Single-Family REIT CEOs Upbeat on Long-Term Outlook

The single-family home rental sector should experience solid growth for at least the next decade, buoyed in part by demand from millennials, a shortage of housing and greater acceptance as a viable investment, according to the CEOs of single-family housing REITs.

The CEOs participated in a Dec. 6 panel discussion presented by the National Rental Home Council at the IMN SFR Investment Forum West in Phoenix.

David Singelyn, CEO of American Homes 4 Rent (NYSEMKT: AMH), said he expects “very, very good days ahead of us.” Acceptance of the single-family asset class model by institutional investors has grown significantly in the past four years, he noted, resulting in better access to capital.

Looking forward, the possibility for higher inflation and interest rate increases should translate into better returns on investments, Singelyn said. Changing demographics are also a key factor behind the sector’s robust outlook.

Frederick Tuomi, CEO of Colony Starwood Homes (NYSE: SFR), described millennials as a “massive force of demand” that will sweep across the entire economy for the next 20 to 30 years.

“This is going to be a fantastic run. It’s up to us to make hay out of this opportunity and provide necessary housing because there is a shortage of housing in this country,” Tuomi said.

“We’re providing a need at just the right time,” he added.

Benefits from Technology

As the sector gears up for growth, Silver Bay Realty Trust Corp. (NYSE: SBY) CEO Thomas Brock pointed to the “tremendous opportunity” to improve margins and cost controls in the industry going forward.

“We’re at the very early stages of learning how to operate these businesses efficiently, and technology as an enabler will help us get even better at it,” he said.

Singelyn agreed, noting that technology platforms  built in the last two years are “going to revolutionize this industry.”

According to Tuomi, investing heavily in technology helped legitimize the single-family sector’s business model.

“The dialog now is about how we are going to take these platforms on to the next level of operational excellence and the next level of relevance in the investment world,” Tuomi said.

In addition to technology, another important development in the single-family industry has been the change in approach to valuations, according to Tuomi. The dialog is now switching to more traditional real estate valuation criteria that are focused on income, Tuomi said.

Another sign that the business is maturing is the emergence of an investor-to-investor marketplace, replacing the previous system of buying through listing services or foreclosures, according to Tuomi.

Consolidation Gaining Traction

Meanwhile, Singelyn said consolidation in the single-family sector is “starting to get some traction,” prompting American Homes 4 Rent to increase its liquidity. The company recently signed a $1 billion credit facility with an option for an additional $1 billion. “We have some firepower to be able to grow our company through external means,” Singelyn noted.

For Colony Starwood, growth going forward will be more measured and strategic than the rapid pace of past years, according to Tuomi.

“We’ll continue to fill in the markets we enjoy today and increase that density significantly over the next couple of years” to boost operational efficiency, he said.