Company Update June 2014

Transcription

1 Company Update June 2014 Starwood Waypoint Residential Trust (NYSE: SWAY) acquires, renovates, leases, maintains and manages single family homes. We also invest in non-performing loans to supplement growth and seek optimal resolutions for each loan by working with interested and qualified borrowers to find the most appropriate solutions to keep them in their home or, alternatively, converting loans into homes for rent or sale. We are focused on building a leading, nationally recognized brand based on a foundation of respect for our residents and the communities in which we operate. Our mission is to reinvent the home rental experience by providing quality homes, great service and rewarding lease programs that offer valuable benefits to our residents while generating attractive returns for our investors.

2 Forward Looking Statements The statements herein that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate, management s beliefs and assumptions made by management. Such statements involve uncertainties that could significantly impact our financial results. Words such as expects, anticipates, intends, plans, believes, seeks, estimates, variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future including statements relating to rent and occupancy growth, acquisition and disposition activity, renovation activity, general conditions in the geographic areas where we operate, our debt and financial position are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, regional and local economic climates; (ii) changes in financial markets, and interest rates; (iii) increased or unanticipated competition for our homes; (iv) risks associated with acquisitions, dispositions and renovation of homes; (v) maintenance of REIT status and tax structuring; (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings; (vii) risks related to our investments in distressed and non-performing residential mortgage loans; (viii) environmental uncertainties, including risks of natural disasters; and (ix) those additional factors discussed in reports filed with the Securities and Exchange Commission by us under the heading Risk Factors. We undertake no duty to update any forward-looking statements appearing herein. 2

3 Market Overview

4 Favorable Demand/Supply Fundamentals The single-family rental sector constitutes about one-third of total rental households. Many single-family homes are potential rental properties, including existing vacant homes, existing single-family rentals and non-performing loans. Total Rental Homes (millions) Non-Current As % of Total Mortgages Total 41.3 million rental homes Key Demand Drivers 1-unit 2-9 units: 10+ units Other 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 8.8% 2.7% 2.4% 1.0% 2.7% Differential equates to approximately 1.6 million mortgages as of 1Q million 5.7% 1.0% 0.8% 0.7% 3.2% 1Q14 Normal ( ) Pre-REO Foreclosure 90 Days Delinquent 60 DaysDelinquent 30 Days Delinquent 2.9 million Continued constraints on home mortgage financing Over $1 trillion in student debt Increasing numbers of renters by choice About 19% of US homeowners with mortgages remain underwater at Q1 The number of distressed mortgages remains well above historic norms. Sources: Zelman & Associates Equity Research (March 2014), Zillow 4

5 Single-Family vs. Multi-Family REITs Market Size (1) Occupancy (2) ($ in billions) $100 $80 $60 ~$93 bn Multi-Family REITs SFR 100% 95% 90% 95.6% 96.4% 95.0% Multi-Family REITs SWAY Waypoint $40 85% $20 $0 ~$6bn 80% 75% 70% Gross Turnover (3) NOI Margin (4) 70% 60% 50% 40% 30% 20% 10% 57.5% ~30.0% Multi-Family REITs SWAY 100% 80% 60% 40% 20% 62.0% 60.3% 62.5% Multi-Family REITs SWAY Waypoint 0% 0% Note: Multi-Family REITs include AEC, AIV, AVB, CPT, EQR, ESS, HME, MAA, PPS, UDR, ELS, SUI, ACC, CCG and EDR. Single-Family Rental REITs include AMH, RESI, SBY ARPI and SWAY. (1) Market data from SNL as of 5/24/2014. Multi-Family market cap includes all publicly traded REITs listed above. (2) Represents physical occupancy at Q Multi-Family REITs weighted by total assets and include only U.S. Apartment REITs. SWAY data represents stabilized portfolio. Waypoint data is legacy average. (3) Multi-Family REIT data as of Q from Green Street Advisors. (4) Multi-Family REIT data as of Q from Green Street Advisors. Waypoint data based on legacy average. Sources: Green Street Advisors, Company Data and SNL Financial. 5

