Moreover, having scale is important as it keeps fixed expenses low, improving yield. REITs in acquisition mode will face a bloated expense structure in the initial years until properties stabilize and start contributing to rental income. So the goal should be to "grow quickly" to minimize the drag from general and administrative expenses.
The analyst initiated coverage Monday on American Residential with an outperform rating. He cited the management team's long experience in the real estate industry as an advantage. American Residential Properties' portfolio totaled 2,531 homes as of March 31, 2013, up from as low as 70 homes in June 2012. The company has homes in 10 states, with its largest footprint in Arizona. Nearly 86% are leased, with an additional 10% roughly ready for lease.
-- Written by Shanthi Bharatwaj New York.
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