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Starwood Waypoint Homes Announces Third Quarter 2017 Financial and Operating Results

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Starwood Waypoint Homes (NYSE:SFR) ("SWH" or the "Company"), a leading
single-family rental real estate investment trust ("REIT"), today
announced operating and financial results for the three and nine months
ended September 30, 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.

Third Quarter 2017 Highlights

  • Signed a definitive merger agreement with Invitation Homes to create
    the premier single-family rental company with over 80,000 homes in
    high growth markets with significant concentration in the Western U.S.
    and Florida. The merger is expected to close in the 4th
    quarter of 2017.
  • Total revenues increased 16.1% to $169.7 million for the three months
    ended September 30, 2017 from $146.1 million for the three months
    ended September 30, 2016.
  • Net loss attributable to common shareholders of $23.2 million or $0.18
    per basic and diluted share for the three months ended September 30,
    2017, compared to a $10.9 million net loss or a $0.11 loss per basic
    and diluted share for the three months ended September 30, 2016.
  • Core Funds from Operations ("Core FFO") was $60.5 million or $0.45 per
    share during the three months ended September 30, 2017.
  • Achieved renewal, replacement and blended rent growth rates of 5.3%,
    3.0% and 4.4%, respectively, for the Same Home cohort.
  • Same Home Net Operating Income increased by 6.7%, supported by Core
    Rental Revenue growth of 4.3%.
  • Core Net Operating Income ("Core NOI") margin for Same Home properties
    increased to 64.0% for the three months ended September 30, 2017,
    compared to 62.6% for the three months ended September 30, 2016.
  • Closed approximately $730.0 million SWH 2017-1 securitization with a
    blended average interest rate of LIBOR plus 156 basis points.

"Supply and demand fundamentals continue to support a very positive
outlook for the future of the single-family rental market. A growing
number of families are demanding quality homes in desirable
neighborhoods near employment centers and with good schools, and they
are choosing the flexibility and value of the rental home lifestyle,"
states Fred Tuomi, the Company's CEO.

"Our third quarter represents continued solid results including Same
Home NOI growth of 6.7%, and Same Home Core NOI Margin of 64.0%.
Residents continued to demonstrate satisfaction with our quality homes
and high level of customer service as resident retention improved
quarter-over-quarter and Same Home Renewal Rent Growth remained stable
at 5.3%."

"The pending merger between Starwood Waypoint Homes and Invitation Homes
remains on track for a fourth quarter closing. We look forward to this
transformational opportunity to deliver even greater service and value
to our residents through increased scale in desirable locations and the
blending of best practices, technology and talent from two innovative
operating platforms."

Third Quarter 2017 Operating Results

Total revenues were $169.7 million for the three months ended September
30, 2017, and net loss attributable to common shareholders was $23.2
million, or $0.18 per share, driven by depreciation and amortization
expense.

NAREIT FFO was $28.3 million for the three months ended September 30,
2017, or $0.21 per share, and Core FFO was $60.5 million, or $0.45 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 27,313 homes, revenue,
operating expenses and NOI were $135.5 million, $53.8 million and $81.8
million, respectively, for the three months ended September 30, 2017.
Year-over-year Same Home revenue and expense growth were impacted 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 4.3% with Core Expense increasing by 0.2%. Same Home
Core NOI margin for the three months ended September 30, 2017 and
September 30, 2016 were 64.0% and 62.6%, respectively. The table below
summarizes Same Home operating results.

Same Home     Q3 Results
Homes as of September 30, 2017 (1)     27,313
Occupancy as of September 30, 2017     95.1%
Revenue/Core Revenue Growth (September 30, 2017 as compared to
September 30, 2016)
    5.0%/4.3%
Operating Expense/Core Expense Growth (September 30, 2017 as
compared to September 30, 2016)
    2.5%/0.2%
NOI Growth (September 30, 2017 as compared to September 30, 2016)     6.7%
NOI/Core NOI Margin     60.3%/64.0%
   

Investments

During the three months ended September 30, 2017, the Company acquired
609 homes for an aggregate total investment of approximately $147.6
million, or approximately $242,000 per home, including estimated
investment costs for renovation. The Company sold 243 single-family
rental homes for gross sales proceeds of $46.6 million, resulting in a
gain of approximately $3.7 million.

Balance Sheet and Capital Markets Activities

As of September 30, 2017, the Company had $4.0 billion of debt
outstanding and zero dollars drawn on our $675.0 million credit facility.

