Colony Starwood Homes Announces Second Quarter 2016 Financial and Operating Results
Colony Starwood Homes (NYSE: SFR) (the "Company"), a leading single-family rental real estate investment trust ("REIT"), today announced operating and financial results for the three and six months ended June 30, 2016. Capitalized terms used herein have the meanings ascribed thereto in the Appendix.
Second Quarter 2016 Highlights
- Total revenues increased to $143.8 million in Q2 2016, supported by an acceleration of Quarterly Same Store Blended Rent Growth of 5.5% compared to 3.9% in Q1 2016; Quarterly Same Store revenue growth was 6.3%
- Total Homes Occupancy exceeds 95% for second straight quarter, measuring 95.4% as of June 30, 2016; Quarterly Same Store Occupancy for Q2 was 95.8%
- Net loss of $15.7 million or ($0.15) per share, with Core FFO of $0.39 per share for the three months ended June 30, 2016
- Quarterly Same Store NOI increased 7.8% compared to Q2 2015; Quarterly Same Store Core NOI margin was 62.8%
- Completed $485.6 million securitization and subsequently entered into a $450 million interest rate swap contract, effectively locking in an average interest rate of 3.3% over the five-year term and increasing the percentage of fixed rate debt to total debt to over 60%
- Company tightened full year 2016 Core FFO guidance to $1.60 - $1.65 per share
"Continued strong demand and virtually no new supply of single-family rental homes led to accelerating rent growth and stable occupancy through the second quarter," stated Fred Tuomi, the Company's CEO. "Quarterly Same Store Blended Rent growth was 5.5% compared to 3.9% in the first quarter. Through the first six months our Full Year Same Store portfolio of 22,647 homes produced year over year revenue growth of 6.3%, NOI growth of 10.9% and Core NOI margin of 64.1%, while maintaining occupancy of 95.7%. The momentum behind these results, coupled with our high quality market selection, unique market density and innovative technology platform provides a favorable catalyst for future operating improvements and significant portfolio growth."
The 2016 financial results of the Company (other than Quarterly Same Store or Full Year Same Store results) include the historical financial results of Starwood Waypoint Residential Trust ("SWAY") beginning on January 5, 2016, which was the date of the merger between Colony American Homes ("CAH") and SWAY (the "Merger"). Historical financial results (other than Same Store results) as of dates or for periods prior to January 5, 2016 represent only the pre-Merger financial results of CAH and do not reflect what the financial results would have been had the Merger been complete during such periods.
Second Quarter 2016 Operating Results
Total revenues were $143.8 million for the three months ended June 30, 2016, and net loss attributable to common shareholders was approximately $15.7 million, or ($0.15) per share, driven by depreciation and amortization.
NAREIT FFO was $25.0 million for the three months ended June 30, 2016, or $0.23 per share, and Core FFO was $41.9 million, or $0.39 per share. NAREIT FFO and Core FFO are common supplemental measures of operating performance for a REIT, and the Company believes both are useful to investors as a complement to GAAP measures because they facilitate an understanding of the operating performance of the Company's properties.
Same Store Results
For the Company's Quarterly Same Store portfolio of 24,657 homes, revenue for the three months ended June 30, 2016 was $111.3 million, a 6.3% increase from those homes' revenues for the three months ended June 30, 2015. For the Company's Full Year Same Store portfolio of 22,647 homes, revenue for the six months ended June 30, 2016 was $201.1 million, a 6.3% increase for those homes' revenues from the six months ended June 30, 2015. For the Quarterly Same Store portfolio, property operating expenses increased by 4.0% from the three months ended June 30, 2015, producing a 7.8% increase in Quarterly Same Store Core NOI for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015. For the Full Year Same Store portfolio, property operating expenses decreased by 0.4% from the six months ended June 30, 2015, producing a 10.9% increase in Full Year Same Store Core NOI for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. Quarterly Same Store Core NOI margin was 62.8%. The table below summarizes Quarterly and Full Year Same Store operating results.
