Pure-Play REITs: American Homes 4 Rent (AMH)
This is the brand child of Public Storage founder Wayne Hughes, who started the company in 2011 to take advantage of falling prices in the single-family home market. Private equity firms such as Blackstone Group (BX), Hughes and others have been actively buying up houses on the cheap with plans to rent them out until prices rise to the point where they’re no longer worth holding on to. As a result of this intense competition, prices have risen faster than anticipated — slowing the number of home purchases made by institutional investors.
In the fourth quarter ended Dec. 31, AMH bought 2,001 homes, 32% fewer than in Q3. It now owns 23,268 single-family properties with an occupancy rate just under 80%. It might not sound great, but it’s an improvement of 12 percentage points over Q3. As a result its net operating income from leased properties in the quarter increased by 27% over Q3.
This is a business model that’s working, yet its stock price is barely up more than 5% from its July 31, 2013, IPO. As more capital flows into the business AMH will continue buying up more homes. Eventually, investors will realize that AMH isn’t going away and that Americans don’t have to feel bad about renting rather owning. Wayne Hughes has struck again.