In a notable development, recently the single-family rental housing REITs – Invitation Homes Inc. INVH and Starwood Waypoint Homes SFR – announced their agreement to merge in an all-stock deal. The transaction is likely to be accretive to core funds from operations (“FFO”) on a run-rate basis and the combined company’s shares are expected to trade under the ticker symbol for Invitation Homes – INVH – on the NYSE.
The move is a strategic fit with the combined operation likely to benefit by leveraging economies of scale. It would have a portfolio of 82,000 single-family homes and average of 4,800 homes per market. The substantial portfolio overlap is anticipated to drive $45–$50 million in annual synergies, per the company’s press release. Moreover, in second-quarter 2017, the combined company experienced pro forma same-store net operating income (NOI) growth of 7.0% with more than 95% occupancy, reflecting the solid demand for the properties.
According to the deal terms, each Starwood Waypoint Homes share will be converted into 1.614 Invitation Homes shares, based on a fixed exchange ratio. Following the transaction closure, Invitation Homes’ stockholders would enjoy 59% ownership of the combined company’s stock, with Starwood Waypoint Homes’ stockholders owning the residual.
Based on the closing prices of Starwood Waypoint Homes’ shares and Invitation Homes’ common stock on Aug 9, 2017, the day prior to the disclosure about the merger, the equity market capitalization of the combined company would be around $11 billion. Moreover, the total enterprise value, including debt, would be about $20 billion. Fred Tuomi – CEO of Starwood Waypoint Homes – will take charge as the CEO of Invitation Homes, while Bryce Blair, the present chairman of Invitation Homes, will assume position of chairman of the combined entity.
However, this transaction, expected to close by this year end, will result in a fall in private equity firm Blackstone’s ownership stake in the combined company to 41% from 70% in the current, stand-alone Invitation Homes. Notably, Invitation Homes was founded by Blackstone in 2012 and went public earlier this year.
Unlike apartment REITs like Equity Residential EQR and AvalonBay Communities, Inc. AVB who lease several units in a single building, single family rental housing REITs cater to the demand of renters who prefer to have a yard and avoid sharing walls with neighbors. Such REITs have been grabbing much limelight, of late, and experiencing decent gains as well. The merger of this scale is likely to drive such merger deals in the market, moving ahead.
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