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American Homes 4 Rent announces merger with American Residential Properties

Two of the fastest-growing companies in housing form SFR monolith

In a move that will create the largest publicly traded single-family rental home company, American Homes 4 Rent (AMH) announced Thursday that it will merge with American Residential Properties (ARPI).

According to investor materials released in coordination with the merger announcement, American Homes 4 Rent owned 38,377 single-family rental homes as of Sept. 30, while American Residential Properties owned 8,938.

The merger will increase American Homes 4 Rent’s total single-family rental portfolio to 47,315 homes.

According to the announcement, the combined company is expected to own in 22 states and to have an equity market capitalization of $5.5 billion, based on American Homes 4 Rent’s closing price on Dec. 2, 2015.

According to the announcement, the boards of both companies approved a definitive agreement to combine the two companies in a tax-free merger at a total transaction value of approximately $1.5 billion.

This deal merges two of the fastest-growing companies in the housing economy. American Homes 4 Rent ranked No.1 in revenue growth in HW's 2014 Fast50 program, growing its revenue an astounding 2,962% from 2012 to 2013. The company then followed that up with 299% revenue growth from 2013 to 2014, landing it in the No. 2 spot for the 2015 Fast50. American Residential Properties moved from the No. 5 spot on the 2014 list to the No. 3 spot this year with 128% growth.

In the merger, American Homes 4 Rent will issue approximately 38 million common shares and assume or repay a total of approximately $0.8 billion of American Residential Properties debt, the companies said.

Under the terms of the merger agreement, each share of American Residential Properties common stock and each limited partnership unit in its operating partnership will be exchanged for 1.135 common shares or limited partnership units of American Homes 4 Rent, representing a current value per share/unit of American Residential Properties of $19.01 based on American Homes 4 Rent closing price on Dec. 2, 2015.

According to the companies, that’s a 19.8% premium over the volume weighted average closing price of American Residential Properties common stock over the 20 trading days ending on Dec. 2, 2015, and an 8.7% premium over American Residential Properties’ closing price on Dec. 2, 2015.

Upon closing of the merger, American Residential Properties stock and unit holders will own approximately 12.6% of the outstanding common shares and units of the combined company, the companies said.

One of the current American Residential Properties directors will also join the board of American Homes 4 Rent.

The companies said that given the geographic overlap of American Homes 4 Rent and American Residential Properties portfolios, “operational synergies” are expected to be achieved by reducing duplicate expenses for internet charges, supervisory property management personnel, management information systems and other back-office functions.

In several markets, American Homes 4 Rent’s rental portfolio will grow by more than 1,000 homes.

According to the investor materials, in American Homes 4 Rent’s largest market, Dallas-Fort Worth, the combined portfolio of the new American Homes 4 Rent will increase by 1,118 to 4,268.

In Atlanta, the company’s rental portfolio will grow from 2,688 to 3,730, an increase of 1,042.

In Houston, the company’s rental portfolio will increase by 1,106, from 2,021 to 3,127.

And in Phoenix, the company’s rental holdings will nearly double, increasing from 1,609 to 2,947.

The deal is the latest in what has been an astronomical growth pattern for American Homes 4 Rent. At the end of 2012, American Homes 4 Rent’s rental portfolio was just 3,644 homes.

When this deal is completed, the company will own more than 47,000 rental homes.

“We are delighted to announce our agreement to combine with American Residential Properties, further establishing American Homes 4 Rent as the largest publicly-traded owner and operator of single family rental homes,” David Singelyn, chief executive officer of American Homes 4 Rent, said.

“American Residential Properties has a high quality portfolio of homes which fit strategically in our markets, offering significant opportunities to capture further operating efficiencies on the combined platform,” Singelyn said. “Moving ahead, we look forward to creating additional value for the shareholders of the combined company while strengthening our position as a premier company in the single-family rental sector.”

According to the companies, American Residential Properties’ chairman and chief executive officer, Stephen Schmitz, and its president and chief operating officer, Laurie Hawkes, will remain with the company until the closing of the merger.

“We are excited to join forces with one of the largest and most successful single family residential companies in our growing industry,” Schmitz said.

“Over the past year, our management and board have explored many options to enhance returns to our stockholders and we believe this strategic transaction is the best way to deliver long-term value to our stockholders,” Schmitz continued. “This merger provides American Residential Properties stockholders with a premium for their shares and the opportunity to benefit from participation in the upside potential of an efficient, larger platform that is well positioned in high growth markets and that will benefit from operating synergies.”

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