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Starwood, Colony form $7.7bn single-family rental company

Colony will take its single-family rental business public by merging it with Starwood’s listed platform.

Starwood Capital Group and Colony Capital have agreed to combine their single-family rental businesses, Starwood Waypoint Residential Trust (SWAY) and Colony American Homes (CAH). The merged company is expected to own and manage more than 30,000 homes and have an aggregate asset value of $7.7 billion at the transaction’s closing, which is expected during the first quarter of 2016.

Under the agreement, CAH shareholders will receive a total of 64.87 million shares of SWAY in exchange for all of their shares in CAH. Once the deal is closed, existing SWAY shareholders and the former owner of the SWAY manager will own approximately 41 percent of the company, while former CAH shareholders will own approximately 59 percent.

Barry Sternlicht, chief executive and chairman of Starwood, and Thomas Barrack, executive chairman of Colony Capital, will act as non-executive chairmen of the company’s board. Fred Tuomi, currently president and chief operating officer of CAH, will assume the role of CEO of the combined entity, while Doug Brien, currently SWAY’s CEO, will act as president and chief operating officer. The company will be based in Scottsdale, Arizona but also maintain a significant presence in Oakland, California, where SWAY is presently based.

“This merger is a transformative event for SWAY and for our industry,” said Sternlicht in a statement. “Combining two best-in-class teams, with a superior portfolio of homes in carefully selected geographic markets, positions us to deliver long-term capital appreciation for our shareholders while earning compelling current yields at or above those currently achievable in other major real estate asset classes.”

Added Barrack: “We believe this merger demonstrates the power of scale and consolidation and really crystallizes the long-term durability of the single-family rental industry; this combination of CAH and SWAY truly redefines this asset class, and the opportunity in front of us is immense.”

SWAY and CAH currently are two of the largest owners of single-family rental homes in the US. SWAY was formed in 2013, when Starwood acquired Waypoint Real Estate Group’s management division and spun off its buy-to-rent housing division into a real estate investment trust. SWAY currently owns approximately 12,500 homes in eight US states. CAH was formed in 2012 by Colony and owned and managed approximately 19,000 homes as of June 30.

Moelis & Company acted as legal adviser for SWAY on the transaction, while Morgan Stanley, Skadden, Arps, Slate, Meagher & Flom and Clifford Chance US advised CAH.