In September 2017 the Company executed its SWH 2017-1 securitization
sized at approximately $730.0 million, net of retained certificates with
a blended average interest rate of LIBOR plus 156 basis points. The
proceeds from the securitization were used to retire the $450.0 million
term loan assumption associated with the Company's GI Portfolio
acquisition; proceeds were also used to pay off $180.0 million on the
Company's revolving credit facility, with the remaining proceeds to be
used for general corporate purposes.

On October 13, 2017, the Board declared a pro-rata dividend of $0.11 per
common share as defined within the Agreement and Plan of Merger, dated
August 9th, 2017; the dividend was paid on November 7th to shareholders
of record on October 24, 2017.

Full Year 2017 Financial Guidance

The table below provides the Company's updated Same Home revenue and
growth assumptions, and relevant operating metrics.

2017 Guidance
Same Home Revenue Growth (1)     4.5 – 5.0%
Same Home Expense Growth (1)     2 – 3%
Same Home Core NOI Margin     64.75 – 65.25%
Same Home Occupancy     95.25 – 95.75%
Same Home Turnover     35.5 – 36.5%
   

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 several 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, the judgment of the Company's management
team and does not take into account potential impacts which may result
from the anticipated merger with Invitation Homes. Please refer to the
Forward-Looking Statements disclosure.

Third Quarter 2017 Conference Call

A conference call is scheduled on Thursday, November 9, 2017, at 10:00
a.m. Eastern Time to discuss the Company's financial results for the
three months ended September 30, 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.starwoodwaypoint.com
in the investor relations section. A replay of the call will be
available through December 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 13672436, or by using the link at www.starwoodwaypoint.com,
in the investor relations section.

About Starwood Waypoint Homes

Starwood Waypoint Homes (NYSE:SFR) is one of the largest publicly traded
owners and operators of single-family rental homes in the United States.
Starwood Waypoint 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. Starwood Waypoint 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.starwoodwaypoint.com.

Additional information

A copy of the Third Quarter 2017 Supplemental Information Package ("Q3
2017 Supplement") and this press release are available on the Company's
website at www.starwoodwaypoint.com.

(1)

 

Growth rates presented exclude the impact of resident utility
billing revenue and associated utility chargeback expenses as a
result of the SWH 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.

 

Notice Regarding Non-GAAP Financial Measures

This press release and the Q3 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 and other
34 Act filings, including those under the caption "Risk Factors" in the
definitive joint proxy statement/information statement and prospectus
dated October 16, 2017 and filed with the SEC on Schedule 14A on October
16, 2017 (the "Merger Proxy") regarding the Company's proposed mergers
with Invitation Homes Inc. (the "Proposed Mergers"); the possibility
that the Proposed Mergers will not close; failure to plan and manage the
Proposed Mergers effectively and efficiently; the possibility that the
anticipated benefits from the Proposed Mergers may not be realized or
may take longer to realize than expected; unexpected costs or unexpected
liabilities that may arise from the Proposed Mergers, whether or not
completed; unanticipated increases in financing and other costs,
including a rise in interest rates; unanticipated increases in financing
and other costs, including a rise in interest rates; and the Company's
ability to effectively deploy short-term and long-term capital; the
possibility that unexpected liabilities may arise from the Proposed
Mergers, including the outcome of any legal proceedings that have been
or may be instituted against the Company or others in connection with
the Proposed Mergers 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
properties that satisfy the Company's investment objectives 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 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; 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 September 30, 2017

Dollars in thousands

   
Assets Liabilities
Investments in real estate properties: Accounts payable and accrued expenses $ 145,656
Land and land improvements $ 1,881,309 Resident prepaid rent and security deposits 64,988
Buildings and building improvements 5,001,710 Mortgage loans, net 3,432,277
Furniture, fixtures and equipment   168,643   Convertible senior notes, net 526,656
Total investments in real estate properties 7,051,662 Liabilities related to assets held for sale 242
Accumulated depreciation   (495,002 ) Other liabilities   6,624  
Investments in real estate properties, net 6,556,660 Total liabilities   4,176,443  
 
 
Real estate held for sale, net 144,752 Equity
Cash and cash equivalents 187,659 Common shares, at par 1,283
Restricted cash 129,923 Additional paid-in capital 3,627,986
Investments in unconsolidated joint ventures 33,332 Accumulated deficit (441,093 )
Asset-backed securitization certificates 153,115 Accumulated other comprehensive income   16,151  
Assets held for sale 19,585 Total shareholders' equity 3,204,327
Goodwill 260,230 Non-controlling interests   184,294  
Other assets, net   79,808   Total equity   3,388,621  
Total assets $ 7,565,064   Total liabilities and equity $ 7,565,064  
 
 