6 About Starwood Waypoint

7 Two Market Leaders Combined SWAY was created in January 2014 as a spin-off from Starwood Property Trust and combines one of the pioneers in Single-Family Rental with one of the premier real estate private equity firms in the world. Waypoint Real Estate Group Starwood Capital Group History of successful single-family rental investing since 2009 Significant operations infrastructure and experience Leading proprietary technology platform Expertise in sourcing and managing single family residential homes Strong single-family rental consumer brand Leading commercial/residential real estate investor with over $32B of assets under management Unparalleled track record of growing de novo strategies in the public markets. Extensive knowledge of US real estate and capital markets Expertise in sourcing and managing residential Non- Performing Loan portfolios 7

8 Key Points of Differentiation Well-Established Brand Experienced Management Team Disciplined Capital Allocation Aurora, IL Cloud-Based Technology Platform Vertically Integrated Hybrid Business Model (SFRs + NPLs) Vallejo, CA Snellville, GA 8

9 Well-Established Brand Since 2009, the Waypoint Homes brand has been about quality homes, great service and rewarding leases. Reinventing Renting requires expertise in real estate, technology and the customer 9

10 Seasoned Executive Management Team Barry Sternlicht Chairman Gary Beasley Co-Chief Executive Officer Doug Brien Co-Chief Executive Officer Colin Wiel Chief Investment Officer Nina Tran Chief Financial Officer Scott Gable Chief Operating Officer Ali Nazar Chief Technology Officer Tamra Browne Chief Legal Officer Charles Young Division Vice President - West To Com Starwood Capital Group (Chairman & CEO), Starwood Property Trust (Chairman & CEO), Société du Louvre (Chairman of the Board), Starwood Hotels & Resorts Worldwide, Inc. (former Chairman & CEO) Brown University (BA with honors, magna cum laude), Harvard Business School (MBA with distinction) Geolo Capital (Partner), Joie de vivre Hotels (CEO), GreenVolts (President & CEO), ZipRealty (President & CFO), LaSalle Partners and Security Capital Group, KSL Resorts (VP of Acquisitions) Northwestern University (BA), Stanford Graduate School of Business (MBA) Waypoint Homes (Co-Founder), Redwood Capital Management Group (Managing Partner); 15 years of real estate investing experience 12 years as NFL place kicker, 49ers Super Bowl Champion, Saints Team Captain, USOC Ethics Committee UC Berkeley (BA), Tulane University (MBA) Waypoint Homes (Co-Founder), Milo (Founder of e-commerce software engineering firm); 21 years of investment and real estate experience UC Berkeley (BS in Mechanical Engineering) Prologis, Inc. (Chief Global Process Officer), AMB Property Corporation (Chief Accounting Officer), PricewaterhouseCoopers (Senior Associate), Certified Public Accountant UC Davis and California State University, Hayward (BA), Stanford Executive Program Wells Fargo (EVP of Home & Consumer Finance Group), Hercules Technology Growth Capital (COO), United Commercial Bank (Head of Bank Operations), Booz Allen Hamilton (Consultant) Stanford (AB), Harvard Business School (MBA) SalesTeamLive (Co-found, VP of Product Development), Digital Island/Cable & Wireless (Director of Product Management) UC Davis (BS) AMB Property Corporation (SVP, General Counsel & Corporate Secretary), Morrison & Foerster LLP (corporate & securities attorney), Reid & Priest (corporate finance attorney) Middlebury College (BA), Stanford Law School (JD) Mesa Development (EVP), Goldman Sachs; 17 years of real estate development, investment and management experience Stanford University (AB and MBA) David Zanaty Division Vice President - East AIG Global Real Estate (VP of Development) CB Richard Ellis; 15 years of real estate investment and development experience Emory (BA), Georgia Tech (MS), Northwestern (MBA) 10

