Investor's guide to Blue Ridge Capital's positions in 3Q 2013

Part 4
Investor's guide to Blue Ridge Capital's positions in 3Q 2013 (Part 4 of 11)

Why did Griffin decide to buy American Homes 4 Rent in 3Q 2013?

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According to 13Gs Blue Ridge Capital filed last month, the hedge fund disclosed new positions in Zulily (ZU) and PBF Energy (PBF). The filings stated that Blue Ridge currently owns 6.05% in Zulily, with 799,811 shares, and a 7.82% stake in PBF, with 3,095,000 shares.

A November 13G filing showed that Blue Ridge increased its position in Avis Budget Group (CAR) and at present owns a 6.17% stake, with 6,613,700 shares.

For more information on Blue Ridge Capital and its investment strategy, please see the last part of this series.

Blue Ridge Capital’s top new buys in 3Q 2013 per its 13F filing were American Homes 4 Rent (AMH), Tesla Motors Inc. (TSLA), Cliffs Natural Resources (CLF), and BlackBerry Ltd. (BBRY). The hedge fund exited its positions in Owens Corning (OC), Equinix Inc. (EQIX), and Realogy Holdings Corp. (RLGY).

Blue Ridge Capital’s two largest stock holdings are Priceline.com Inc. (PCLN) and American International Group Inc. (AIG), which account for 4.88% and 4.52% of the hedge fund’s portfolio, respectively.

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Why buy American Homes 4 Rent (AMH)?

American Homes 4 Rent, the Maryland real estate investment trust (REIT), accounts for 1.68% of Blue Ridge’s total portfolio. The company focuses on acquiring, renovating, leasing, and operating single-family homes as rental properties.

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AMH raised $705.9 million in an initial public offering in August 2013. The IPO comprised 44.1 million shares that sold at $16 per share, the low end of a $16 to $18 target. The company saw its shares fall on the day of trading by 3%.

In 3Q 2013, AMH had total revenues of $49.5 million—an increase of 173% over the $18.1 million in total revenues recorded for 2Q 2013. The growth in revenues resulted from strong leasing activity during the third quarter, with 4,602 new leases signed during the period. AMH reported a net loss of $3.9 million for 3Q 2013. The company said it grew its portfolio to 21,267 single-family properties as of September 30, 2013, from 18,326 as of June 30, 2013.

Post-2008, REITs, hedge funds, and private-equity funds took advantage of the decline in prices and bought properties, particularly post-2011, amid rising demand from renters who didn’t want to own or buy. The intention was to benefit from double-digit returns when most bonds and other income investments gave low yields. According to news reports last year, shares of public single-family rental REITs have fallen, as the companies have yet to make a profit, and also partly because of occupancy, as they’re acquiring houses faster than they can fill them with tenants. There’s also a fear of rising interest rates. AMH peers Silver Bay Realty Trust (SBY) and American Residential Properties (ARPI) are trading below its IPO prices.

JP Morgan raised the price target for the stock last month, and it expects the combination of property level cash flows and home price appreciation to provide an attractive risk-adjusted return for investors.

American Homes 4 Rent, founded in 2011 by storage billionaire B. Wayne Hughes, is the largest single-family landlord after Blackstone Group LP’s (BX) Invitation Home.

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