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Wednesday, Sep 28, 2022

American Homes Sees Huge Market for Rentals

American Homes 4 Rent Inc. reported a strong third quarter helped by the housing shortage, an increase in the number of homes in its portfolio and higher rental rates. 

The Calabasas provider of single-family homes for rent reported on Nov. 4 net income of $37 million (11 cents a share) for the quarter ending Sept. 30, compared to net income of $23 million (7 cents) in the same period a year earlier. Revenue increased by 10 percent to $340 million. 

In a release, the company attributed the net income increase to growth in the company’s portfolio, a larger number of occupied properties and higher rental rates and fees.

David Singelyn, chief executive of American Homes 4 Rent, said in a statement that the company was benefitting from the country’s housing shortage and the increasing number of households that desire single-family living but prefer the ease of a rental lifestyle.

“And as we close out 2021, our differentiated strategy has positioned us with a portfolio mix poised for the future of our country’s migration patterns, with a highly efficient operating platform and industry leading build-to-rent development program,” Singelyn said in the statement. 

In a conference call with analysts to discuss third quarter financials, executives with American Homes expanded on the prepared comments from Singelyn about the development program.

Christopher Lau, chief financial officer, said that during the third quarter, the company added a total of 1,583 homes to its wholly owned and joint venture portfolios. 

“For our wholly owned portfolio, during the quarter we added 1,382 homes for a total investment of approximately $494 million, which was ahead of our expectations and included 368 homes from our AMH Development program and 1,014 homes from our other acquisition channels,” Lau said. “And on the disposition side, we sold 90 properties during the quarter, generating total net proceeds of approximately $27 million.”

Since January, American Homes has opened nine new home-for-rent developments, either on its own or through joint ventures. 

In early February, for example, the company opened the Jones Crossing community, the newest of its Las Vegas area properties. Then in May, the company opened a single-family rental home project in the Ten Trails master planned community in Black Diamond, Wash. in the Seattle area. That project was done in partnership with Oakpointe Communities, one of the Pacific Northwest’s largest commercial developers.

The company has about 70 rental home communities in 22 states. It owns more than 56,000 rental homes across the country. 

‘Buy’ rating

The American Homes share price has increased by 44 percent over the last 52 weeks, closing at $41.15 on Nov. 24. The stock price closed at $39.67 on Dec. 1. 

Analysts who follow the company rate the stock as a “buy.” 

Buck Horne, an analyst with Raymond James & Associates Inc., said in a recent research note that the demand indicators remained “extraordinarily” strong, with same-house occupancy holding at 98 percent at the end of the third quarter and new leases jumping by 16 percent year over year. 

“Phoenix (plus 26 percent) and Las Vegas (plus 21.5 percent) continue to lead all markets in new lease pricing, but the demand surge is broad based and nationwide,” Horne wrote in the report. “Renewal rates also increased 5.7 percent, driving blended rent growth up 9.1 percent (year over year).”

Craig Kucera, an analyst with B. Riley Securities Inc., said in his latest report on American Homes that the company is seeing an increased migration demand from California to its other Western markets. 

“(It is also) benefiting from the work-from-home trend exacerbated by COVID-19, allowing for outsized (same store) rent and NOI (net operating income) growth,” Kucera wrote in the report. 

He maintained a target stock price of $47.

During the conference call, Horne asked about American Homes’ interest in going after property being sold by Zillow Group Inc., the online real estate marketplace. Zillow announced early last month that it would close its home-buying and selling division and lay off about 2,000 employees. 

Singelyn said that with respect to Zillow there are “absolutely” opportunities there.

The company has been in contact with Zillow and are evaluating properties. 


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