American Homes 4 Rent to drum up funds with novel “price appreciation” shares

A major buyer of single-family rental homes is looking to raise funds by offering investors an unusual incentive – a chance to benefit from appreciation of the property.

American Homes 4 Rent, which raised $811.8 million in a June initial public offering, plans to sell preferred shares that will rise in value as its rental homes appreciate, according to a filing yesterday with the U.S. Securities and Exchange Commission seen by Bloomberg News. The company – which is second only to Blackstone Group in its single-family rental portfolio — is looking to raise about $100 million, an amount that may be subject to change.

The participating shares “have an initial liquidation preference of $25 per share, which may be increased by an additional Home Price Appreciation Amount” which factors in home prices in the company’s 20 largest markets, according to the filing.

The company recently cut staff after seeing a second quarter loss.

Private equity firms, real estate investment trusts and hedge funds have raised north of $18 billion to buy more than 100,000 rental houses in the last two years, tapping into the sharp drop in housing prices from the 2006 peak and the growing demand from people unable to afford buying a home. [Bloomberg News] — Hiten Samtani