American Homes 4 Rent to Tap New Market for Rental-Backed BondsJody Shenn
American Homes 4 Rent, the second-largest landlord for single-family U.S. homes, said it plans to market bonds backed by some of its more than 21,000 rental properties after Blackstone Group LP’s Invitation Homes completed the first deal of the type this week.
American Homes plans to start marketing the transaction within 90 days, it said in a statement today. Wells Fargo & Co. has been working on a securitization for the Agoura Hills, California-based company, a person with knowledge of the matter said last week, asking not to be named because the information is private.
“We are very excited to finalize the details to take advantage of this new capital opportunity,” American Homes Chief Executive Officer David P. Singelyn said in the statement. The offering may help the company “reduce our cost of capital over the long term,” he said.
The $479.1 million of debt sold by Invitation Homes may herald a slew of additional deals by institutional rental-home operators that have mainly relied on banks for financing since the industry emerged amid the U.S. housing slump, according to analysts at Deutsche Bank AG, which structured the offering.
“Securitized loans backed by home rentals totaling in the billions is not out of the question by this time next year,” the New York-based analysts Harris Trifon, Ying Shen and Doug Bendt wrote in a Nov. 5 report. “Indeed, barring another recession, we find it hard to imagine how a relative flood in deals won’t happen in the next year or two.”
Public Storage founder B. Wayne Hughes created American Homes to take advantage of record foreclosures and tightened mortgage lending, raising money from investors including the Alaska Permanent Fund Corp. The firm raised a gross $886.8 million in August with an initial public offering and private placement of shares to investors including the Alaska fund, which invests royalties from state oil revenue.
The company, whose IPO priced at $16 a share, rose 0.8 percent today to $16.16 as of 12:55 p.m. in New York.
American Homes last month sold $110 million of preferred shares in what potentially was the first financing that’s tied to increases in home prices, the cost of which starts at 5 percent and can rise to as high as 9 percent through 2020, according to a filing with the U.S. Securities and Exchange Commission.
The rental-home bonds sold by Invitation Homes, American Homes’s largest rival, will pay an weighted average coupon of 1.66 percentage points more than the one-month London interbank offered rate, according to data compiled by Bloomberg. A credit facility used by American Homes carries an interest rate of 2.75 percentage points more than Libor, the company said yesterday in an earnings statement. The borrowing benchmark was set today at 0.17 percent.