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Invitation Homes, Starwood Waypoint Homes to merge; create nation's largest single-family landlord

Consolidation in single-family rental business continues

Three years ago, the nation’s four largest operators of single-family rental homes joined together to form the National Rental Home Council, a trade group that focused on increasing education about the professionally managed single-family rental industry and advocating for the benefits of the rental market.

The founding members of the group were Colony American Homes, Invitation Homes, American Homes 4 Rent, and Starwood Waypoint Residential Trust.

Now, thanks to a series of consolidations, that big four is about to be a big two.

Since 2014, the single-family rental industry went through a period of transition.

Most notable during that time was when Starwood Waypoint Residential Trust merged with Colony American Homes two years ago to form Colony Starwood Homes and created a single-family rental giant.

Now, just 41 months later, the industry is about to see its largest consolidation yet, as two of the remaining big three are about to merge to form a company that will be the nation’s largest single-family rental landlord, by a wide margin.

On Thursday, Invitation Homes and Starwood Waypoint Homes, which is the new name for Colony Starwood Homes, announced plans to merge.

Invitation Homes owns and operates nearly 50,000 rental homes in 13 major markets: Atlanta, Charlotte, Chicago, Jacksonville, Las Vegas, Minneapolis, Northern California, Orlando, Phoenix, Seattle, Southern California, South Florida, Tampa, while Starwood Waypoint Homes’ portfolio of rental homes is roughly 32,000.

That means the combined company will own and operate approximately 82,000 single-family rental homes, with an average of 4,800 homes per market.

In a joint release, the companies said that the deal is a 100% stock-for-stock merger-of-equals transaction. Upon completion of the deal, the combined company will operate as Invitation Homes.

In the release, the companies say that merging will allow them to “bring together the best practices, technology, and personnel from both firms to create the premier single-family rental company” in the country.

Additionally, the companies said that the merger “will produce a company with an unparalleled ability to deliver enhanced service offerings to residents more efficiently, continue investing in local communities, and generate substantial value for stockholders.”

The stockholder portion of the deal is significant, as Invitation Homes went public earlier this year, raising more than $1.5 billion in its initial public offering.

Prior to going public, Invitation Homes functioned as Blackstone Group’s single-family rental operator, and Blackstone is still Invitation Homes’ majority shareholder.

Under the terms of the deal, each Starwood Waypoint Homes share will be converted into 1.614 Invitation Homes’ shares, based on a fixed exchange ratio, the companies said.

Upon the closing of the transaction, Invitation Homes’ current shareholders will own approximately 59% of the combined company’s stock, while Starwood Waypoint Homes’ stockholders will own approximately 41% of the company’s stock.

Based on the closing prices of Starwood Waypoint Homes’ common shares and Invitation Homes’ common stock on Aug. 9, 2017, the companies say that the equity market capitalization of the combined company would be approximately $11 billion and the total enterprise value (including debt) would be approximately $20 billion.

Upon completion of the deal, the combined company’s shares are expected to continue trading on the New York Stock Exchange under the ticker symbol for Invitation Homes (INVH). Starwood Waypoint currently trades under the symbol “SFR.”

The deal is the latest development in an industry that’s seen some big shakeups in the last few years.

As stated above, Starwood Waypoint Homes was previously known as Colony Starwood Homes.

Just last month, the company announced that it was rebranding as Starwood Waypoint Homes, which reflected the sale in March by Colony NorthStar, Inc. and affiliates of Colony Capital, LLC of their entire remaining ownership stake in the company.

That company was formed by combining Colony American Homes, which was founded in 2012 to serve as Colony Capital’s single-family rental arm, with Starwood Waypoint Residential Trust.

Last year, Colony Starwood Homes exited the non-performing loans business, selling off 1,675 non-performing loans for $265 million, and stating that it planned to focus on single-family rental homes instead.

The company grew its portfolio earlier this year by agreeing to buy 3,106 single-family rental homes from GI Partners, a private investment firm based in San Francisco, for $815 million.

Now, the newly combined company will have more than 80,000 rental homes in its portfolio.

In its release, the combined company notes that while its portfolio will make it the largest single-family rental company in the country, its portfolio still represents “less than 0.1% of the more than 90 million single-family homes in the United States, and just 0.5% of the nearly 16 million single-family homes for rent in the United States.”

According to the two companies’ executives, the new Invitation Homes has plans to grow even more.

“This merger creates the leading single-family rental company in the United States, which will be uniquely positioned to deliver exceptional service to residents, while also improving operating efficiency. That is a win-win for both residents and stockholders,” Fred Tuomi, chief executive officer of Starwood Waypoint Home, said.

“We will have an irreplaceable portfolio of homes focused in select high-growth markets, offering unrivaled service and high-quality housing options for families choosing to rent,” Tuomi added. “We have great admiration for Invitation Homes and its talented team, and look forward to embarking on an exciting new chapter together.”

John Bartling, president and CEO of Invitation Homes, shared in Tuomi’s enthusiasm.

“By joining forces, the combined company will be in an even stronger position to serve residents and investors,” Bartling said. “By bringing together these two world-class organizations, Invitation Homes will continue building on its industry-leading operational capabilities and resident-centric approach – while also providing enhanced liquidity to stockholders.”

The companies note that the deal is not completed yet, but has been unanimously approved by the boards of both Starwood Waypoint Homes and Invitation Homes.

The companies expect the deal close by the end of 2017.

Upon completion of the deal, Fred Tuomi, chief executive officer of Starwood Waypoint Homes, will become CEO of Invitation Homes; Ernie Freedman, chief financial officer of Invitation Homes, will remain CFO; Charles Young, chief operating officer of Starwood Waypoint Homes, will become COO; and Dallas Tanner, chief investment officer of Invitation Homes, will remain CIO.

The combined company will be headquartered in Dallas, Texas, and will maintain a presence in Scottsdale, Arizona.

The companies note that they have “very similar” portfolios of homes focused on “overlapping, strategically selected, high-growth markets.”

The companies have nearly identical average monthly rents and nearly 70% of the companies’ revenues come from the Western part of the U.S. and Florida.

“The combined portfolio would also have an average of 4,800 homes per market, allowing it to leverage economies of scale and improve operating efficiency, while also enhancing customer service,” the companies said.

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