11 Disciplined Capital Allocation Northern California Denver Chicago Focus on optimizing total return by combining an attractive current yield, rent growth opportunities and long-term price appreciation. Southern California Dallas Atlanta Well-Diversified Portfolio of Homes Houston Tampa Bay Orlando South Florida Atlanta South Florida Houston Tampa Bay 1,488; 21% 930; 13% 10 Target Markets Dallas Chicago 1,796; 25% 772; 11% Highly Focused on Target Neighborhoods Buy Only 1% of What We Underwrite Achieving Best Yields in the Sector Southern CA Orlando Denver Northern CA Other 286; 4% 216; 3% 221; 3% 241; 3% 619; 8% 347; 5% 288; 4% As of March 31,

12 Compass: Our Cloud-Based Technology Platform Q Q Q Q Culture of Innovation Automated Metric Monitoring Learning Management System 1.0 Maintenance Resource Optimization Algorithm 1.0 Revenue Management System 1.0 Achieving efficiencies using inexpensive and powerful cloud and mobile computing Architecture designed for vertical integration Sustainable and measurable competitive advantages Culture of innovation a product of our Silicon Valley roots Compass Drives Operating Efficiency and Scalability Block-to-Block Intelligence Quality Control Field Closing Tools Q Neighborhood Algorithm 2.0 & Electronic Leases Q Resident Underwriting Algorithm 1.0 Revenue Management Customer Service Q Neighborhood Algorithm 1.0 Q Compass Property Management Platform 12

13 Vertically-Integrated Operator of Scale Waypoint Home Lifecycle Acquisition Period Acquisition Home Enters Waypoint Portfolio Property Onboarding Resident-inplace Turn 2+ Construction Period Construction Turn 1 Turn 2+ Indicates business functions performed with WREG s team of over 550 employees (1) Leasing Period (Rent-Ready) Leasing & Resident Screening Resident Resides in Home (Occupied) Resident Services Home Services Resident Moves Out of Home Acquisition Construction Leasing Resident Services Homes Services Local in-house buying team compensated based on asset performance Sharpshooter approach: only buy 1-2% of all homes that meet investment criteria Proprietary top-down and bottom-up underwriting approach National purchasing discount; 20%+ savings expected in 2014 Superintendents own projects 30 days into occupancy to ensure quality Quality first generation improvements Valuable second generation capex lessons learned Entire construction workflow in Compass In-house leasing team Trademarked two year Lease Plus Rewards ( LPR ) program Electronic leases Waypoint screening algorithm informed by 5 years of data 35% leases from online sources 30% sourced from referrals Self-manage portfolio Resident Service Centers establish a local presence and help create stronger resident relationships Low turnover In-house team handles over 3/4 of all work orders Optimize for cost, resident experience and future cap ex 13

14 Supports Strong Leasing Activity 120% 100% 80% 60% 40% 20% 0% 93.6% Lease Percentage of SFR Homes Leased Homes 90 Days Past Initial Rent Ready Leased Homes 180 Days or Longer 65.1% 96.3% 97.4% 90.4% 92.2% Dec '13 Mar '14 April '14 Longer leases, rent premium to market, and low voluntary turnover 75% of residents sign two-year leases Built-in 3% increase in Year 2 30% turnover and trending lower Vertically integrated marketing Proprietary rent pricing and promotions management system Sophisticated resident screening based on 5 years of performance history Historically lease 3% of total leads Douglasville, GA 14

15 Hybrid Business Model Stability Leased Homes Portfolio Growing book of cash-flowing assets Supports initiation of a dividend in the near future Growth Value-Add Development Portfolio Non-Performing Loans Homes in renovation and leaseup phase Provides meaningful upside opportunities to enhance value and downstream cash flow Attractive channel to acquire single-family assets at 20-30% discount to Broker Price Opinion Alternative resolutions generate high Return on Equity Acquiring properties through multiple channels while being dynamic and nimble in order to obtain the best risk-adjusted returns for shareholders 15

