Market Overview

Colony Starwood Homes Announces First Quarter 2017 Financial and Operating Results

Share:





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 months ended
March 31, 2017. Capitalized terms used herein have the meanings set
forth in the Appendix to the Supplemental Report of financial and
operating information posted on the Company's website.

First Quarter 2017 Highlights

  • Total revenues increased to $151.0 million in Q1 2017, driven by Same
    Home revenue growth of 6.9%
  • Occupancy was 96.1% for the Same Home cohort of 28,732 homes
  • Net loss of $11.3 million or ($0.11) per share; Core FFO of $52.8
    million or $0.48 per share
  • Same Home NOI increased 6.5% over Q1 2016; Same Home Core NOI margin
    was 65.4%
  • Completed a $345.0 million convertible note offering with five-year
    term at a 3.5% coupon rate
  • Completed a $750.0 million follow-on equity offering ($350.0 million
    primary and $400.0 million secondary)
  • Subsequently to March 31, 2017 paid down $300.0 million of principal
    on SWAY 2014-1 resulting in fixed rate debt of over 90%

"Our Same Home revenue growth of 6.9% reflects the continued robust
demand and muted supply within Colony Starwood Homes' high growth
markets in the first quarter of 2017. Quarter ending occupancy of 96.1%
positions us well as we enter the 2017 peak leasing season while Same
Home Core NOI Margin of 65.4% indicates continued gains in operating
efficiencies," stated Fred Tuomi, the Company's CEO. "We were very
pleased with the execution of the Company's first primary equity
offering of $350.0 million, which demonstrated strong investor demand,
further strengthened our balance sheet and provided substantial growth
capital. Looking forward, we see 2017 as another year of strong
fundamentals and superior results."

First Quarter 2017 Operating Results

Total revenues were $151.0 million for the three months ended March 31,
2017, and net loss attributable to common shareholders was $11.3
million, or ($0.11) per share, driven by depreciation and amortization
expense.

NAREIT FFO was $33.9 million for the three months ended March 31, 2017,
or $0.31 per share, and Core FFO was $52.8 million, or $0.48 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 Home Results

For the Company's Same Home portfolio of 28,732 homes, revenue,
operating expenses and NOI were $137.4 million, $50.7 million and $86.7
million, respectively, for the three months ended March 31, 2017.
Year-over-year Same Home revenue and expense growth were affected by the
implementation of a third-party utility billing service provider during
the third quarter 2016, whereby water, sewer and trash services are now
held in the Company's name during resident occupancy and subsequently
billed-back to the resident; this had the effect of increasing both
revenue growth and expense growth. Core Rental Revenue and Core Property
Operating Expense measures reflect the net effect of these utility
reimbursements, as well as other chargebacks. Core Revenue growth for
the quarter was 5.6% with Core Expense growth of 4.0%. Same Home Core
NOI margin for the three months ended March 31, 2017 and March 31, 2016
was 65.4% and 64.9%, respectively. The table below summarizes Same Home
operating results.

                 
Same Home   Q1 Results
Homes as of March 31, 2017   28,732
Occupancy as of March 31, 2017   96.1%
Revenue/Core Revenue Growth (March 31, 2017 as compared to March 31,
2016)
  6.9%/5.6%
Operating Expense/Core Expense Growth (March 31, 2017 as compared to
March 31, 2016)
  7.6%/4.0%
NOI Growth (March 31, 2017 as compared to March 31, 2016)   6.5%
NOI/Core NOI Margin   63.1%/65.4%
 

Investments

During the three months ended March 31, 2017, the Company acquired 397
homes for an aggregate total investment of approximately $92.4 million,
or approximately $233,000 per home, including estimated investment costs
for renovation. The Company sold 136 single-family rental homes for
gross sales proceeds of $27.8 million, resulting in a gain of
approximately $0.7 million.

Balance Sheet and Capital Markets Activities

As of March 31, 2017, the Company had $3.8 billion of debt outstanding
and approximately $250.0 million of undrawn commitments on its credit
facilities.

In January, the Company sold $345.0 million of 3.50% convertible senior
notes due 2022. The Company used the net proceeds from the new
convertible offering to repurchase, in privately negotiated
transactions, substantially all of its 4.50% convertible senior notes
due in 2017. Remaining proceeds from the note issuance were used to
repay amounts drawn on the Company's credit facilities, to fund ongoing
asset acquisitions and for general corporate purposes. During January,
the Company also entered into a five-year $550.0 million swap contract,
effectively fixing its floating securitization debt at an average rate
of 3.59% over the term bringing the Company's fixed rate debt to over
90% of total debt.

