homes during the first six months of 2014.
"We posted another strong quarter and continue to deliver solid operating performance. Our fully internalized operating platform is bearing fruit as evidenced by our strong increase in leased properties of nearly 2,700 homes, a portfolio occupancy of 86% and a strong and consistent stabilized portfolio occupancy, defined as homes that have been either initially leased or rent-ready for at least 90 days, of nearly 95%,” said David Singelyn, American Homes 4 Rent's CEO.
“In addition, we continued to put our capital to work, acquiring 1,668 homes in 31 of our target markets during the quarter and we continue to see robust opportunities to make high quality acquisitions in our markets."
The company also announced that it was going to be sending distributions to its common shareholders in the amount of $0.05 per share for the third quarter of 2014. The distribution will be payable in cash on September 30 to “shareholders of record” on September 15.
In May, the company launched its first REO-to-rental securitization. The offering, which was called American Homes 4 Rent 2014-SFR1, was a $482.7 million single-family rental securitization. The transaction was collateralized by a single loan that is secured by mortgages on 3,871 income-producing single-family homes. The single-loan structure is a common feature in REO-to-rental securitization.
The offering was made up of six classes of mortgage pass-through certificates. Kroll Bond Rating Agency, Morningstar and Moody’s Investor Service all issued triple-A ratings for $270.40 million of the securitization, which is the largest class of the securitization, by far.
According to American Homes 4 Rent, the company raised $481 million in gross proceeds from the securitization. The underlying loan has a duration-weighted blended interest rate of LIBOR plus 154 basis points.
The company said that it plans to offer another securitization transaction in either the late third quarter or early fourth quarter.
Additionally, the company announced that it entered into a joint venture arrangement with the Alaska Permanent Fund Corporation. The company said the purpose of the joint venture is to acquire, renovate and lease higher-end residential properties that are outside the company's ordinary parameters for its acquisition of homes.
In July 2014, the company also entered into its second non-performing loan fund, Residential Credit Opportunities, LLC which is being managed by its joint venture, AMIP Management, LLC. RCO is “focused on the acquisition and resolution of distressed residential mortgage assets in the United States.”
Despite the relative success of American Homes 4 Rent, single-family rentals aren’t without detractors. Single-family rentals have come under fire lately from the national housing activist group Right to the City Alliance, which recently published a report entitled Rise of the Corporate Landlord: The Institutionalization of the Single Family Rental Market and its impact on Renters.
The report, which is critical of the rise of REO-to-rental and single-family rentals, says the proliferation of such rental properties have “proven disastrous for many low-income communities – with rents skyrocketing and corporate, absentee landlords proliferating in urban areas across America.”
But as the rental market continues to grow, it probably won’t be long before American Homes 4 Rent is turning a rather healthy profit.