Colony Starwood Homes Announces Third Quarter 2016 Financial And Operating Results

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 and nine months ended September 30, 2016. Capitalized terms used herein have the meanings ascribed thereto in the Appendix.

Third Quarter 2016 Highlights
  • Total revenues increased to $146.1 million in Q3 2016, driven by Quarterly Same Store revenue growth of 6.5% and Quarterly Same Store Blended Rent Growth of 5.2%
  • Q3 occupancy was 95.4% for the Quarterly Same Store cohort of 26,592 homes
  • Net loss of $10.9 million or ($0.11) per share; Core FFO of $0.43 per share for the three months ended September 30, 2016
  • Quarterly Same Store NOI increased 6.9% over Q3 2015; Quarterly Same Store Core NOI margin was 61.9%
  • Company substantially exits from the non-performing loans ("NPL") business with portfolio sale that generated total proceeds of $265.3 million
  • Reduced total debt by $383.0 million year-to-date with NPL proceeds, non-core asset disposition activity and cash from operations
  • Company increases full year 2016 Core FFO guidance to $1.65 - $1.69 per share

"Strong demand for high quality single-family rentals continued to fuel revenue growth and stable occupancy through the third quarter peak leasing season," stated Fred Tuomi, the Company's CEO. "Quarterly Same Store revenue growth was 6.5% year-over-year, driven by Quarterly Same Store Blended Rent Growth of 5.2%. Our Quarterly Same Store Core NOI margin of 61.9% was achieved during the peak quarter for lease expirations, move-outs and operating expenses. Also during the quarter, we accelerated our acquisition activity, strengthened our balance sheet and simplified our business with the sale of our non-performing loan portfolio. Our strategic accomplishments to date position us well to take advantage of the many attractive growth opportunities available in the single-family rental space."

The 2016 financial results of the Company (other than Quarterly Same Store or Full Year Same Store results) include the historical financial results of Starwood Waypoint Residential Trust ("SWAY") beginning on January 5, 2016, which was the date of the merger between Colony American Homes ("CAH") and SWAY (the "Merger"). Historical financial results (other than Same Store results) as of dates or for periods prior to January 5, 2016 represent only the pre-Merger financial results of CAH and do not reflect what the financial results would have been had the Merger been complete during such periods.

Third Quarter 2016 Operating Results

Total revenues were $146.1 million for the three months ended September 30, 2016, and net loss attributable to common shareholders was approximately $10.9 million, or ($0.11) per share, driven by depreciation and amortization expense.

NAREIT FFO was $33.7 million for the three months ended September 30, 2016, or $0.31 per share, and Core FFO was $46.2 million, or $0.43 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 Store Results

For the Company's Quarterly Same Store portfolio of 26,592 homes, revenue for the three months ended September 30, 2016 was $123.0 million, a 6.5% increase from those homes' revenues for the three months ended September 30, 2015. For the Company's Full Year Same Store portfolio of 22,442 homes, revenue for the nine months ended September 30, 2016 was $301.6 million, a 6.4% increase for those homes' revenues from the nine months ended September 30, 2015. For the Quarterly Same Store portfolio, property operating expenses were up by 6.0% from the three months ended September 30, 2015, resulting in 6.9% growth in Quarterly Same Store NOI for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. For the Full Year Same Store portfolio, property operating expenses were up 1.5% from the nine months ended September 30, 2015, resulting in a 9.9% increase in Full Year Same Store NOI for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. Quarterly and Full Year Same Store Core NOI margins were 61.9% and 63.1%, respectively. The table below summarizes Quarterly and Full Year Same Store operating results.
Same Store Property Results
    Quarterly Same Store     Full Year Same Store
Homes as of September 30, 2016   26,592       22,442
Occupancy as of September 30, 2016 95.4% 95.3%
Revenue Growth (September 30, 2016 as compared to September 30, 2015) 6.5% 6.4%
Operating Expense Growth (September 30, 2016 as compared to September 30, 2015) 6.0% 1.5%
NOI Growth (September 30, 2016 as compared to September 30, 2015) 6.9% 9.9%
Core NOI Margin       61.9%       63.1%
 

Investment Activity

The Company sold 472 homes during the third quarter, including 265 single-family rental homes and 207 real estate owned ("REO") homes. The single-family rental homes were sold for gross sales proceeds of $49.2 million, and the Company recorded a gain of approximately $1.5 million on these sales. The REO homes were sold for gross sales proceeds of $33.8 million, and the Company recorded a loss of $0.8 million which is included in discontinued operations, net. During the three months ended September 30, 2016, the Company acquired 431 homes for an aggregate estimated total investment of approximately $112.0 million, or approximately $260,000 per home, including estimated investment costs for renovation.

NPL/REO Discontinued Operations

On May 4, 2016, the Company's Board of Trustees (the "Board") authorized the marketing of the non-performing loan ("NPL") portfolio, which the Company commenced in the second quarter. The operations of the NPL business segment are recorded as discontinued operations, net for the three and nine months ended September 30, 2016 and all comparable periods.

In July, 2016, the Company sold 339 re-performing loans in a single sale transaction generating total sales proceeds of $45.9 million, of which $23.7 million was used to pay down associated debt.