|Same Store Property Results|
|Quarterly Same Store||Full Year Same Store|
|Homes as of June 30, 2016||24,657||22,647|
|Occupancy as of June 30, 2016||95.8%||95.7%|
|Revenue Growth (June 30, 2016 as compared to June 30, 2015)||6.3%||6.3%|
|Operating Expense Growth (June 30, 2016 as compared to June 30, 2015)||4.0%||-0.4%|
|NOI Growth (June 30, 2016 as compared to June 30, 2015)||7.8%||10.9%|
|Core NOI Margin||62.8%||64.1%|
The Company sold 608 homes during the second quarter, including 359 single-family rental homes and 249 real estate owned ("REO") homes. The single-family rental homes were sold for gross sales proceeds of $56 million, and the Company recorded a gain of approximately $0.5 million on these sales. The REO homes were sold for gross sales proceeds of $33.6 million, and the Company recorded a gain of $1.7 million which is included in discontinued operations, net. During the three months ended June 30, 2016, the Company acquired 87 homes for an aggregate estimated total investment of approximately $17.0 million, or approximately $196,000 per home, including estimated investment costs for renovation.
On May 4, 2016, the Company's Board of Trustees (the "Board") authorized the marketing of the non-performing loan ("NPL") portfolio, which the Company commenced in the second quarter. The operations of the NPL business segment are recorded as discontinued operations, net for the three and six months ended June 30, 2016 and all comparable periods.
NPL resolutions and REO sales produced $46.8 million of gross cash proceeds during the quarter, resulting in net proceeds of $29.4 million after associated debt pay down of $17.4 million. As of June 30, 2016 there was $250.1 million of outstanding debt associated with the NPL business, which the Company intends to pay down in connection with the wind-down of the NPL business.
Subsequent to June 30, 2016, the Company sold 339 re-performing loans in a single sale transaction generating net sales proceeds of $45.9 million of which $23.7 million was used to pay down debt.
Balance Sheet and Capital Markets Activities
As of June 30, 2016, the Company had $4.0 billion of debt outstanding and approximately $525 million of undrawn commitments on its credit facilities.
In June 2016, the Company closed its first debt financing transaction post Merger, entering into a $485.6 million securitization (net of Class F and G certificates retained by the Company) with an initial maturity date of July 2018 and three one-year extension options. The Company separately entered into an interest rate swap contract in June 2016, effectively fixing the interest rate on approximately $450 million of variable rate debt for five years. This swap transaction is structured as a step-up swap, which locks in the forward LIBOR curve resulting in an average effective fixed rate of 3.3% over the five-year term.
The Company did not repurchase any shares in the second quarter of 2016 under its $250 million repurchase program, which is authorized through May 6, 2017. To date the Company has purchased 2.4 million shares for an aggregate purchase price of $52.8 million at an average of $22.19 per share.
On August 2, 2016, the Board declared a dividend of $0.22 per common share for the third quarter of 2016, which will be paid on October 15, 2016 to shareholders of record on September 30, 2016.
Full Year 2016 Financial Guidance
Earlier this year the Company provided Core FFO per share, occupancy, rent growth, and Core NOI margin guidance, which excludes the operations of our NPL business. The Company has tightened its Core FFO per share, occupancy, and rent growth guidance for the full year ending December 31, 2016, and re-affirms the Core NOI margin guidance for the 2016 fiscal year, as set forth below. The Company does not provide forward-looking guidance for certain financial measures on a generally accepted accounting principles ("GAAP") basis because it is unable to reasonably predict certain items contained in the GAAP measures, including one-time and infrequent items that are not indicative of the Company's ongoing operations. Such items include, but are not limited to, NPL operations, Merger and transaction related expenses, share-based compensation and other items not reflective of the Company's ongoing operations.
|2016 Full-Year Guidance|
|as of March 31, 2016||Updated Guidance|
Core FFO per share
$1.55 - $1.65
$1.60 - $1.65
|Stabilized Occupancy||94% - 95%||95%|
|Blended Rent Growth||4% - 5%||4.5% - 5%|
|Core NOI margin (Stabilized)||62% - 64%||62% - 64%|
This outlook is based on a number of assumptions, many of which are outside the Company's control and all of which are subject to change. This outlook reflects the Company's expectations on (1) existing investments and (2) yield on incremental investments inclusive of the Company's existing pipeline. All guidance is based on current expectations of future economic conditions and the judgment of the Company's management team.
