American Homes Beats Blackstone With Low Rental-Bond YieldsJody Shenn
American Homes 4 Rent, the largest publicly traded U.S. single-family landlord, found investors willing to accept the lowest yields yet on bonds backed by rental homes in the third-ever offering of such debt.
The company sold $269.4 million of top-rated floating-rate notes today that pay 100 basis points, or 1 percentage point, more than a benchmark rate, said a person with knowledge of the deal. The debt, part of a $481 million transaction, was marketed yesterday at a range of 110 basis points to 115 basis points, the spread on a similar part of the market’s inaugural offering in November by Blackstone Group LP’s Invitation Homes.
Bond buyers are paying up for rental-home securities partly because of their limited supply as investors search for relatively high-yielding notes, especially variable-rate debt that will benefit when Federal Reserve raises short-term borrowing costs, said Vishal Khanduja, a money manager at Calvert Investment Management Inc. The Fed’s holding its target near zero since 2008 has helped drive investors to riskier debt.
While there are “definitely” dangers worth monitoring in the deals, such as how well landlords can fill vacancies after leases expire, the transactions are “well-structured” and poised to benefit from a shift away from homeownership, said Khanduja, whose firms oversees $13 billion and bought pieces of the first two offerings.
“The masses are much more skeptical of owning a home right now given the job situation and what happened in terms of owning over the last several years,” Khanduja said today in a telephone interview from Bethesda, Maryland, before the sale of the American Homes bonds, which he expected to purchase.
Institutional investors, who went on a property-buying spree following a crash in prices that led to a foreclosure crisis, are bundling their rental homes into securities to recoup cash and earn higher returns on their residual investments with cheaper financing.
“We’re very pleased with the ability to get a securitization done and lower our cost of capital, which will enhance our opportunities to buy attractive assets and enhance the returns to our stakeholders along the way,” American Homes Chief Executive Officer David Singelyn said. “We couldn’t have been happier with the response from the marketplace, which was a validation of our operating platform.”
Last month, Colony American Homes Inc. sold securities similar to the top-rated American Homes bonds at a spread of 120 basis points as part of a $513.6 million deal. Invitation Homes, the largest owner of single-family rentals, issued a total of $479.1 million of debt.
Invitation Homes is now working with Deutsche Bank AG to sell $1 billion of additional bonds, a deal whose marketing may begin within a month, a person with knowledge of the plans said last week.
The $32.6 million portion of the American Homes deal first in line for losses was sold at a margin of 325 basis points more than the one-month London interbank offered rate, said the person familiar with that deal, who cited a lack of authorization to speak publicly in asking not to be named. That compares with 365 basis points for a similar portion of the first Invitation Homes offering.
Hedge funds have been interested in the riskier notes from the deals, with the safer portions attracting investors such as insurers, Singelyn said today in a telephone interview. In today’s offering, potential buyers put in orders exceeding the amount of debt offered by between five and 15 times, depending on the class, he said.