16 Acquisition Activity

17 Targeted Home Selection Process I. MSA Rental yields Expected job and economic growth Projected Home Price Appreciation Opportunity to achieve scale and concentration II. Neighborhood Database of 400,000 neighborhoods Focus on income, school quality, crime level Proprietary livability analysis Required risk-adjusted return III. Home Accurate rent and capex underwriting Meets required yield for MSA / neighborhood Discount to Fair Market Value Proprietary livability analysis Local expertise 17

18 Accelerating Acquisition Activity Total SFR Home Purchases (1) Total Number of Rental Homes and NPLs (1) 1,400 1,200 Portfolio Purchases Single Asset Purchases 9,000 8,000 NPL SFR 7,807 1,000 7, ,000 5,000 5, , ,000 2,000 1,000 1,714 2,095 0 Jan 2014 Feb 2014 Mar 2014 Apr Dec '13 Apr '14 Valrico, FL Fort Worth, TX Increasing supply of homes available for purchase Sourcing from auctions, portfolios, one-off negotiated purchases About one-third of NPL purchases convert to rental homes over time (1) Excludes 154 homes acquired through Prime Asset Fund VI, LLC ( Prime ) or other third-party managers that are not designated as rental homes. 18

19 NPL Strategy Generates Strong Returns Avg. Timing Targeted Total Return Modifications (1) (~ 5-10% of loans) 5 9 months ~ x NPL acquisitions Short Payoffs (~ 5-10% of loans) 7 15 months ~ x Foreclosures / Deeds-in-Lieu (2) (~ 80-85% of loans) months ~ x Note: Projections assume HPA at 5% per annum. Management estimates are not a guarantee of future results. (1) Assumes mortgage is held until refinance at 95% of value. (2) Average pool timeline (individual states vary from 3 30 months). 19

20 Attractive Supply of Single Family Home NPLs Top Banks by Residential Mortgage Exposure (1) (US$bn) Total residential mortgages US$ PD 90 days + nonaccrual $340.7 $ % % PD 90 days + nonaccrual % % % % % % % % $1,259.4 $ % Other Potential Sources of NPLs GSEs Other Government Entities (1) As of Q1-14. Source: Regulatory filings and SNL 20

21 Capital Management

22 Financial Flexibility Strong and flexible balance sheet, with $770 million in undrawn debt capacity and commitments ($ in millions) $1, Financing Activity Plenty of Dry Powder (1) $1,600 $1,400 $250 Future: $250 million accordion feature to SFR facility syndication Drawn Capacity: $580 million $1,200 $1,000 $800 $600 $400 $200 $500 $350 $500 May: $500 million lender commitments to upsize SFR facility (syndication) March: $350 million warehouse NPL credit facility (Deutsche Bank) February: $500 million secured SFR facility (Citi) $200 $380 Undrawn Capacity and Commitments: $770 million $0 Total Capacity and Commitments Drawn Capacity April: $150 million share repurchase program Evaluating a securitization program (Fall 2014) (1) As of May 30, Lenders have signed commitments for the upsizing and syndication of the Citi SFR facility; however, definitive documents with respect to such transaction have not been entered into as May 30,

23 2014 Outlook Capital Deployment Single-Family Rental Homes: $250 million (Q2) Non-Performing Loan pools: $100 million (Q2) Leverage 40% - 60% Near-term bias towards high-end of range NOI Margin Low to Mid-60% range (Leased Properties) Improving through the year Lease Percentage Rate 94% - 96% (Stabilized Portfolio, normalized) Resident Turnover 30% (Annualized) In-line with historical levels 23

24 Summary: Why Starwood Waypoint? High quality portfolio of homes Carefully selected neighborhoods in 10 target markets Attractive opportunities to invest in SFR and NPL Growing book of cash-flowing assets Anticipate positive Core FFO later this year Supports initiation of a dividend in the near future Humble, TX Strong and flexible balance sheet $770 million of undrawn debt capacity and commitments Experienced management team Proven technology platform Partnership with Starwood Capital Group Provides resources, talent, ideas, deal flow Adelanto, CA Sarasota, FL 24