Second Quarter 2016 Conference Call
A conference call is scheduled on Tuesday, August 9, 2016, at 11:00 a.m. Eastern Time to discuss the Company's financial results for the three months and six months ended June 30, 2016. The domestic dial-in number is 1-877-407-9039 (for U.S. and Canada) and the international dial-in number is 1-201-689-8470 (passcode not required). An audio webcast may be accessed at www.colonystarwood.com, in the investor relations section. A replay of the call will be available through September 9, 2016, and can be accessed by calling 1-877-870-5176 (U.S. and Canada) or 1-858-384-5517 (international), replay pin number 13641395, or by using the link at www.colonystarwood.com, in the investor relations section.
About Colony Starwood Homes
Colony Starwood Homes (NYSE: SFR) is one of the largest publicly traded owners and operators of single-family rental homes in the United States. Colony Starwood Homes acquires, renovates, leases, maintains and manages single- family homes in markets that exhibit favorable demographics and long-term economic trends, as well as strengthening demand for rental properties. Colony Starwood Homes is building its business upon a foundation of respect for its residents and the communities in which it operates. Additional information can be found at www.colonystarwood.com.
A copy of the Second Quarter 2016 Supplemental Information Package ("Q2 2016 Supplement") and this press release are available on the Company's website at www.colonystarwood.com.
Notice Regarding Non-GAAP Financial Measures
This press release and the Q2 2016 Supplement contain and may refer to certain Non-GAAP financial measures and terms that management believes are helpful in understanding our business, as further set forth in the definitions, explanations and reconciliations of the non-GAAP financial measure to their most comparable GAAP financial measures included in the Appendix. These measures and terms are in addition to, not a substitute for or superior to measures of financial performance prepared in accordance with GAAP, and should be read together with the most comparable GAAP measures.
Certain statements in this press release and the Q2 2016 supplement are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company's actual results and performance could differ materially from those set forth in, or implied by, the forward-looking statements due to a variety of risks, uncertainties and other factors. Factors that could materially and adversely affect the Company's business, financial condition, liquidity, results of operations and prospects, as well as the Company's ability to make distributions to its shareholders, include, but are not limited to: failure to plan and manage the Merger and associated transitions effectively and efficiently; the possibility that the anticipated benefits from the Merger may not be realized or may take longer to realize than expected; unexpected costs or unexpected liabilities that may arise from the Merger; the outcome of any legal proceedings that have been or may be instituted against the Company, CAH or others following the announcement or the completion of the Merger and associated transitions; changes in the Company's business and growth strategies; volatility in the real estate industry, interest rates and spreads, the debt or equity markets, the economy generally or the rental home market specifically; declines in the value of homes, and macroeconomic shifts in demand for, and competition in the supply of, rental homes; the availability of attractive investment opportunities in homes that satisfy the Company's investment objectives and business and growth strategies; the Company's ability to wind-down its NPL business in the anticipated time period and to re-deploy net cash proceeds therefrom; the Company's ability to lease or re-lease its rental homes to qualified residents on attractive terms or at all; the availability, terms and deployment of short-term and long-term capital; the adequacy of the Company's cash reserves and working capital; potential conflicts of interest with Starwood Capital Group Global, L.P., Colony Capital, Inc. and their affiliates; effects of derivative and hedging transactions; the Company's ability to maintain its exemption from registration as an investment company under the Investment Company Act of 1940, as amended; changes in governmental regulations, tax laws and rates, and similar matters; limitations imposed on the Company's business and its ability to satisfy complex rules in order for the Company and, if applicable, certain of the Company's subsidiaries to qualify as a REIT for U.S. federal income tax purposes, and the Company's ability and the ability of its subsidiaries to operate effectively within the limitations imposed by these rules. You should not place undue reliance on any forward-looking statement and should consider all of the uncertainties and risks described above, as well as those more fully discussed in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time. Except as required by law, the Company is under no duty to, and the Company does not intend to, update any of its forward-looking statements appearing herein, whether as a result of new information, future events or otherwise.