In August, 2016 the Company completed the sale of 1,675 NPLs in a single transaction generating total sales proceeds of $265.3 million, of which $159.6 million was used to pay down associated debt. With this sale the Company has substantially exited the NPL business, and expects to sell its remaining NPL assets by Q2 2017. During the three months ended September 30, 2016 the Company produced $43.3 million of total cash proceeds from REO sales and other resolutions, of which $25.3 million was used to pay down associated debt. As of September 30, 2016 there was $41.9 million of outstanding associated debt, which the Company intends to pay down in connection with the sale of the remaining REO assets.

Balance Sheet and Capital Markets Activities

As of September 30, 2016, the Company had $3.7 billion of debt outstanding and approximately $481.4 million of undrawn commitments on its credit facilities. Since the Merger closed on January 5, 2016 through September 30, 2016, the Company reduced its outstanding debt by approximately $383.0 million.

Subsequent to September 30, 2016, the Company closed a $580.7 million securitization (net of $30.6 million certificates retained by the Company) with an initial maturity date of December 2018 and three one-year extension options, and a blended variable interest rate of 1-month LIBOR plus 186 basis points. Proceeds are expected to be used primarily to pay down existing debt and for general corporate purposes.

The Company did not repurchase any shares in the third quarter of 2016 under its $250 million repurchase program, which is authorized through May 6, 2017. To date the Company has purchased 2.4 million shares for an aggregate purchase price of $52.8 million at an average of $22.19 per share under the program.

On November 2, 2016, the Board declared a dividend of $0.22 per common share for the fourth quarter of 2016, which will be paid on January 13, 2017 to shareholders of record on December 30, 2016.

Full Year 2016 Financial Guidance

Earlier this year the Company provided full-year 2016 Core FFO per share, occupancy, rent growth, and Core NOI margin guidance, each of which exclude the operations of the NPL business, and subsequently tightened its Core FFO per share, occupancy, and rent growth guidance as part of its Q2 2016 earnings release. The Company is now further increasing Core FFO per share guidance to $1.65 - $1.69 and tightening Core NOI margin to 63% - 64% while reaffirming the previously tightened occupancy, and rent growth guidance. 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, NPL operations, Merger and transaction-related expenses, share-based compensation and other items not reflective of the Company's ongoing operations.
2016 Full-Year Guidance
    as of March 31, 2016     as of June 30, 2016     Updated Guidance
Core FFO per share $1.55 - $1.65 $1.60 - $1.65 $1.65 - $1.69
Stabilized Occupancy 94% - 95% 95% 95%
Blended Rent Growth 4% - 5% 4.5% - 5% 4.5% - 5%
Core NOI margin (Stabilized)     62% - 64%     62% - 64%     63% - 64%
 

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.

Third Quarter 2016 Conference Call

A conference call is scheduled on Monday, November 7, 2016, at 10:00 a.m. Eastern Time to discuss the Company's financial results for the three and nine months ended September 30, 2016. 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 December 9, 2016 and can be accessed by calling 1-877-870-5176 (U.S. and Canada) or 1-858-384-5517 (international), replay pin number 13647034, 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 Third Quarter 2016 Supplemental Information Package ("Q3 2016 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 Q3 2016 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 are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. 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 due to a variety of risks, uncertainties and other factors. 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: failure to plan and manage the Merger and associated transitions effectively and efficiently; the possibility that the anticipated benefits from the Merger may not be realized or may take longer to realize than expected; unexpected costs or unexpected liabilities that may arise from the Merger; the outcome of any legal proceedings that have been or may be instituted against the Company, CAH or others following the announcement or the completion of the Merger and associated transitions; changes in the Company's business and growth strategies; volatility in the real estate industry, interest rates and spreads, the debt or equity markets, the economy generally or the rental home market specifically; declines in the value of 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 objectives and business and growth strategies; the Company's ability to exit its NPL 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 availability, terms and deployment of short-term and long-term capital; the adequacy of the Company's cash reserves and working capital; potential conflicts of interest with Starwood Capital Group Global, L.P., Colony Capital, Inc. and their affiliates; effects of derivative and hedging transactions; the Company's ability to maintain its exemption from registration as an investment company under the Investment Company Act of 1940, as amended; changes in governmental regulations, tax laws 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 the Company's subsidiaries to qualify as a REIT 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. 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 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 its forward-looking statements appearing herein, whether as a result of new information, future events or otherwise.

