New IPO American Homes 4 Rent reportedly slashing jobs


Just 3 weeks after the IPO, American Homes 4 Rent (AMH -1.3%) is reportedly firing 15% of its workforce, according to a Bloomberg report. Earlier this week, the company reported a $14M loss for Q2.

The move raises a question over the suddenly popular but never-proven business model of earning decent returns by amassing thousands of single-family for rent (AMH has more than 20K now).

Other publicly traded players (also recently gone public) include Silver Bay (SBY +0.6%) and American Residential Properties (ARPI +0.8%), not to mention the biggest of them all (but not a single-family rental pure-play) Blackstone (BX).

AMH Q2 results.

The IPO.

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Comments (21)
  • Grant Dossetto
    , contributor
    Comments (200) | Send Message
     
    Blackstone is the new Archstone. It will die the same death. This rate hike destroyed housing.
    23 Aug 2013, 02:10 PM Reply Like
  • Energysystems
    , contributor
    Comments (2085) | Send Message
     
    Rates are still at historic lows if you look at a chart with any real length to it. Examine a 1973-2013 chart or a 1963-2013 chart for some perspective. This rate hike is a minor blip, big picture, rates are still dirt cheap.
    23 Aug 2013, 02:14 PM Reply Like
  • Grant Dossetto
    , contributor
    Comments (200) | Send Message
     
    Life is lived on the margin. In relative terms, this rate hike has been quite severe. All it takes to end fads is the absence of a greater fool. Housing returns are not there right now compared to other asset classes. I'd much prefer bonds or metals right now, both of which have been left for dead by the hot money lately.
    23 Aug 2013, 02:19 PM Reply Like
  • The Market Daily
    , contributor
    Comments (45) | Send Message
     
    Wait what? Bonds?

     

    BTW, the recent increases in interest rates are bullish for these SFH rentals. Home affordability is increasing at a rapid pace due to home prices increasing in combination with increasing mortgage rates.

     

    These companies act like a hedge to this interest rate risk since many of these companies locked in the home prices at such low levels. The spike in rates is increasing rental demand to historic highs and first time homeownership is at historic lows.

     

    http://bloom.bg/1e8z1GR

     

    Housing is very distorted right now and these companies exploited that. All they need to do now is manage costs and increase occupancy rates.
    23 Aug 2013, 04:01 PM Reply Like
  • Grant Dossetto
    , contributor
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    Rising rates aren't good for these companies. Rental rates are hemmed in by stagnant wages and now the rate at which you discount said cash flows is significantly higher. That reduces the value of these assets or it destroys the return these assets generate. Bad, bad, bad for companies that have never shown they can make a profit.
    23 Aug 2013, 04:18 PM Reply Like
  • The Market Daily
    , contributor
    Comments (45) | Send Message
     
    You are clearly missing the point Grant. The discount rate for every stock is higher after the change in interest rates.

     

    Also, a company like SBY which has a minimal amount of debt (small line of credit) will not be that much affected by change in interest rates from a cash flow perspective. SBY was actually CF positive for the quarter from an operating perspective.

     

    Rental rates are HEMMED by DEMAND not wages. New home purchases are affected much more by wages, which proves more validity to my point. Stagnant wages will damper new home sales while further accelerating rental demand and rates.

     

    Anyone thinking that these companies will give you 100-200% gains need to look elsewhere. However, if you are looking for attractive risk-adjusted returns, I feel the future bodes well considering the artificial real estate market we are currently in.

     

    Read the conference calls before you go after a company:

     

    "While higher rates could moderate the pace of HPA in the near term, this may have a positive impact on our leasing operations as the relative cost of renting becomes more attractive.

     

    We continue to believe that the single family rental business has some natural hedges build into it. For example, strong HPA is good for the value of our existing portfolio. Other forces like constraint credit availability or higher mortgage rates might temper HPA, but are positive for our rental demand and other factors, like income and economic growth are good for both."

     

    This is coming from a management team that buys and sells MBS securities, which has a lot to do with interest rates :) (see ticker TWO).
    23 Aug 2013, 08:18 PM Reply Like
  • DAG Investments
    , contributor
    Comments (4132) | Send Message
     
    "Blackstone is the new Archstone. It will die the same death. This rate hike destroyed housing."

     

    lmao Good luck with that call.
    23 Aug 2013, 09:01 PM Reply Like
  • RobbyRob
    , contributor
    Comments (362) | Send Message
     
    Buy the dip! Just like anything else. Time for my meds....
    23 Aug 2013, 02:17 PM Reply Like
  • bfstrog
    , contributor
    Comments (74) | Send Message
     
    They're firing everyone because they are about to securitize their entire portfolio. Nothing to see here!
    23 Aug 2013, 02:18 PM Reply Like
  • scottcords
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    Comment (1) | Send Message
     
    I don't think so
    24 Aug 2013, 02:39 PM Reply Like
  • Placebo Investment Advice
    , contributor
    Comments (4019) | Send Message
     
    Firing 15% of the workforce is a win-win situation. AMH will likely improve operating profits with fewer employees, and AMH might be able to buy some more cheap homes when their ex-employees go into foreclosure themselves.

