Real estate investment trusts under-used asset class


Real estate investment trusts under-used asset class

Real estate investment trusts under-used asset class

NEW YORK – Jan. 21, 2014 – Out of the ruins of the housing crisis, a new asset class has emerged: publicly traded, single-family residential real estate.

Real estate investment trusts, hedge funds and private-equity firms have raised more than $18 billion to purchase more than 100,000 rental houses in the past two years, according to Bloomberg News.

Previously the domain of mom-and-pop companies that would own 20 or 30 rental homes in a market, the field is becoming crowded with big-name businesses.

The housing crisis brought out a large group of speculative buyers intending to flip the homes.

But many of the buyers realized they could earn a high return renting them, said Richard P. Imperiale, president of Uniplan Advisors Inc.

Estimates suggest 5 percent to 6 percent – or about 7 million – of the 132.5 million single-family homes in the U.S. are owned by someone who rents them out for investment purposes, Imperiale said.

Many of these buyers then “monetize” their portfolios by spinning them into publicly traded REITs, he said.

The real estate investment community has not yet embraced this asset class, Imperiale said, which is a mistake.

“A lot of these portfolios are trading at a discount to the prices the managers bought the homes for back in 2009 or 2010,” Imperiale said.

“I can hang my hat on the fact that home price appreciation over time will make that discount disappear as people figure out what the portfolios are actually worth.”

Last month, two of the bigger names in the industry – Blackstone and Colony – were able to borrow 60 percent of the value of the homes in a portion of their portfolios.

The fact that they were able to get financing, which will enhance their returns, got Imperiale more interested in the sector, he said.

American Homes 4 Rent (AMH, $17.09), Malibu, Calif., is a real estate investment trust that leases single-family home rental properties in the United States.

The company was started in 2012 by B. Wayne Hughes. Hughes founded Public Storage 40 years ago, pioneering a new asset class and turning his start-up into the biggest storage-rental company in the world.

American Homes is the largest single-family landlord after Blackstone Group LP’s Invitation Homes, which has spent more than $5 billion on 32,000 homes, according to Bloomberg.

But Invitation Homes is part of Blackstone’s much larger, more diversified portfolio, leaving American Homes as the only publicly traded investment focused solely on single-family residential real estate, Imperiale said.

American Homes is using $600 million from the Alaska Permanent Fund Corp. and other fundraising to buy real estate, mostly at foreclosure auctions.

The company has a management team “with a long, storied record,” Imperiale said.

It pays a dividend of 1.2 percent that has potential to double over the next 12 months, he said.

“This is the conservative way to play it in this niche of the REIT space,” Imperiale said.

Hughes, who is 80, may be looking to realize big profits for his institutional investors by selling the company to a bigger REIT, he said.

The biggest risk with investing in American Homes is the possibility that the capital markets would stop money from flowing to institutional buyers of residential homes for some reason, Imperiale said. Problems in residential real estate also would cause investors to view companies like American Homes as “toxic waste,” he added.

“But my sense is the residential markets have stabilized and the long-term trend will be positive for them,” Imperiale said.

American Homes shares have a 52-week range of $15.10 to $17.10.

These shares could reach $24 over the next 12 months, Imperiale said.

Copyright © 2014 Milwaukee Journal Sentinel. Distributed by MCT Information Services.

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