Balance Sheet (Condensed)
As of June 30, 2016
(Dollars in thousands)
|Investments in real estate properties:||Accounts payable and accrued expenses||$||91,989|
|Land and land improvements||$||1,513,633||Resident prepaid rent and security deposits||56,329|
|Buildings and building improvements||4,263,105||Secured credit facilities||700,000|
|Furniture, fixtures and equipment||117,240||Mortgage loans, net||2,742,720|
|Total investments in real estate properties||5,893,978||Convertible senior notes, net||346,685|
|Accumulated depreciation||(291,581||)||Liabilities related to assets held for sale||260,441|
|Investments in real estate properties, net||5,602,397||Other liabilities||15,604|
|Real estate held for sale, net||48,945||Total liabilities||4,213,768|
|Cash and cash equivalents||164,800||Equity|
|Restricted cash||164,844||Common shares, at par||1,015|
|Investments in unconsolidated joint ventures||34,915||Additional paid-in capital||2,730,874|
|Asset-backed securitization certificates||110,538||Accumulated deficit||(250,752||)|
|Assets held for sale||462,015||Accumulated other comprehensive loss||(16,447||)|
|Goodwill||257,271||Total shareholders' equity||2,464,690|
|Other assets, net||40,666||Non-controlling interests||207,933|
|Total assets||$||6,886,391||Total liabilities and equity||$||6,886,391|
|Statements of Operations|
Dollars in thousands
|Three Months Ended June 30,||Six Months Ended June 30,|
|Other property income||6,412||4,778||12,456||9,393|
|Property operating and maintenance||22,030||14,700||40,548||28,194|
|Real estate taxes, insurance and HOA costs||27,832||14,532||55,114||28,572|
|Property management expenses||9,332||4,471||18,083||9,261|
|Depreciation and amortization||44,844||26,874||88,474||52,885|
|Impairment of real estate assets||144||275||174||453|
|General and administrative||13,537||8,734||30,875||17,979|
|Merger and transaction-related expenses||5,073||-||28,555||-|
|Net gain on sale of real estate owned||527||838||1,911||1,239|
|Equity in income from unconsolidated joint ventures||157||13||354||106|
|Other expense, net||(2,296||)||(2,145||)||(2,691||)||(1,959||)|
|Loss before income taxes||(19,266||)||(10,837||)||(55,569||)||(25,228||)|
|Income tax (expense) benefit||(81||)||(267||)||(326||)||(254||)|
|Net loss from continuing operations||(19,347||)||(11,104||)||(55,895||)||(25,482||)|
|Loss from discontinued operations||2,684||3,854||(7,817||)||839|
|Net loss attributable to non-controlling interests||988||2,649||3,838||9,121|
|Net loss attributable to Colony Starwood Homes||(15,675||)||(4,601||)||(59,874||)||(15,522||)|
|Net income attributable to preferred shareholders||-||(4||)||-||(8||)|
|Net loss available to common shareholders||$||(15,675||)||$||(4,605||)||$||(59,874||)||$||(15,530||)|
(1) For GAAP purposes, the Merger resulted in a reverse acquisition of SWAY by CAH. Historical financial statements for periods prior to the Merger include only the results of operations and financial position of CAH.
Reconciliation to FFO and Core FFO
Dollars in thousands, except share and per share data
|Three Months Ended||Six Months Ended|
|June 30,2016||June 30,2016|
Reconciliation of net loss to NAREIT FFO
|Net loss attributable to common shareholders||$||(15,675||)||$||(59,874||)|
|Depreciation and amortization on real estate assets||44,700||88,084|
|Impairment of real estate assets||144||174|
|Net gain on sale of real estate||(527||)||(1,911||)|
|Discontinued operations, net (NPL/REO)||(2,684||)||7,817|
|NAREIT FFO per share (1)||$||0.23||$||0.28|
Adjustments for Core FFO
|Amortization of deferred financing costs and debt premium discounts||8,799||17,228|
|Merger and transaction-related expenses||5,073||28,555|
|Integration Costs (2)||1,753||7,383|
|Adjustments for derivative instruments||552||852|
|Core FFO per share (1)||$||0.39||$||0.79|
(1) Common shares total 107,886,847 and 108,176,801 for the
three and six month periods, respectively. Comprised of 101,486,847 and
101,776,801 weighted-average shares for the three and six month periods
ended, respectively, and outstanding OP units exchangeable for 6,400,000
(2) Please see Appendix A for a definition of Integration Costs, and Appendix B for a summary of Integration Costs through the three and six months ended June 30, 2016, both of which are contained in the Q2 2016 Supplement. We believe that identifying Integration Costs is useful for investors as it allows investors to separate these costs from the core operating performance of our Single Family Rental business.