At a time when homebuilders are struggling to compete with the bargain-basement prices of distressed properties and more families are turning to rentals as credit stays tight, Beazer Homes USA seems to have adopted the motto, "If you can’t beat ’em, join ’em."

A year ago, Beazer started buying distressed "preowned" homes in its Phoenix and Las Vegas markets, renovating them, and then renting them out to people who might one day be buyers. On Thursday, the Atlanta-based company announced it is putting its 200-single-family-home portfolio into a new real estate investment trust called Beazer Pre-Owned Rental Homes Inc., or BPRH. The trust was formed as a partnership between Beazer and an investor group led and arranged by affiliates of Kohlberg Kravis Roberts and Co.

Editor’s note: This article is republished with permission of Builder magazine. View the original article: "Beazer Forms Partnership to Buy Rental Homes."

By TERESA BURNEY

At a time when homebuilders are struggling to compete with the bargain-basement prices of distressed properties and more families are turning to rentals as credit stays tight, Beazer Homes USA seems to have adopted the motto, "If you can’t beat ’em, join ’em."

A year ago, Beazer started buying distressed "preowned" homes in its Phoenix and Las Vegas markets, renovating them, and then renting them out to people who might one day be buyers. On Thursday, the Atlanta-based company announced it is putting its 200-single-family-home portfolio into a new real estate investment trust called Beazer Pre-Owned Rental Homes Inc., or BPRH. The trust was formed as a partnership between Beazer and an investor group led and arranged by affiliates of Kohlberg Kravis Roberts and Co.

The plan is to grow BPRH fast into a leader in the single-family rental home market, the news release said.

"We believe our investment in BPRH allows us to unlock the value in our rental homes business and grow it more rapidly than we otherwise could within Beazer," Beazer CEO Allan P. Merrill said in the news release. "BPRH’s ability to focus specifically on the rental homes market and attract external capital to scale the business represents a compelling — and differentiated — value for our shareholders."

In addition to the houses Beazer had collected, which are worth about $20 million, the new trust received cash investments and funding commitments from outside investors of $65 million.

In return for its contribution, Beazer will receive a noncontrolling interest in the trust: stock awards equal to 6 percent of the stock issued during its private phase until it has raised $150 million in equity. It will receive the first 2 percent of the shares when the trust finishes its initial round of equity financing and the rest when various benchmarks are reached. After BPRH raises $150 million in private equity capital, Beazer will get another 1 percent of stock issuances before a public stock offering.

Merrill was appointed non-executive chairman of BPRH’s board of directors. Patrick R. Whelan, a residential real estate veteran with more than 20 years of experience in a number of leadership positions, will be the company’s president and chief executive officer.

Teresa Burney is a senior editor for Builder magazine.

© 2012 Hanley Wood. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without the prior written permission of Hanley Wood.

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