In March, the Company completed a follow on equity offering of
approximately $750.0, consisting of approximately $350.0 million primary
shares sold by the Company and approximately $400.0 million in secondary
shares sold by original sponsors. In March the Company also entered into
an $800.0 million forward swap contract effective from 2019 through 2022
to extend existing swap contracts expiring in 2019.

Subsequent to March 31, 2017, the Company finalized a $675.0 million
revolving credit facility, replacing two secured facilities originated
prior to the merger between Colony American Homes and Starwood Waypoint.
The Company entered into an at-the-market (ATM) sales agreement under
which it may sell up to $300.0 million of its common shares in amounts
and times to be determined by the Company. The Company paid down the
principal balance of its SWAY 2014-1 securitization by $300 million from
cash on hand.

On May 2, 2017, the Board declared a dividend of $0.22 per common share
for the second quarter of 2017, which will be paid on July 14, 2017 to
shareholders of record on June 30, 2017.

Full Year 2017 Financial Guidance

The Company is reaffirming it's full-year 2017 guidance and the
assumptions outlined below:

 
2017 Guidance
Core FFO/Share   $1.85 - $1.95
Same Home Revenue Growth (1)   4 – 5%
Same Home Expense Growth (1)   2 – 3%
Same Home Core NOI Margin   63 – 65%
Same Home Occupancy   95 – 96%
Same Home Turnover   34 – 36%
 

(1)

 

Growth rates presented exclude the impact of resident utility
billing revenue and associated utility chargeback expenses as a
result of the CSH utility chargeback transition beginning in Q3
2016, whereby water, sewer and trash services are held in the
Company's name during resident occupancy and subsequently billed
back to the resident.

 

The Company does not provide forward-looking guidance for certain
financial measures on a 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, discontinued
operations, share-based compensation and other items not reflective of
the Company's ongoing operations.

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. Please refer to the Forward Looking
Statements disclosure.

First Quarter 2017 Conference Call

A conference call is scheduled on Tuesday, May 9, 2017, at 11:00 a.m.
Eastern Time to discuss the Company's financial results for the three
months ended March 31, 2017. 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 June 9, 2017 and can be accessed by calling
1-844-512-2921 (U.S. and Canada) or 1-412-317-6671 (international),
replay pin number 13658913, 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 First Quarter 2017 Supplemental Information Package ("Q1
2017 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 Q1 2017 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 each non-GAAP financial
measure to its 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 quarterly
supplement/presentation are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and
other federal securities laws and are based on certain assumptions and
discuss future expectations, describe future plans and strategies and
contain financial and operating projections or state other
forward-looking information. The Company's ability to predict results or
the actual effect of future events, actions, plans or strategies is
inherently uncertain. 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. 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: the
factors referenced in the Company's Annual Report on Form 10-K;
unanticipated increases in financing and other costs, including a rise
in interest rates; the availability, terms and the Company's ability to
effectively deploy short-term and long-term capital; the possibility
that unexpected liabilities may arise from the Company's merger (the
"Merger") with Colony American Homes ("CAH"), including the outcome of
any legal proceedings that have been or may be instituted against the
Company, CAH or others in connection with the Merger and the associated
transactions; changes in the Company's business and growth strategies;
the Company's ability to hire and retain highly skilled managerial,
investment, financial and operational personnel; volatility in the real
estate industry, interest rates and spreads, the debt or equity markets,
the economy generally or the rental home market specifically, whether
the result of market events or otherwise; events or circumstances that
undermine confidence in the financial markets or otherwise have a broad
impact on financial markets, such as the sudden instability or collapse
of large financial institutions or other significant corporations,
terrorist attacks, natural or man-made disasters, or threatened or
actual armed conflicts; declines in the value of single-family
residential 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 objective and business and growth strategies; the Company's
ability to convert the properties it acquires into rental homes
generating attractive returns and to effectively control the timing and
costs relating to the renovation and operation of the properties; the
Company's ability to complete its exit from the non-performing loan
("NPL") (and related real estate owned) business in the anticipated time
period on acceptable terms 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 failure of residents to pay
rent when due or otherwise perform their lease obligations; the
Company's ability to effectively manage its portfolio of rental homes;
the concentration of credit risks to which the Company is exposed; the
rates of default or decreased recovery rates on the Company's target
assets; the adequacy of the Company's cash reserves and working capital;
potential conflicts of interest with Starwood Capital Group, Colony
Capital, LLC ("Colony Capital"), Colony NorthStar, Inc. ("Colony
NorthStar") and their affiliates and managed investment activities; the
timing of cash flows, if any, from the Company's investments; the
Company's expected leverage; financial and operating covenants contained
in the Company's credit facilities and securitizations that could
restrict its business and investment activities; effects of derivative
and hedging transactions; the Company's ability to maintain effective
internal controls as required by the Sarbanes-Oxley Act of 2002 and to
comply with other public company regulatory requirements; the Company's
ability to maintain its exemption from registration as an investment
company under the Investment Company Act of 1940, as amended; actions
and initiatives of the U.S., state and municipal governments and changes
to governments' policies that impact the economy generally and, more
specifically, the housing and rental markets; changes in governmental
regulations, tax laws (including changes to laws governing the taxation
of real estate investment trusts ("REITs")) 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 its subsidiaries to qualify as a REIT for U.S. federal income
tax purposes and the ability of certain of the Company's subsidiaries to
qualify as taxable REIT subsidiaries 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;
and estimates relating to the Company's ability to make distributions to
its shareholders in the future.

