Brett Owens, editor of Contrarian Outlook, is a leading expert in income investing, including an exp...
A Rental Housing REIT
10/10/2013 8:00 am EST
The Intelligent REIT Investor's Brad Thomas discusses a new rental housing REIT and shares his view on whether it is something that investors should consider.
SPEAKER 1: My guest today is Brad Thomas and we are talking about housing rates. Hi, Brad, and thanks for joining me.
BRAD: Glad to be here, thank you.
SPEAKER 1: Yeah, I know there is a new IPO of a company. It is called American Homes 4 You.
BRAD: 4 Rent, American Homes 4 Rent.
SPEAKER 1: 4 Rent, okay, and that is a REIT that it is my understanding is they go out into the single-family housing market, they buy some of these properties that need to be renovated, and then they are not selling them or flipping them, they are renting them. Is that correct?
BRAD: That is correct, and first of all, I want to make a point about this company specifically. When you invest in a REIT today, you are not only investing in these hard assets, which in this case, would be single-family housing for rent, but you are also investing in the management team.
SPEAKER 1: Sure.
BRAD: When you invest in a company, one value that you have in a REIT structure is you have not only the liquidity, the transparency, and the diversification but you also get a management team. One thing I can tell you about American Homes 4 Rent is that they have an exceptional management team. One of the key figures behind the company is a guy named Wayne Johnson. Wayne has a long history of creating shareholder value in a company that he created many years ago called Public Storage, which is the largest public storage company in the world. Mr. Johnson is, every year, in the Fortune billionaire list. He has made a large wealth but he has also made a lot of wealth for his shareholders so I want to point that out. That is what backing American Homes 4 Rent. Now, the business model itself is fairly new. We have only had I think now two public rental housing REITS, the other one being Silver Bay, that came out with their IPO I believe in December of last year.
SPEAKER 1: Correct, and they were a division of another larger company, right?
BRAD: That is correct. I believe they were an offshoot as well. Now, American Homes 4 Rent is now the second largest in the sector. The largest is actually a private equities firm.
SPEAKER 1: It is Blackstone.
BRAD: Blackstone, that is correct. American Homes 4 Rent, they are very scalable. Obviously, their name, American Homes, they are scaling this, trying to create the critical mass, so there are some questions out there in terms of how they can manage effectively at such a large portfolio and all of these multiple markets. My opinion is I think I would, on this particular IPO, I would wait it out. There is nothing better than patience and seeing how this company performs. I would personally like to see that company create the track record for managing the large groups of housing because, again, they are in subdivisions. It is not like an apartment complex where you are aggregated.
SPEAKER 1: Exactly.
BRAD: They are in a lot of different places so I would like to see some management track record and I would also like to see, for most investors, the most important thing is the dividend track record. I would like to see that.
SPEAKER 1: Sure, sure. And you are not a big fan of REIT IPOs in general.
BRAD: Correct. I mean, I think, you know, there is really no reason to invest in a REIT today who comes out. Let’s wait on that company to perform and let’s wait on a bargain. I like to buy with a margin of safety so let’s wait on that stock to fall, it will come down, and then you can pounce on it then and if you want to load up the truck, load up the truck.
SPEAKER 1: Are there any other housing type REITS that you like?
BRAD: You know there are. There is a niche sector, which is the modular housing sector, and they are not mobile homes. That is a misconception.
SPEAKER 1: Yes, right, right.
BRAD: The one I really like is called UMH. They are headquartered up in New Jersey, run by a fellow named Sam Landy. The family has been around a long, long time. They invest mostly in the Northeastern markets. They are getting down to the Southeast now but they have a really attractive dividend in the seven-plus range
SPEAKER 1: That is very healthy.
BRAD: It is and they have been able to sustain that more recently so I like that sector some. I think there is a lot of demand for that space and, again, they are not mobile homes. They are really providing attractive housing for families.
SPEAKER 1: That is sort of like the Habitat for Humanity homes, right. Those are modular homes, that they bring in the walls.
BRAD: Exactly. I tell you, Warren Buffett owns a piece of Clayton Home, so that will tell you something.
SPEAKER 1: Sure, yes, exactly. Thanks for being here, Brad.
BRAD: Thank you.
SPEAKER 1: And thanks for joining us at the MoneyShow.com video network.
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