Susquehanna: Updates Single-Family REIT Activity - 1 Top Pick

On April 7, Susquehanna Financial Group (SIG) published a research note on the single-family home rental business, updating 2015 estimates and price targets on three REITs, in light of Q4 2014 performance. The single-family for rent REIT sector is relatively new, and essentially was created to take advantage of the unprecedented drop in U.S. housing prices and home ownership trends as a result of the Great Recession. The Susquehanna report covered:  American Homes 4 Rent

- $3.6 billion cap, 1.2 percent yield  American Residential Properties, Inc.

- $600 million cap, no dividend.  Silver Bay Realty Trust

- $588 million cap, 2.2 percent yield. Tale Of The Tape - Past Year

The Vanguard REIT Index ETF

is a good proxy for the overall equity REIT sector. During the past year, investors owning VNQ shares would have been better off from both a total return and income perspective. Susquehanna - American Homes 4 Rent: Positive, $21 PT The SIG price target is based upon a ~15 percent discount to pro-forma NAV (net asset value) of $24.70 per share, a potential upside of ~28.5 percent from the AMH previous close of $17.11.  Acquisitions: American Homes grew 12 percent, Q/Q sequentially from 30,877 homes to 34,599 homes at the end of Q4 2014. Management guided to an overall Q1 2015 acquisition pace of 2,000 rental homes.  Occupancy: The AMH acquisition pace combined with seasonal leasing trends to result in 81.6 percent occupancy, or a 3.1 percent decline sequentially Q/Q. Notably, Q2 2014 occupancy was at a high of 86 percent.  Renewal Trend: AMH "reported a quarterly tenant renewal rate of 67% this quarter, down from the 68.4% reported last quarter, and down from the ~72% figure in 2Q14."  Recycling Capital: AMH completed its fourth securitization in November 2014, raising $528 million at 4.4 percent for a 10-year term; bringing American Homes aggregate to over $2 billion raised by this method. Susquehanna - American Residential Properties: Neutral, $20 PT The SIG price target is based upon a 5 percent discount from its pro-forma NAV of $20.57 per share, a potential upside of ~7.4 percent from the ARPI previous close of $18.63 per share.  Acquisitions: ARPI reported "an 8% increase in the number of properties in its portfolio to 8,893 units, compared to 8,223 at 3Q14 and 7,205 at 2Q14."  Management expects acquisitions to slow significantly due to capital constraints and a renewed focus on operations to drive higher margins.  Additionally, ARPI will now be focused on rationalizing its portfolio through sale of assets in non-core markets, which could result in the company implementing a dividend.  Occupancy: ARPI's "self-managed portfolio declined from 80.1% in 3Q14 to 79.3% in the quarter; while occupancy including preferred operator portfolios was 81 percent, a 1 percent decrease from Q3 2014.  Margins: ARPI management "also walked back their NOI margin guidance - previously discussing 60% NOI margins in 2015 - which has now been pushed back to 2016." Susquehanna - Silver Bay: Neutral, $16.50 PT The SIG price target is based upon a ~15 percent discount from pro-forma NAV of $19.40 per share, potentially a 2 percent upside from the SBY previous close of $16.17 per share.  Acquisitions: SBY acquired 459 homes during Q4 2014, an increase of 126 homes sequentially Q/Q. However, the big news occurred on April 1, when SBY closed on 2,373 homes from The American Home (TAH) portfolio -- with two-thirds of the homes in metro-Atlanta.  Portfolio Focus: This TAH acquisition tilts the SBY portfolio heavily towards the Southeast, with the company looking to expand in Florida and Dallas markets.  SBY now believes it can achieve scale with 300 homes per market vs 500 homes previously; and management is now considering selling off appreciated homes in non-core markets.  Operational Focus: SBY's Q4 acquisitions outpaced leasing, resulting in an occupancy drop from 88 to 85 percent. Silver Bay is focused on decreasing turnover, pushing rents where possible, and internalizing management in larger markets.