Investor Relations John Christie, 510-982-5470 IR@colonystarwood.comor Media Relations Jason Chudoba, 646-277-1249 Jason.chudoba@icrinc.com

       

Consolidated Financials
 
Balance Sheet (Condensed)
As of September 30, 2016
(Unaudited)
(Dollars in thousands)
 
Assets Liabilities
Investments in real estate properties: Accounts payable and accrued expenses $ 122,274
Land and land improvements $ 1,538,642 Resident prepaid rent and security deposits 57,605
Buildings and building improvements 4,328,414 Secured credit facilities 593,552
Furniture, fixtures and equipment   122,032   Mortgage loans, net 2,738,746
Total investments in real estate properties 5,989,088 Convertible senior notes, net 351,834
Accumulated depreciation   (333,989 ) Liabilities related to assets held for sale 47,397
Investments in real estate properties, net 5,655,099 Other liabilities   5,712  
Real estate held for sale, net 36,942 Total liabilities   3,917,120  
Cash and cash equivalents 130,890 Equity
Restricted cash 174,874 Common shares, at par 1,015
Investments in unconsolidated joint ventures 34,620 Additional paid-in capital 2,733,101
Asset-backed securitization certificates 110,538 Accumulated deficit (285,491 )
Assets held for sale 115,473 Accumulated other comprehensive loss   (6,607 )
Goodwill 259,046 Total shareholders' equity 2,442,018
Other assets, net   46,597   Non-controlling interests   204,941  
Total equity   2,646,959  
Total assets $ 6,564,079   Total liabilities and equity $ 6,564,079  
 
       
Statements of Operations
(Unaudited)
Dollars in thousands
Three Months Ended September 30, Nine Months Ended September 30,
2016

2015 (1)
2016

2015 (1)
Revenues
Rental income $ 135,572 $ 73,350 $ 400,466 $ 208,002
Other property income 7,374 5,476 19,830 14,869
Other income   3,153     -     9,022     -  
Total revenues   146,099     78,826     429,318     222,871  
Expenses
Property operating and maintenance 23,678 15,119 64,226 43,313
Real estate taxes, insurance and HOA costs 28,025 14,889 83,139 43,461
Property management expenses 8,377 4,526 26,460 13,787
Interest expense 39,296 16,395 114,737 47,710
Depreciation and amortization 47,344 27,415 135,818 80,300
Impairment of real estate assets 356 603 530 1,056
Share-based compensation 824 - 1,922 -
General and administrative 11,525 8,789 42,400 26,768
Merger and transaction-related expenses   1,503     2,420     30,058     2,420  
Total expenses   160,928     90,156     499,290     258,815  
Net gain on sale of real estate owned 1,453 (836 ) 3,364 403
Equity in income from unconsolidated joint ventures 185 45 539 151
Other income (expense), net   1,312     (673 )   (1,379 )   (2,632 )
Loss before income taxes (11,879 ) (12,794 ) (67,448 ) (38,022 )
Income tax (expense) benefit   (161 )   (797 )   (487 )   (1,051 )
Net loss from continuing operations (12,040 ) (13,591 ) (67,935 ) (39,073 )
Income (loss) from discontinued operations, net   449     (4,617 )   (7,368 )   (3,778 )
Net loss (11,591 ) (18,208 ) (75,303 ) (42,851 )
Net loss attributable to non-controlling interests   691     7,005     4,529     16,126  
Net loss attributable to Colony Starwood Homes (10,900 ) (11,203 ) (70,774 ) (26,725 )
Net income attributable to preferred shareholders   -     (4 )   -     (12 )
Net loss available to common shareholders $ (10,900 ) $ (11,207 ) $ (70,774 ) $ (26,737 )
 
Net loss per common share - basic and diluted
Net loss attributable to common shareholders $ (0.11 ) $ (0.17 ) $ (0.70 ) $ (0.41 )

(1) For GAAP purposes, the Merger resulted in a reverse acquisition of SWAY by CAH. Historical financial statements for periods prior to the Merger include only the results of operations and financial position of CAH.
   

Reconciliation to FFO and Core FFO
Dollars in thousands, except share data

Three Months Ended September 30,2016

Nine Months Ended September 30,2016
 

Reconciliation of net loss to NAREIT FFO
Net loss attributable to common shareholders $ (10,900 ) $ (70,774 )
Adjustments:
Depreciation and amortization on real estate assets 46,838 134,922
Impairment of real estate assets 356 530
Net gain on sale of real estate (1,453 ) (3,364 )
Non-controlling interests (691 ) (4,529 )
Discontinued operations, net (NPL/REO)   (449 )   7,368  
NAREIT FFO $ 33,701   $ 64,153  
 
NAREIT FFO per share (1) $ 0.31   $ 0.59  
 

Adjustments for Core FFO
NAREIT FFO $ 33,701 $ 64,153
Amortization of deferred financing costs and debt premium discounts 9,278 26,506
Merger and transaction-related expenses 1,503 30,058
Integration Costs (2) 294 7,677
Share-based compensation 824 1,922
Adjustments for derivative instruments   588     1,440  
Core FFO $ 46,188   $ 131,756  
 
Core FFO per share (1) $ 0.43   $ 1.22  

(1) Weighted-average common shares total 108,121,516 and 108,319,145 for the three and nine month periods, respectively. Comprised of 101,489,857 and 101,680,457 weighted-average common shares outstanding and 231,659 and 238,688 unvested RSUs for the three and nine month periods ended, respectively, and outstanding OP units exchangeable for 6,400,000 common shares. (2) Please see Appendix A for a definition of Integration Costs, and Appendix B for a summary of Integration Costs through the three and nine months ended September 30, 2016. We believe that identifying Integration Costs is useful for investors as it allows investors to separate these costs from the core operating performance of our Single-Family Rental business.

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