The single-family rental space is seeing its biggest round of consolidation yet with Thursday’s merger of Invitation Homes and Starwood Waypoint Homes.
The real estate investment trusts are combining in a merger of equals through a stock-for-stock transaction that will see the combined entity operate under Invitation Homes name. The entity will be headquartered in Dallas, Texas, where Invitation Homes is currently based. The new REIT will own 82,000 homes across the US, making it the largest single-family rental platform in the country. Starwood Waypoint chief executive Fred Tuomi will be the CEO.
The combined company would have an equity market capitalization of approximately $11 billion and a total enterprise value, including debt, of approximately $20 billion, according to a statement from the firms on Thursday.
“The deal makes plenty of strategic sense,” Green Street Advisors analyst John Pawlowski told PERE. “The combined management team and board is stronger than the two teams were as standalone entities. The best talent in both organizations will remain in place.”
This merger continues the years-long wave of consolidation in the single-family rental space. In 2013, Starwood Capital Group acquired single-family rental firm Waypoint Real Estate Group, whose lead investor was San Francisco-based GI Partners. Starwood spun out its single-family rental platform in 2014 as Starwood Waypoint Residential Trust.
In 2015, Colony Capital merged its single-family rental business with SWRT to become Colony Starwood Homes. In June, Colony Starwood purchased GI Partners’ Waypoint portfolio of 3,106 homes for $815 million, and last month, Colony Starwood rebranded to Starwood Waypoint Homes.
The latest deal “is a large integration that does bear some risk,” Pawlowski said. The industry's “integration of Colony American Homes and Starwood Waypoint homes in 2016 went fairly smoothly, but this is a much larger animal.”
Invitation Homes was founded by Blackstone in 2012 using capital from its seventh opportunistic vehicle, Blackstone Real Estate Partners VII, which closed on $13.3 billion in 2012, PERE previously reported. The platform went public in January, raising $1.54 billion. Blackstone owns about 70 percent of Invitation Homes’ stock, worth $4.7 billion as of Thursday’s market opening price, with a lock-up that was set to expire last week. Now, the stock lock-up will be extended for 30 days, according to executives on a call announcing the merger on Thursday.
On that call, leaders from both REITs talked about a “merger of equals” in the single-family rental space, with the businesses focused on investing in areas with high population and employment growth, along with quality schools. Tuomi, Starwood Waypoint’s CEO, said the firm would use lessons learned from its 2015 merger in the latest deal.
“How big can [Invitation Homes] get? We don’t know yet,” Charles Young, Starwood Waypoint’s chief operating officer, said on the call. “We’re dedicated to maintaining our footprint. We believe our footprint is strategically advantageous… the markets we did not have overlap in are markets each company wanted to get into.”
After the financial crisis, opportunistic private equity players began buying up portfolios of single-family homes, transforming what was previously a mom-and-pop rental operation into a new institutionally-accepted, scalable property type. While the concept of renting a single-family home is far from new, institutional investors became more active in the sector as house prices fell and banks pulled back on residential mortgage lending in the wake of the crisis.
Now, as home prices have rebounded, single-family rental platforms have struggled to add assets at a large scale. Instead, businesses are focusing on streamlining operations to cut costs, Rob Harper, the head of Blackstone’s US asset management and a member of Invitation Homes’ board of directors, told PERE in May.
“Consolidation opportunities like GI will continue,” John Bartling, Invitation Homes’ CEO, said on Thursday’s call. He said the REITs were each planning to buy up to 2,500 homes annually, with pre-merger acquisition and disposition plans to continue as scheduled. “There are far more opportunities by taking the current portfolio and optimizing it. We have a tremendous opportunity to continue to drive margins.”
Law firm Simpson Thacher advised Invitation Homes on the merger.