Unlike Silver Bay Realty Trust Corp (NYSE:SBY), American Homes 4 Rent (NYSE:AMH) is more focused on metro areas that have had stable housing markets such as Dallas-Ft. Worth, Indianapolis, and Houston. Because of this focus, it also hasn’t seen solid capital appreciation. The average house is only 11 years old, again differentiating itself from the homes needing vast renovations. The company operates in over 40 markets and over 21 states, so it does provide the greatest potential in the group for creating a national brand that might provide some benefits in the leasing process.
Focusing on young houses
American Residential Properties Inc (NYSE:ARPI) is the smallest stock of the group, with a valuation of only $540 million — that’s $70 million smaller than Silver Bay. It completed an IPO in May at $21 and has seen a considerable drop to around $17. However, because of the focus on younger homes and a smaller base, the company is starting to grow faster than the others, with 1,558 homes acquired during Q2, or a 61% growth from the Q1 ending balance.
Interestingly, American Residential Properties Inc (NYSE:ARPI) has a similar focus on the Phoenix market as Silver Bay, with nearly 20% of the portfolio in that metro area. The company quickly shifts to Houston, Chicago, and Dallas as secondary markets, though. This makes American Residentail nearly a blend of Silver Bay and American Homes 4 Rent (NYSE:AMH) with a focus on younger homes in areas such as Phoenix and the Inland Empire in California, which were part of the major crash areas.
The company only generated $8.4 million in revenue for the quarter, so the operations remain small, but according to some complex reduction of non-GAAP charges such as IPO expenses, stock-based compensation, and acquisition expenses, it lists a Core FFO gain of $0.08. A good sign, but most investors will want to see a quarter with a cleaner number to gain confidence in the sector.
Looking ahead
Not surprisingly, the stocks of the single-family rental companies have struggled in the market. All three stocks are still very much in the formative process, and today’s short-term investors are overlooking the long-term value creation because of current weak income statements. Questions remain about the companies’ ability to generate significant returns on the monthly rentals of individual assets that are vastly different. The current situation makes Silver Bay the favorite in the group as it has successfully invested in the beaten-down markets and is now generating solid returns on those assets.
Long-term, though, the group has huge growth potential as the three companies only control around $5 billion in housing inventory in a multitrillion-dollar market. Market share growth from consolidating all of the mom and pop players in the sector could be a multi-decade trend.
The article These 3 Single-Family Rental Stocks Are Misunderstood originally appeared on Fool.com and is written by Mark Holder.
Mark Holder is a Motley Fool contributor and Chief Investment Officer at Stone Fox Capital Advisors. He and his fund have no positions in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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