A solid year. Another great year. Another record-breaking year. That’s how the top three REITs in the single-family rental industry—Invitation Homes, American Homes 4 Rent and Tricon Residential—have described their respective business results for 2022. By all accounts, all three public REITs expect continued success in 2023, but they also anticipate slower growth as they pull back on acquisitions and build-to-rent developments.
Invitation Homes continues to lead the SFR industry with a portfolio of just over 83,000 rental homes in markets primarily in the Western U.S., Florida, and the Southeast as of the close of 2022. With holdings of nearly 59,000 single-family residences, American Homes has a footprint in 21 states. The third of the “big three,” Toronto-based Tricon Residential Inc., boasted a growing SFR portfolio totaling 36,000 residences located predominantly in the Sun Belt at year’s end.
For Invitation, American Homes, and Tricon, the last quarter of 2022 yielded year-over-year improvements in operating results pretty much across the board. Growth in total revenue. Check. Increased core net operating income. Check. Growth in core funds from operations. Check and check. All three companies also recorded portfolio occupancy levels of 97 percent or more and all three have decided to take a more modest approach to new acquisitions in 2023.
Following $601 million in SFR purchases in fiscal year 2022, Invitation Homes is planning a maximum of $300 million in acquisitions in 2023, gauging its activity by changing market conditions as the year progresses. American Homes has decided to put acquisition activity on hold altogether in 2023 for the time being, citing uncertainty in capital markets. Like Invitation, Tricon is planning to grow its SFR portfolio in 2023, but at a slower pace than seen in 2022, when it expanded its collection of SFRs by approximately 23 percent year-over-year. Tricon also narrowed its focus on SFR last year with the sale of its 20 percent stake in a group of U.S. multifamily rental properties.
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Whether they’re reducing the rate of their portfolio expansion or just sitting on the sidelines until the financing markets stabilize, Invitation, American Homes, and Tricon’s year-end numbers render them well-positioned to enhance or reboot their acquisition programs when they determine the timing is right. Invitation ended 2022 with $1.2 billion of available liquidity consisting of unrestricted cash and funds available under its revolving credit facility. Tricon has a half-billion dollars accessible under its corporate credit facility. And when American Homes is ready to get back to buying, the company can rely on more than $1 billion of borrowing capacity remaining under its revolving credit facility.
While buying binges might not be on the agenda for 2023, the SFR REITs will continue to grow their inventory via build-to-rent endeavors. Invitation Homes is poised to further solidify its position in the top spot with an existing pipeline exceeding 2,300 new build-to-rent homes that will be delivered over the next few years in partnership with homebuilding companies. As part of its AMH Development program, American Homes will see an estimated 2,300 new residences hit the rental market in 2023. Tricon, acting through its two joint ventures with Arizona State Retirement System, currently has approximately 2,200 SFRs under development.
Lack of funds obviously won’t be an issue for the top SFR REITs when the capital markets become more accommodating but new red tape in some markets may become a bit of a hindrance. Legislative entities from the local level to the federal government are pursuing regulations to curtail institutional investors’ expansion in the single-family landlord business.
Although corporations own only a tiny percentage of SFRs in the U.S., in certain markets, their growing footprint is not always welcome. There is a growing negative sentiment for corporate investors buying single-family homes as concerns grow about their ability to easily outbid would-be homebuyers. The Stop Wall Street Landlords Act of 2022, introduced in the U.S. House of Representatives in October 2022, calls for a refusal of certain tax incentives and other financial benefits for large investors (those with assets exceeding $100 million in a taxable year) buying single-family housing. The proposed legislation remains with the Committee on Ways and Means as of now.
In California, not quite three years after the passing of Homes for Homeowners Not Corporations, legislation that prevents big investors from making mass purchases of foreclosed homes, the Stable Homes Act hit the Assembly floor in February 2023. It proposes steps to give tenants in rental housing an opportunity to buy their home before it’s sold to a third party. Background text of the bill notes that “increasing activity by real estate speculators and Wall Street landlords,” along with the lack of affordable housing and increasing cost of real estate, has exacerbated the displacement of low-income households in the Golden State.
Minneapolis is keeping an eye on the rise of the corporate landlord in the Twin Cities and the ownership impacts to communities that come with it. In late 2021, the Federal Reserve Bank of Minneapolis, highlighting the fact that more investor-owned homes equals fewer opportunities for homeownership, introduced an interactive property-data tool that pinpoints patterns in institutional investors’ local SFR acquisition activity.
Single-family REITs may find their acquisition activity temporarily moderated due to lackluster capital markets or restrictive regulations, but they will continue to find a robust audience for their offerings. The lack of sufficient housing supply in the U.S. means rentals, single-family and otherwise, will be in high demand for the foreseeable future. And high interest rates remain an insurmountable obstacle for many hopeful homeowners, leaving them to pursue the next-best thing, renting. Another demand source for SFRs is the growing population of those who rent by choice. Many of these SFR occupants prefer the benefits of a house (more space, a yard for the kids (furry and non), and additional remote-work workspaces) without the maintenance responsibilities and long-term financial commitment that come with ownership.
Even with climbing rental rates, SFRs are still gaining in popularity so bulk-buying among big investors won’t become a thing of the past, hindrances or no. Whether locals like it or not, single-family REITs will continue to snap up assets in markets where the demand is robust, and those markets are plentiful.