25 Appendix

26 Total Rental Homes Portfolio - March 31, 2014 Markets Stabilized Homes Non- Stabilized Homes Total Homes (1) Total Homes Leased (%) Average Acquisition Cost Average Investment per Home (2) Aggregate Investment ($ in millions) Average Home Size (sq. ft.) Weighted Average Age (year) Average Rent Atlanta 1, , % $ 93,469 $ 113,662 $ , $ 1,140 South Florida 1, , % $ 130,499 $ 150, , $ 1,549 Houston % $ 126,139 $ 136, , $ 1,479 Tampa Bay % $ 106,872 $ 121, , $ 1,239 Dallas % $ 121,432 $ 137, , $ 1,431 Chicago % $ 123,015 $ 146, , $ 1,638 Southern California % $ 237,750 $ 247, , $ 1,780 Orlando % $ 123,451 $ 139, , $ 1,297 Denver % $ 172,617 $ 198, , $ 1,701 Northern California % $ 215,105 $ 228, , $ 1,716 Phoenix % $ 142,952 $ 158, , $ 1,187 Las Vegas % $ 155,717 $ 167, , $ 1,290 California Valley % $ 226,226 $ 226, , $ 1,610 Total/Average 5,142 2,062 7, % $ 125,955 $ 143,216 $ 1, , $ 1,398 Status Total Homes (1) Total Homes Leased (%) Average Acquisition Cost Average Investment per Home (2) Aggregate Investment ($ in millions) Average Home Size (sq. ft.) Weighted Average Age (year) Average Rent Stabilized 5, % $ 128,076 $ 143,432 $ , $ 1,394 Non-Stabilized 2, % $ 120,666 $ 142, , $ 1,409 Total/Average 7, % $ 125,955 $ 143,216 $ 1, , $ 1,398 (1) Excludes 154 homes that were acquired through Prime or other third-party managers that are not designated as rental homes. (2) Includes acquisition costs and actual and estimated upfront renovation costs. Actual renovation costs may exceed estimated renovation costs, and we may acquire homes in the future with different characteristics that result in higher renovation costs. 27

27 Non-Performing Loan Portfolio - March 31, 2014 Total Total Total Loan Purchase Price Unpaid Principal Balance ("UPB") Broker Price Opinion ("BPO") Purchase Price Purchase Price Weighted Average State Count ($ in millions) ($ in millions) ($ in millions) as % of UPB as % of BPO Loan-to-Value ("LTV") Florida 730 $ 87.7 $ $ % 64.4% 160.3% New York % 50.9% 128.2% California % 63.7% 107.3% New Jersey % 54.3% 140.0% Illinois % 61.3% 152.2% Maryland % 68.1% 143.0% Pennsylvania % 62.7% 132.8% Georgia % 62.5% 127.0% Other % 64.3% 121.0% Total/Average 2,095 $ $ $ % 61.6% 137.8% Total Loan Purchase Price Total UPB Total BPO Purchase Price Purchase Price Weighted Status Count ($ in millions) ($ in millions) ($ in millions) as % of UPB as % of BPO Average LTV Foreclosure 1,263 $ $ $ % 60.0% 114.3% Delinquent % 64.1% 151.3% Performing % 61.6% 126.2% Total/Average 2,095 $ $ $ % 61.6% 137.8% 27

