Q2 core FFO of $3M or $0.08 per share up 12% from Q1. Dividend is $0.03.
Book value per share of $16.74 slips from $16.90 at end of Q1. Estimated net asset value per share (which includes estimates of property price appreciation) of $20.95 up from $20.35. Last night's close was $16.07.
The occupancy rate on the entire portfolio (5,987 properties) slips to 90% from 92%. The occupancy rate on 5,719 stabilized properties stays at 95%. Average monthly rent of $1,170 vs. $1,163.
"This is an exciting transaction for the future of SIlver Bay (NYSE:SBY)," says CEO David Miller, of the deal to internalize the company's management structure. "We believe this transaction will benefit our stockholders through reduced expense in the combined general and administrative and advisory management fee expense categories, improved cash flow and a simplified corporate structure."
Silver Bay will acquire the "Manager" in exchange for 2.23M common units of Silver Bay Operating Partnership which are redeemable for cash or common stock representing about 5.8% of the company.
Silver Bay Realty Trust (SBY -0.2%) opens up a new source of funding with the sale of $312M of paper backed by rental payments on its single-family home portfolio. The blended effective rate of the deal is reportedly at Libor plus 1.92%.
Eyes will be on Silver Bay Realty Trust (NYSE:SBY) to look for follow-through after yesterday's roughly 3% gain on disclosure of a move to internalize company management. The transaction currently is leaning towards Silver Bay's acquisition of the external manager - PRCM Real Estate Advisors - with company shares as the currency.
"Arguably when you get scale, you can hire your own plumbers and electricians, and maybe help costs go a little lower that way," says Richard Green, director of the USC Lusk Center for Real Estate. "But it's still a mystery to me how they can manage the properties efficiently enough and get the right yields."
Or as Auction.com's Rick Sharga puts it: "It's hard enough to manage a 30-unit building, but it's incrementally more difficult to manage properties that are scattered all over the place."
Given the management challenges, another way to earn a decent return would be to boost rents, but home prices are rising faster than rents at the moment, making that avenue questionable.
Critical mass in limited markets is key to achieving greater economies of scale and American Residential Properties (ARPI +0.7%) - which owns 7K homes in 12 states - owns 1K+ homes in core markets like Phoenix, Houston, Dallas, and Atlanta, and plans to have 500 homes by year-end in five other markets.
American Homes 4 Rent (AMH +0.1%) started with 49 markets, but has whittled that down to about 30, and Starwood Waypoint (SWAY -0.3%) aims for at least 1K homes in markets where it does business.
The companies are also investing in technology to aid in things like determining how much to pay for a home to managing maintenance. Starwood has a system tracking 400K neighborhoods to figure out fair prices, and a revenue management system based on traffic and rent prices allowing it to optimize rents.
Likely IPO candidates: Blackstone's Invitation Homes, with about 43K homes, and Colony Financial's (CLNY +2.7%) Colony American Homes with more than 8K rentals. Reven Housing (RVEN) - with 177 homes mostly in Houston - has filed with the SEC to raise up to $29M and uplist from the pink sheets.
An interesting study from Kroll finds single-family rental properties whose rent payments were bundled into securitizations in Blackstone's initial deal rent for just 94% of market rate. Blackstone's issuance was followed by one by American Homes 4 Rent (AWH -0.3%) as well as another from Blackstone.
“It may be a function of the size of the properties or the age of the properties,” says Kroll's Michelle Patterson. Or perhaps the issuer was in such a hurry to get the homes filled and the debt deal done that properties were rented for less than they otherwise would have been. A person familiar with Invitation Homes (Blackstone) says rental rates are expected to converge with market rates over time.
The first securitization received strong demand from investors, but they asked for beerier yields the next time around.
Zillow's April Real Estate Market report has national home values slipping 0.1% in April to $170,200, the first month-over-month decline since about the end of 2011. On a year-over-year basis, home values gained 5.3%. The company's current forecast calls for values to rise 2.2% in the year ending April 2015, about a third of 2013's appreciation.
Values fell in April even as inventory continues to tighten, with the number of homes listed for sale on Zillow slipping 0.4% annually last month, the 4th consecutive month of decline. Conditions are most "acute" at the lower end of the market which has become the sandbox of institutional players like Silver Bay (SBY -0.1%), American Homes 4 Rent (AMH +0.3%), American Residential Properties (ARPI +0.4%), and Starwood Waypoint (SWAY +0.5%).
At the peak last summer, Blackstone's (BX) Invitation Homes unit was buying about $125M of homes per week, but - with good deals harder to find - has slowed the pace to $30M-$40M, and global real estate chief Jonathan Gray suggests it could drop further. “It’s not going to get larger," he says. "There’s less and less distressed housing ... We have slowed down [buying] significantly in a number of markets as a result of prices going up."
Gray expects real estate will do just fine without Blackstone's giant-sized purchases. "We are an increasingly smaller and smaller part of the story now that the recovery has plenty of momentum on its own."
The pure-play single-family rental stocks' performance continues to disappoint, with the two public the longest - Silver Bay (SBY +0.3%), and American Residential Properties (ARPI -0.9%) - both near their lows since issuance. Others: American Homes 4 Rent (AMH -0.6%), Starwood Waypoint (SWAY -1.8%).
Colony American Homes is selling $513.6M worth of paper backed by rental payment on 3,399 single-family properties in 20 metro areas in 7 states. It would be the 2nd such deal following Blackstone's landmark offering late last year (American Residential Properties has hired Deutsche to put together what would be deal #3).
A $299M tranche of the deal has received a AAA rating from Moody's, Kroll, and Morningstar. S&P has said these rental-backed bonds don't yet meet the criteria necessary for a top rating.
Blackstone's (BX) acquisition pace has slowed 70% from its peak last year when it was spending $100M per week on properties, says Jon Gray, the P-E firm's global head of real estate. After investing $8B to since April 2012 to buy 43K homes in 14 cities, Blackstone has narrowed most of its purchasing to Seattle, Atlanta, Miami, Orlando, and Tampa.
"The institutional wave has passed," says Gray.
American Homes 4 Rent (AMH) and Colony American Homes (CLNY, CAHS) have also slowed their purchase pace as bargains dry up. Now comes the difficult business of trying to manage massive stables of single family properties.
Gray, meanwhile, discounts the popular narrative of all this institutional buying driving prices higher, noting it represents a minor percentage of all purchases.
Not everyone is slowing down: "We've been ramping up acquisitions," Silver Bay Realty (SBY) CEO David Miller said in last week's earnings call (transcript).