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Colony Starwood Homes Announces Second Quarter 2016 Financial and Operating Results

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SCOTTSDALE, Ariz.--(BUSINESS WIRE)--

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%
 

Investment Activity

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.

NPL Business

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.

Additional information

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.

Forward-Looking Statements

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.

Investor Relations
John Christie, 510-982-5470
IR@colonystarwood.com
or
Media Relations
Jason Chudoba, 646-277-1249
Jason.chudoba@icrinc.com

       

Consolidated Financials

 

Balance Sheet (Condensed)

                     

As of June 30, 2016

(Dollars in thousands)

 
Assets Liabilities
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 equity 2,672,623
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,
  2016  

2015(1)

  2016  

2015(1)

Revenues
Rental income $ 134,442 $ 70,434 $ 264,894 $ 134,652
Other property income 6,412 4,778 12,456 9,393
Other income   2,979     -     5,869     -  
Total revenues   143,833     75,212     283,219     144,045  
Expenses
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
Interest expense 37,984 15,169 75,441 31,315
Depreciation and amortization 44,844 26,874 88,474 52,885
Impairment of real estate assets 144 275 174 453
Share-based compensation 711 - 1,098 -
General and administrative 13,537 8,734 30,875 17,979
Merger and transaction-related expenses   5,073     -     28,555     -  
Total expenses   161,487     84,755     338,362     168,659  
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 (16,663 ) (7,250 ) (63,712 ) (24,643 )
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 )
Adjustments:
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 )
Non-controlling interests (988 ) (3,838 )
Discontinued operations, net (NPL/REO)   (2,684 )   7,817  
NAREIT FFO $ 24,970   $ 30,452  
 
NAREIT FFO per share (1) $ 0.23 $ 0.28
 

Adjustments for Core FFO

NAREIT FFO $ 24,970 $ 30,452
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
Share-based compensation 711 1,098
Adjustments for derivative instruments   552     852  
Core FFO $ 41,858   $ 85,568  
 
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 common shares.
(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.

Investor Relations
John Christie, 510-982-5470
IR@colonystarwood.com
or
Media Relations
Jason Chudoba, 646-277-1249
Jason.chudoba@icrinc.com

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