     

    It's the reverse strategy of Henry Ford, who paid his workers unusually high wages with the belief that raising worker wages would increase the number of people who could afford his cars.
    23 Aug 2013, 03:29 PM Reply Like
  • chopchop0
    , contributor
    Comments (5162) | Send Message
     
    I guess being a big time landlord is harder than these companies think
    24 Aug 2013, 07:09 AM Reply Like
  • appledeadmoney
    , contributor
    Comments (44) | Send Message
     
    Over time this mega landlord business model will fail miserably. It is going to be difficult and much more costly to manage all those single home properties. Multifamily units can have difficulty squeezing out gains with numerous rental streams on one property. Now take that and spread it among numerous homes across the U.S.... Ever rising taxes and insurance rates alone will eat into these profits.. Margins will be tight and all it takes is one bad tenant and the profits will be lost through property damage and legal costs.. The investors and shareholders are going to get burned in these entities... However, I must say it will give me great satisfaction to see these companies burn as they have distorted the already murky housing market... Prices of homes should be 25% lower across the board but the free money and these hotshot MBAs with no real concept of being landlords have propped up the market for the past couple of years... Unfortunately, the real fools will be the investors getting into these deals looking for some yield... Buyer beware on these....
    25 Aug 2013, 01:48 PM Reply Like
  • DAG Investments
    , contributor
    Comments (4132) | Send Message
     
    It's truly impressive that there are so many pseudo money managers on the interweb who are magnitudes smarter than all of those with one of the biggest PE firms in the world combined (re: Blackstone). Do we really think people with long successful track records in the business of managing and making billions of dollars are knocking on doors to collect rent checks in marginal neighborhoods? Perhaps some people are smart enough to understand that they don't know everything, or need to, and let people who know the businesses that they've merely invested in run those businesses. There have been property management companies very successfully managing properties as long as there have been properties so I wonder what exactly makes that so different suddenly. I wonder if Schwarzman, James, Hill or Gray has ever even been to Sea World, a La Quinta hotel or any one of the homes Blackstone owns. It's pretty comical that Blackstone is suddenly on the brink of collapse because some random interweb blogger decided to mention the company on the same web page with comments about AMH losing a miniscule $14M in one period, which happens to be about equal to the amount Blackstone could spend on lunch. In my experience, those who confuse their personal biases with an investment thesis are pretty consistently the ones who get burned to ash.
    25 Aug 2013, 03:21 PM Reply Like
  • appledeadmoney
    , contributor
    Comments (44) | Send Message
     
    Well we will see....
    25 Aug 2013, 04:18 PM Reply Like
  • DAG Investments
    , contributor
    Comments (4132) | Send Message
     
    Indeed we will. I change my opinions when the facts change, but in the meantime, Blackstone's >60% YTD returns are a win in my book.
    25 Aug 2013, 08:00 PM Reply Like
  • Placebo Investment Advice
    , contributor
    Comments (4019) | Send Message
     
    Before you keep hyping up Blackstone, note that their stock price is still way under its IPO price six years ago. That's not a record to boast about, nor is the 85% decline in the first two years after the IPO.
    25 Aug 2013, 08:20 PM Reply Like
  • DAG Investments
    , contributor
    Comments (4132) | Send Message
     
    Everything I said were simple statements of fact so if you chose to read into those statements "hyping up" or "boasting", that's your problem not mine. I could care less what price any stock was five years before, or on any day other than, the day I bought it and the day I sell it. Those of you who do are record keepers, not investors, so save your condescending advice for someone who cares about it and, to be crystal, that does not include me. Cheers.
    25 Aug 2013, 10:06 PM Reply Like
  • Placebo Investment Advice
    , contributor
    Comments (4019) | Send Message
     
    I pointed out that you don't know much about the company you're speaking about, as is typical for a pseudo investor.
    25 Aug 2013, 10:27 PM Reply Like
  • The_Hammer
    , contributor
    Comments (5052) | Send Message
     
    The P/E monkeys have a good track record of selling or IPOing leveraged buyouts or positions at highs and selling to suckers.
    26 Aug 2013, 09:32 AM Reply Like
  • The_Hammer
    , contributor
    Comments (5052) | Send Message
     
    the hedge fund P/E monkeys going to learn hard lesson in single family rentals. all this artificial monkey demand going to head for the exits soon.
    26 Aug 2013, 06:51 AM Reply Like
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