28 Definitions and Reconciliations Funds From Operations ( FFO ) and Core Funds from Operations ( Core FFO ). FFO is used by industry analysts and investors as a supplemental performance measure of an equity real estate investment trust ( REIT ). FFO is defined by the National Association of Real Estate Investment Trusts ( NAREIT ) as net income or loss (computed in accordance with accounting principles generally accepted in the United States) excluding gains or losses from sales of previously depreciated real estate assets, plus depreciation and amortization of real estate assets and adjustments for unconsolidated partnerships and joint ventures. We believe that FFO is a meaningful supplemental measure of the operating performance of our singlefamily home business because historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation. Because real estate values have historically risen or fallen with market conditions, management considers FFO an appropriate supplemental performance measure because it excludes historical cost depreciation, as well as gains or losses related to sales of previously depreciated homes, from GAAP net income. By excluding depreciation and gains or losses on sales of real estate, management uses FFO to measure returns on its investments in real estate assets. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the homes that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of the homes, all of which have real economic effect and could materially impact the our results from operations, the utility of FFO as a measure of our performance is limited. We believe that Core FFO is a meaningful supplemental measure of our operating performance for the same reasons as FFO and adjusting for non-routine items that when excluded allows for more comparable periods. Our Core FFO begins with FFO as defined by the NAREIT White Paper and is adjusted for: acquisition fees expensed, non-recurring acquisition pursuit costs and property management costs; non-recurring costs associated with the separation, and other non-comparable items as applicable. Management also believes that FFO/Core FFO, combined with the required GAAP presentations, is useful to investors in providing more meaningful comparisons of the operating performance of a company s real estate between periods or as compared to other companies. FFO/Core FFO does not represent net income or cash flows from operations as defined by GAAP and is not intended to indicate whether cash flows will be sufficient to fund cash needs. It should not be considered an alternative to net income as an indicator of the REIT s operating performance or to cash flows as a measure of liquidity. Our FFO/Core FFO may not be comparable to the FFO of other REITs due to the fact that not all REITs use the NAREIT or similar Core FFO definition. For a reconciliation of FFO and Core FFO to net loss attributable to common shareholders determined in accordance with GAAP please refer to page 10. Stabilized Homes. We define the stabilized home portfolio to include homes from the first day of initial occupancy or subsequent occupancy after a renovation. Homes are considered stabilized even after subsequent resident turnover. However, homes may be removed from the stabilized homes portfolio and placed in the non-stabilized home portfolio due to renovation during the home lifecycle. Total Home Portfolio Net Operating Income ( NOI ) and Leased Home Portfolio NOI. We define Total Home Portfolio NOI, as total property revenues less property operating and maintenance expenses and real estate taxes and insurance expenses ( property operating expenses ). We define Leased Home Portfolio NOI as the Total Home Portfolio NOI excluding property operating expenses on non-stabilized homes and vacant stabilized homes. We consider Total Home Portfolio NOI and Leased Home Portfolio NOI to be appropriate supplemental measures of operating performance to net income attributable to common shareholders because they reflect the operating performance of our homes without allocation of corporate level overhead or general and administrative costs and exclude property operating expenses on homes that are not producing revenue. A reconciliation of net loss attributable to common shareholders to Total Home Portfolio NOI and Leased Home Portfolio NOI is provided below: For the Three Months Ended ($ in thousands) March 31, 2014 Reconciliation of net loss to Stabilized Home Portfolio NOI Net loss attributable to common shareholders $ (15,308) Add (deduct) adjustments to get to total home portfolio NOI Mortgage loan servicing costs 5,241 Non-performing loan management fees and expenses 2,006 General and administrative 5,815 Investment management fees 2,757 Separation costs 3,543 Acquisition pursuit costs and property management engagement costs 554 Interest expense, including amortization 1,500 Depreciation and amortization 5,473 Impairment of real estate 834 Gain (loss) on sales of investments in real estate, net 145 Gain on non-performing loans, net (1,843) Gain on loan conversions, net (5,414) Income tax expense 135 Net loss attributable to non-controlling interests (10) Total home portfolio NOI 5,428 Add (deduct) adjustments to get to total leased home portfolio NOI Property operating expenses on non-stabilized homes 2,204 Property operating expenses on vacant stabilized homes 355 Total leased portfolio NOI $ 7,987 Total Home Portfolio NOI and Leased Home Portfolio NOI should not be considered alternatives to net loss or net cash flows from operating activities, as determined in accordance with GAAP, as indications of our performance or as measures of liquidity. Although we use these non-gaap measures for comparability in assessing their performance against other REITs, not all REITs compute the same non-gaap measures. Accordingly, there can be no assurance that our basis for computing these non-gaap measures are comparable with that of other REITs. 28