11 Billion Single Family Rental Company Merger

1 Reply

Just read this in the Dallas Business Journal, just curious about how you guys think this will affect the rental market.

Single-family rental firms consolidate in a merger creating $11B Dallas-based company

A merger between two major operators of the single-family rental homes — Dallas-based Invitation Homes (NYSE: INVH) and Starwood Waypoint Homes (NYSE: SFR) — will create an $11 billion company, which is the largest of its kind in this industry.

The two publicly traded companies announced Thursday they have signed a definitive agreement to combine in a 100 percent stock-for-stock, merger-of-equals deal. The combined company will operate under the name Invitation Homes, with the New York Stock Exchange ticker symbol of INVH.

In the agreement, a Starwood Waypoint share will be converted into 1.614 Invitation Homes shares, based on a fixed exchange rate. The combined company is expected to generate value for its stockholders and continue Invitation Homes' ability to invest in its communities, executives say.

Upon the close of the deal, Invitation Homes' stockholders will own about 59 percent of the new entity. Starwood Waypoint stockholders will own the remaining 41 percent of shares. The company's equity market value is about $11 billion, with a total enterprise value, including debt, of about $20 billion.

The new Invitation Homes will be led by the former CEO of Starwood Waypoint Homes, Fred Tuomi. He was selected based on his experience in integrating companies in mergers.

In all, the companies have invested a total of nearly $2 billion, creating a portfolio of about 82,000 single-family homes. The portfolio represents less than a tenth of a percentage point of the 90 million single-family homes in the United States because the market has largely been fragmented by mom-and-pop landlords.

Nearly 70 percent of the combined companies' revenue comes from the western United States and Florida.

"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," Tuomi said in a statement. “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."

The combined company will be headquartered in Dallas, while maintaining a presence in Scottsdale, Arizona. Invitation Homes CFO Ernie Freedman and CIO Dallas Tanner will continue working in their C-level roles at the new combined entity.

The new Invitation Homes is expected to generate projected run-rate cost synergies of up to $50 million. This will also reduce Blackstone's ownership stake in the combined entity — taking its 70 percent ownership of the former Invitation Homes down to 41 percent in the new company.

The deal is slated to close by the end of the year. It has been approved unanimously by both company boards.

The merger is reflective of the maturing niche market in the housing industry, said Ted Wilson, principal at Dallas-based Residential Strategies Inc., which analyzes the North Texas housing market.

Invitation Homes and Starwood Waypoint Homes doesn't build or own properties in North Texas, but Wilson is familiar with the single-family rental housing market. Plano has a single-family rental community built by Avilla Homes off North Central Expressway on the east side of the city.

"As the market matures, it will be harder for these companies to grow organically through increased competition and they have to grow through M&A activity," Wilson told the Dallas Business Journal."This is just a small, niche part of the market and it can be hard to find locations to build on in North Texas for these players."

Wilson said he expects single-family rental investors to continue to consolidate as the industry matures. He said he also sees a few North Texas builders looking at options when it comes to this niche product type.

@Rod Hanks Thanks for posting this.  This is interesting news, I had not seen this story yet.

I am not sure that this merger changes much for the industry as a whole. The vast majority of SFR owners probably own less than 10 units. The difference between 10 houses and 82,000 houses is so vast that they are really very different businesses. I look at this as more an a change in the equity markets than a change in the SFR market.