This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

This Housing Play May Be Overlooked

NEW YORK ( TheStreet) -- It's easy to be blase about Colony Financial's  (CLNY) plan to spin off Colony American Homes (CAH), given the slump in many housing stocks and the fact that Colony ended up canceling an IPO of the business a year ago.

Still, there are reasons to think CAH, a portfolio of 16,000 single-family homes that is one of the largest single-family rental companies in the U.S., could win investors over the second time around. That would give a substantial lift to shares of Colony Financial, which has a 25% stake in CAH and is the controlling shareholder.

Richard Saltzman, Colony Financial's CEO, said Tuesday at a conference hosted by Keefe Bruyette & Woods that a CAH spinoff could occur in 2014 and is likely "within the next 12 months, plus or minus."

He added that the unit was structured "as a private REIT that eventually could eventually could go public. There are a lot of different ways to get public. You could do a conventional traditional road show kind of offering. Or you could do spins or potentially consolidation transactions that could kind of get you to the same place so all these options are under consideration."

Though shares of Silver Bay Realty Trust (SBY), a similar business, have fallen 9% over the past year, American Homes for Rent (AMH) another single family rental company, went public in August and has seen shares rise 15.32%.

What's more, Saltzman said during a conference call after Colony cancelled the CAH IPO that the company had originally targeted it for 2014 or 2015, but moved it up "based upon the perception that the market was wide open for this type of offer."

That window shut, however, when a sudden jump in interest rates killed enthusiasm for housing stocks.

Colony doesn't publicly assign a value to CAH, though it says it paid $550 million for its stake, including $295 million in 2013 and $255 million in late 2012.

Still, a May 20 report from Goldman Sachs analyst Eric Beardsley values the stake at just $529 million. By contrast, Moody's Investors Service assigned a value of $585 million to a portfolio of 3,400 CAH homes on March 20, when it rated bonds sold by CAH. That implies a value of $2.75 billion for CAH or $688 million for Colony's 25% stake.

Moody's arrived at its value by cutting 15% from what realtors said the properties were worth, even though it hired a third party to check the appraisals from the brokers and that third party agreed with most of the appraisals. So if you add back the 15% you get $790 million for Colony's stake, or $2.70 more per share than the $5.44 Goldman's Beardsley assigned to it.

On that calculation alone, you get to a price of $24.70 for Colony Financial, compared to Beardsley's $22 target. Colony Financial shares were trading at $22.27 midday Thursday.

But there is another element Beardsley left out. Colony owns 10% of the economics of CAH management, according to management comments at the KBW conference. I don't know how to value that and Colony doesn't say what it is. However, it is neutral at worst and most likely a positive.

There is obviously more to consider when valuing Colony Financial. CAH represents 31% of Colony's equity, according to Beardsley's report. Still, a successful IPO seems plausible, and if it happens it will likely give Colony Financial shares a healthy boost.

>>Read More:

Nationstar Woes Take Pressure Off Ocwen
Bill Erbey Made $2.3B Off Your Underwater Mortgage

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,031.66 +0.52 0.00%
S&P 500 1,984.18 +0.05 0.00%
NASDAQ 4,519.3260 +0.4240 0.01%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs