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American Homes 4 Rent offloading the dregs of American Residential Properties' portfolio, execs say


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American Homes 4 Rent offloading the dregs of American Residential Properties' portfolio, execs say

intends tosell roughly 1,300 properties that it acquired in its purchase of American Residential Properties Inc., likelyin portfolio sales to smaller operators, company executives said in an earningsconference call.

The companyis the largest publicly traded single-family rental REIT, with roughly 48,000 rentalhouses in 22 states. Of the roughly 8,900 properties it took on when it bought outAmerican Residential Properties, 7,600 "are of high quality and meet our locationalcriteria," CEO David Singelyn said in the call.

The other1,300 properties, which "do not conform to AMH quality standards," inSingelyn's words, originally came to American Residential Properties through thatcompany's "preferred operator program," in which partner companies sourcedhouses for American Residential Properties to buy, and then took control of themunder master leases with the REIT.

The preferredoperator program became a headachefor American Residential Properties, and for American Homes 4 Rent after the acquisition.American Residential Properties had terminated three of the five partnerships bythe time the two REITs combined; the remaining two were delinquent on their masterleases.

In thecall, Singelyn said American Homes 4 Rent took over day-to-day management of morethan 500 of the previously master-leased homes in May, leaving roughly 80 homesstill managed by the preferred operators.

The 1,300homes marked for disposition, though no longer part of the preferred operator program,still reflect the program's lower quality standards and unique incentives, companyexecutives said. In order to generate enough income to cover the master lease rate,they said, the preferred operators targeted lower-quality houses in less-desirableneighborhoods, which theoretically have higher yields because of their lower costto purchase.

The preferred-operatorhouses are "substantially older" than the rest of the American ResidentialProperties portfolio, and were acquired more cheaply — for roughly $100,000 or less,compared with purchase prices of around $170,000 for most of the other propertiesthe two REITs owned.

So far,American Homes 4 Rent has sold a few dozen of the properties, but there is "alot of interest" from smaller operators who would like to buy the rest in bulk,Singelyn said.