Key Takeaways: Late last night there was news HERE that NexPoint Real Estate Advisors-backed single-family rental REIT VineBrook Homes Trust, Inc. may be going public. We have not gotten a look at filings yet, but a few key initial points to consider. Should the company actually file this would definitely be a candidate for a pre-IPO Black Book given our coverage of SFR:
- The company owns more than 13,000 single-family rental homes in the U.S., primarily in Ohio around Columbus and Dayton as well as the South, with average rents in the ~$1,000/month range although not clear over what time period those rents were generated. That would place the potential REIT at a discount to both Best Idea Long AMH and INVH from a rent perspective as well as a value/home framework most likely
- In prior Form 10s the company said it "mostly" owns single-family homes - we would like to better understand what exactly that means, and whether other property types would "travel" with the roll-up of the platform and IPO
- VineBrook is an affiliate of and managed by NexPoint Real Estate Advisors, which externally manages publicly-traded apartment REIT NXRT. While to be fair NXRT has performed well, we cannot stress the following enough especially for those new to REITs - externally-managed REITs are typically packed with conflicts of interest and idiosyncratic risks around that external advisor relationship, and historical performance has been exceptionally poor. For example, NXRT (with no internal management layer) pays NexPoint a 1% annual base management fee before performance fees that is based on gross asset value. Thinking through that, it potentially incentives the external manager to turn the REIT vehicle into an "asset aggregator" to produce fees for the benefit of the manager, in lieu of doing economic deals to the benefit of all shareholders. See Commonwealth REIT pre-EQC/RMR and the American Realty Capital family of REITs as examples. A base fee based on TSR, FFO growth, etc. and/or an equity stake by NexPoint in the REIT would better align incentives. Again we would need to see the filings, but it is a good bet that any external management agreement and/or property management agreements with NexPoint would be structured similarly, and investors would need to be very aware of that
- ARK Investment Management CEO Cathie Wood is on the board which is interesting
- More to come...
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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