Rental Housing Market Boosts Use Of RealPage Software

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RealPage ( RP ) makes a good living providing on-demand software for the rental housing industry, helped by a strong U.S. rental market and its own appetite for acquisitions.

The company sells a range of products for single-family and multifamily rental properties. Software as a service, or SaaS, solutions from RealPage are designed to help property managers and owners manage their marketing, pricing, screening, leasing, accounting, purchasing, utilities and other kinds of operations.

These offerings have been in heavy demand in recent years as the nation's housing bubble forced many financially strapped Americans to sell their homes and return to the rental market. At the same time, many would-be homebuyers who couldn't qualify for mortgage loans were left with little choice but to rent.

Housing Shift Helps Sales

These trends, along with the large number of echo boomers age 20 to 34 entering the rental market every year, have pushed up occupancy rates at rental properties across the U.S. and increased the need for the kinds of software products that RealPage sells.

That still holds true this year, even as the U.S. housing market has bounced back.

"The rental housing market continues to sustain a strong performance," RealPage CEO Stephen Winn said on a Nov. 7 conference call with analysts to discuss the firm's Q3 results.

He cited data from MPF Research, an independent division of RealPage, showing that the apartment occupancy rate for the 100 largest markets in the U.S. was 95.4% at the end of the third quarter --which was about even with the previous year.

"Annual revenue growth for the rental housing market, which includes the shifts in both occupancy and effective rents, was 3.2% in the third quarter, up from 3.1% in the second quarter," Winn said.

Meanwhile, he added, the 100 largest markets were in the process of building 309,000 new units at the end of the third quarter. These units are expected to be completed within the next 18 to 24 months.

A rise in the number of renters and rental units only tells part of the growth story for RealPage, however. The company has also been an aggressive acquirer through the years, with more than 20 buyouts since its initial public offering in August 2010.

"Acquisitions have been a big part of the story for RealPage," said Brendan Barnicle, an analyst at Pacific Crest Securities.

RealPage has remained active on the acquisition front lately. On Oct. 25, it announced the acquisition of Windsor Compliance, a provider of compliance monitoring services for the affordable housing industry.

Windsor provides compliance monitoring for more than 30,000 affordable housing units across the U.S. Its services are designed to help rental property owners verify the income of residents, in order to stay in compliance with HUD and tax credit rules and regulations. It also offers some remediation services to assist owners that are not in compliance.

Another deal, announced on Oct. 29, was RealPage's acquisition of ActiveBuilding, which offers a platform designed to help property owners and managers attract and retain residents through better online tools.

One of those tools is a portal that gives residents a place to see their bills, make payments, make service requests, reserve amenities and renew leases. Another portal lets residents connect with each other via texts, phone calls, emails,Facebook ( FB ),Twitter ( TWTR ) and other social media platforms.

ActiveBuilding also helps property managers keep up with packages and deliveries -- something they're doing a lot more of these days as more residents order products over the Internet.

"ActiveBuilding allows staff to quickly log packages into the system, automatically sends an e-mail or text notification to the resident, and enables receipt authorization," Winn said. "(It makes) the entire process more efficient and secure."

In a related transaction announced the same day, RealPage acquired MyBuilding, a New York-based platform. MyBuilding offers some of the same functionality as ActiveBuilding, but is geared more toward condominium properties and homeowners associations.

RealPage provides its SaaS products and services to more than 8,700 customers, nearly all of whom are property managers. Its tools are used to manage the operations of around 8.6 million rental housing units.

"It was one of the first companies with vertical expertise in rental property within the SaaS category," analyst Barnicle said.

According to industry estimates, RealPage controls about 40% of the on-demand software market for rental properties. Its nearest competitor is probably Yardi, a privately held provider of software solutions for the real estate industry.

Big-Company Competitors

RealPage also faces competition in certain product categories from companies that make enterprise and financial software, includingOracle ( ORCL ),SAP ( SAP ),Salesforce.com ( CRM ) andIntuit (INTU).

Financially, RealPage routinely cranks out double-digit sales and earnings growth. During its 12 full quarters as a publicly traded company, it has grown sales at least 20% and EPS at least 18%.

Third-quarter earnings rose 33% from a year earlier to 16 cents a share, topping consensus views by a penny. Revenue gained 18% to $98.1 million, shy of estimates for $99.7 million.

In a note following the Q3 results, Barrington Research analyst Jeff Houston said RealPage should continue to deliver robust growth as it rolls out new products and takes advantage of a favorable business environment.

"With above-average profitability and 20%-plus organic on-demand growth, we believe it should trade at a premium to the overall SaaS group," Houston said.

RealPage's stock price touched a 13-month high of 26.34 on Oct. 22. Shares currently trade near 25.

Analysts expect the company to post full-year earnings growth of 26% in 2013 and 27% in 2014.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas
Referenced Symbols: CRM , FB , ORCL , RP , SAP

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