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 the 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 the
forward-looking statements appearing herein, whether as a result of new
information, future events or otherwise.

Consolidated Financials

             

Balance Sheet (Unaudited)

As of March 31, 2017

Dollars in thousands

 
Assets Liabilities
Investments in real estate properties: Accounts payable and accrued expenses $ 90,617
Land and land improvements $ 1,595,371 Resident prepaid rent and security deposits 60,403
Buildings and building improvements 4,469,092 Mortgage loans, net 3,327,374
Furniture, fixtures and equipment   140,333   Convertible senior notes, net 516,493
Total investments in real estate properties 6,204,796 Liabilities related to assets held for sale 6,005
Accumulated depreciation   (411,968 ) Other liabilities   87  
Investments in real estate properties, net 5,792,828 Total liabilities   4,000,979  
Real estate held for sale, net 23,759 Equity
Cash and cash equivalents 430,926 Common shares, at par 1,127
Restricted cash 159,131 Additional paid-in capital 3,100,597
Investments in unconsolidated joint ventures 34,114 Accumulated deficit (357,540 )
Asset-backed securitization certificates 141,103 Accumulated other comprehensive income   28,681  
Assets held for sale 50,478 Total shareholders' equity 2,772,865
Goodwill 260,230 Non-controlling interests   190,029  
Other assets, net   71,304   Total equity   2,962,894  
Total assets $ 6,963,873   Total liabilities and equity $ 6,963,873  
 
     
Statements of Operations (Unaudited)

Dollars in thousands

 
Three Months Ended March 31,
2017   2016
Revenues
Rental income $ 141,095 $ 130,452
Other property income 7,171 4,924
Other Income   2,774     2,890  
Total revenues   151,040     138,266  
Expenses
Property operating and maintenance 18,946 16,738
Real estate taxes, insurance and HOA costs 28,299 27,319
Property management 9,650 10,016
Interest expense 38,999 37,457
Depreciation and amortization 46,185 43,630
Impairment of real estate assets 443 30
Share-based compensation 1,561 387
General and administrative 10,840 16,366
Merger and transaction-related expenses   -     23,482  
Total expenses 154,923 175,425
Net gain on sales of real estate 678 1,384
Equity in income from unconsolidated joint ventures 180 197
Loss on extinguishment of debt (7,153 ) -
Other expense, net   (1,639 )   (725 )
Loss before income taxes (11,817 ) (36,303 )
Income tax expense   157     245  
Net loss from continuing operations (11,974 ) (36,548 )
Loss from discontinued operations, net   (46 )   (10,501 )
Net loss (12,020 ) (47,049 )
Net loss attributable to non-controlling interests   678     2,850  
Net loss attributable to common shareholders $ (11,342 ) $ (44,199 )
 
Earnings per share - basic
Net income available to common shareholders $ (0.11 ) $ (0.43 )
Weighted average common shares outstanding 104,593,904 102,066,754
 
     

Reconciliation to FFO and Core FFO

Dollars in thousands, except share and per share data

 
Three Months Ended March 31, 2017
 

Reconciliation of net loss to NAREIT FFO

Net loss attributable to common shareholders $ (11,342 )
Adjustments:
Depreciation and amortization on real estate assets 46,116
Impairment of real estate assets 443
Net gain on sale of real estate (678 )
Non-controlling interests (678 )
Discontinued operations, net (NPL/REO)   46  
NAREIT FFO $ 33,907  
NAREIT FFO per share (1) $ 0.31  
 

Adjustments for Core FFO

NAREIT FFO $ 33,907
Amortization of deferred financing costs, debt premium discounts,
non-cash interest expense from interest rate caps and loss on
extinguishment of debt
17,330
Share-based compensation   1,561  
Core FFO $ 52,798  
         
Core FFO per share (1) $ 0.48  
         

 

(1)

 

Weighted-average common shares total 111,021,947 for the
three-month period ended March 31, 2017. These share counts are
comprised of 104,593,904 weighted-average common shares
outstanding and 155,214 unvested RSUs for the three-month period
ended, and outstanding OP units exchangeable for 6,272,829 common
shares.

 

 

View Comments and Join the Discussion!