Statement of Operations (Unaudited)

Dollars in thousands, except share and per share data

   

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017     2016 (1)   2017     2016 (1)  
Revenue
Rental income $ 156,299 $ 133,580 $ 437,194 $ 396,318
Other property income 12,682 9,366 31,648 22,858
Other income   706     3,153     6,260     9,022  
Total revenues   169,687     146,099     475,102     428,198  
Expenses
Property operating and maintenance 26,813 23,678 67,477 62,356
Real estate taxes, insurance and HOA costs 32,733 28,070 90,443 83,310
Property management 8,538 9,079 27,430 29,226
Interest expense 38,877 39,296 115,017 114,737
Depreciation and amortization 53,994 47,344 148,293 135,818
Impairment and other 13,077 356 13,734 530
Share-based compensation 2,387 824 5,584 1,922
General and administrative 10,932 11,333 32,717 39,809
Transaction-related   7,791     1,503     7,856     30,058  
Total expenses   195,142     161,483     508,551     497,766  
Net gain on sales of real estate 3,735 1,453 12,222 3,364
Equity in income from unconsolidated joint ventures 214 185 584 539
Loss on extinguishment of debt (216 ) - (10,906 ) -
Other (expense) income, net   (156 )   1,867     (2,907 )   (1,783 )
Loss before income taxes (21,878 ) (11,879 ) (34,456 ) (67,448 )
Income tax expense   359     161     695     487  
Net loss from continuing operations (22,237 ) (12,040 ) (35,151 ) (67,935 )
(Loss) income from discontinued operations, net   (1,984 )   449     (2,205 )   (7,368 )
Net loss (24,221 ) (11,591 ) (37,356 ) (75,303 )
Net loss attributable to non-controlling interests   1,062     691     1,801     4,529  
Net loss attributable to common shareholders $ (23,159 ) $ (10,900 ) $ (35,555 ) $ (70,774 )
 
Net loss per common share - basic and diluted
Net loss attributable to common shareholders $ (0.18 ) $ (0.11 ) $ (0.31 ) $ (0.70 )
Weighted average common shares outstanding 128,308,445 101,489,587 116,388,795 101,680,457
 

(1)

 

Certain line items have been reclassified to conform to the
current period groupings. See Form 10-Q for the period ended
September 30, 2017 for further detail.

 
 

Reconciliation to FFO and Core FFO

Dollars in thousands, except share and per share data

   

Three Months
Ended September 30, 2017

 

Nine Months
Ended September 30, 2017

 
 

Reconciliation of net loss to NAREIT FFO

Net loss attributable to common shareholders $ (23,159 ) $ (35,555 )
Adjustments:
Depreciation and amortization on real estate assets 53,981 148,145
Impairment of real estate assets (1) 293 950
Net gain on sale of real estate (3,735 ) (12,222 )
Non-controlling interests (1,062 ) (1,801 )
Discontinued operations, net (NPL/REO)   1,984     2,205  
NAREIT FFO $ 28,302   $ 101,722  
NAREIT FFO per share (2) $ 0.21   $ 0.83  
 

Adjustments for Core FFO

NAREIT FFO $ 28,302 $ 101,722
Amortization of deferred financing costs, debt discounts, non-cash
interest expense from interest rate caps and loss on extinguishment
of debt
9,258 40,283
Share-based compensation 2,387 5,584
Transaction-related expenses 7,791 7,856
Hurricane losses (3)   12,784     12,784  
Core FFO $ 60,522   $ 168,229  
                 
Core FFO per share (2) $ 0.45   $ 1.37  
                 

Adjustments for Core AFFO

Core FFO $ 60,522 $ 168,229
Recurring capital expenditures (14,093 ) (35,556 )
Capitalized leasing (4)   (2,534 )   (6,976 )
Core AFFO $ 43,895   $ 125,697  
 
Core AFFO per share (2) $ 0.33   $ 1.02  
 

(1)

 

Excludes impairment losses related to Hurricane Harvey and
Hurricane Irma.

(2)

Weighted-average shares totaled 134,746,716 and 122,983,190 for
the three and nine-month periods ended September 30, 2017,
respectively. A reconciliation of outstanding shares is included
in the Appendix.

(3)

Represents losses related to Hurricane Harvey and Hurricane Irma
only which are included in impairment and other in our statement
of operations for the three and nine-months ended September 30,
2017.

(4)

Comprised of $2.2 million of certain personnel costs and $0.3
million of third-party commissions, and $6.2 million of certain
personnel costs and $0.7 million of third-party commissions for
the three and nine-month periods ending September 30, 2017,
respectively.

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