RealPage: A Software Firm Riding the Rental Market

September 12, 2012 /

Steve Winn pays close attention to trends in the rental market for a good reason: His firm, RealPage, makes a living helping manage it.

RealPage ( RP ) is considered a top provider of cloud-based software products for multifamily rental housing.

Its products and services are used by more than 8,200 property owners and managers for helping them manage 7.5 million rental units nationwide.

And what CEO Winn sees ahead is more of the same: robust demand for rental apartments for years to come.

“Nothing is going to stop it,” he said. “And supply is not going to keep up with the demand.”

At least not for a few years until construction catches up, according to observers who track the industry.

One reason for Winn’s optimism is the Generation Y, or Millennials, likely to enter the market in bigger numbers.

“A lot of kids are living at home and don’t want to live at home. When they can afford to get out, they’ll rent. That’s typically what they do,” he said.

Secondly, foreclosures will continue to flow through the system, forcing more owners into rentals.

Early Bright Spot

The rental market is already a growth industry, an early bright spot in an economy weighed down by the housing crisis, which caused home ownership rates to fall.

“There is a lot of demand and a lack of supply,” said analyst Robert Breza of RBC Capital Markets. “And the rental housing market is trying to become much more efficient. It’s evolving from a technology perspective.”

RealPage has been a beneficiary of that trend with revenue growing 30% to 40% the last few years.

RealPage was formed in 1998 to acquire Rent Roll, which sold on-premise property management systems.

Dallas area-based RealPage released it first on-demand property management system, OneSite, in 2001, and kept adding new products and making acquisitions.

Even when the market for owned homes soared from 2003 to 2006, RealPage’s revenue grew at least 30% annually. But it lost money through 2008 as it built the business.

Profit since 2008 has grown 110% on a compounded annual basis.

Increased investments have caused profits to slow this year, analysts say. Those polled by Thomson Reuters expect earnings to rise 33% this year to 48 cents a share and grow by around the same percentage the next year.

But Breza says RealPage’s average revenue per unit could “easily double” over the next five years as small and midsize customers, like the larger ones, up the amount of products they buy.

Its software is meant to help apartment owners and managers increase their revenue and reduce their expenses. Customers typically sign one-year subscriptions, paying on a monthly basis for everything from property management systems to multichannel marketing and rent-price analysis.

While per-unit revenue for conventional multifamily apartments can be as much as $350, and some of the larger customers pay as much, the firm’s average in the second quarter was $40, up 10% from the earlier year.

RealPage tries to cross-sell current customers more products and an expanding sales force also reels in new customers. Ongoing acquisitions, which have stepped up of late, also help.

On July 23, RealPage acquired RentMineOnline, which leverages social media by letting tenants refer friends through their social networks.

Analysts say RealPage’s biggest single rival is Yardi Systems, based in Santa Barbara, Calif. The two were embroiled in a legal squabble that was settled recently. As part of the settlement, the firms agreed to enhance integration capabilities between their systems, Winn says.

According to JMP Securities, customers of RealPage include the 10 largest multifamily property management firms in the U.S.

OneSite, its largest product suite, accounts for about a third of annual revenue. It includes tools for automating leasing and accounting, among other things.

LeasingDesk is a risk-management suite that screens tenants and offers renters’ insurance.

Another, LeaseStar, offers marketing services including ways to capture leads. RealPage also hosts websites for properties.

One of its fastest growing products is YieldStar, which offers a statistically based window into comparable rental prices, updated daily. It helps customers set optimal rental prices for new leases and renewals.

RealPage also is growing business through products geared to owners and managers of single-family home rentals.

One RealPage customer that has been growing along with the rental industry is Chicago-based Orion Residential Advisors. Its business has doubled in size since its founding in 2008.

And its business with RealPage “has grown with us,” said Dan Gumbiner, Orion’s chief executive.

Orion owns or manages 8,000 units in 35 apartment communities in eight states.

Suite Of Products

Most of Orion’s properties use RealPage’s OneSite property management package. Additional products are added depending on the property, Gumbiner says.

“For us, it’s really the ease of operation of having a single source provider,” he said. “When we take over the management of a property, it allows us to come in with a single, integrated operating platform. We basically plug it in and go.”

The software services market for the rental industry is fragmented and underpenetrated. Winn says there are 40 million total rental housing units nationwide with a $9 billion potential market opportunity for the kinds of products his firm sells.

If all 7.5 million units it currently serves used everything his company offered, he says, RealPage would enjoy more than $2 billion in annual revenue. It took in $258 million last year.

Analysts expect revenue to grow 27% this year to $327 million and rise to $393 million in 2013, according to Thomson Reuters.

Winn says RealPage will benefit from any kind of rental market, up or down.

“In a down market, you need to keep your vacancy rates under control. In an up market, you need to optimize prices,” he said.

When owners are making more money, he adds, “they’re more likely to invest in their IT (information technology) infrastructure.”


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