Merger Creates Rental-home Giant with 13,000 Atlanta Properties
Friday, August 11th, 2017
Invitation Homes and Starwood Waypoint Homes, two leading owners and operators of single-family rental homes in the United States, announced the signing of a definitive agreement to combine in a 100 percent stock-for-stock merger-of-equals transaction. The combined company, which will operate under the name “Invitation Homes,” will bring together the best practices, technology, and personnel from both firms to create the premier single-family rental company in the United States. The combination of these two industry innovators 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.
Under the terms of the agreement, each Starwood Waypoint Homes share will be converted into 1.614 Invitation Homes shares, based on a fixed exchange ratio. The all-stock merger is intended to be a tax-free transaction. Upon the closing of the transaction, Invitation Homes stockholders will own approximately 59 percent of the combined company’s stock, while Starwood Waypoint Homes stockholders will own approximately 41 percent of the combined company’s stock. Based on the closing prices of Starwood Waypoint Homes common shares and Invitation Homes common stock on August 9, 2017, 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. The combined company’s shares are expected to continue trading on the New York Stock Exchange under the ticker symbol for Invitation Homes.
This strategic transaction combines two companies with highly complementary capabilities, including Invitation Homes’ industry-leading approach to customer service and asset-management expertise, and Starwood Waypoint Homes’ industry-leading technology. In addition, the current Starwood Waypoint Homes CEO Fred Tuomi, who will become CEO of the combined company, has experience successfully integrating mergers of large-scale, single-family rental companies. Overall, the two companies have invested nearly $2 billion, an average of approximately $22,000 per home, in renovations and maintenance, improving resident experience and driving economic growth and job creation in local communities.
The combined company would own and manage an irreplaceable portfolio of approximately 82,000 single-family homes. While the combined company would be the largest single-family rental company in the United States, its portfolio still represents less than 0.1 percent of the more than 90 million single-family homes in the United States, and just 0.5 percent of the nearly 16 million single-family homes for rent in the United States.
The two companies have very similar portfolios of homes focused on overlapping, strategically selected, high-growth markets – with nearly identical average monthly rents and nearly 70 percent of combined company revenues coming from the Western US 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 combined company experienced pro forma same-store net operating income growth of 7.0 percent in 2Q 2017 with over 95 percent occupancy.
“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,” said Fred Tuomi, Chief Executive Officer of Starwood Waypoint Homes. “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. We have great admiration for Invitation Homes and its talented team, and look forward to embarking on an exciting new chapter together.”
“By joining forces, the combined company will be in an even stronger position to serve residents and investors,” said John Bartling, President and CEO of Invitation Homes. “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.”
Management, Governance and Corporate Headquarters
Upon completion of the transaction, 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 combined Board is expected to have 11 directors, consisting of six directors appointed by Invitation Homes and five directors appointed by Starwood Waypoint Homes:
Chairman, Bryce Blair, Current Invitation Homes Chairman
Fred Tuomi, Current Starwood Waypoint Homes Board Member, Starwood Waypoint Homes CEO
Richard D. Bronson, Current Starwood Waypoint Homes Board Member
Michael D. Fascitelli, Current Starwood Waypoint Homes Board Member
Jonathan D. Gray, Current Invitation Homes Board Member
Robert G. Harper, Current Invitation Homes Board Member
Jeffrey E. Kelter, Current Starwood Waypoint Homes Board Member
John B. Rhea, Current Invitation Homes Board Member
Janice L. Sears, Current Invitation Homes Board Member
William J. Stein, Current Invitation Homes Board Member
Barry S. Sternlicht, Current Starwood Waypoint Homes Board Member, Chairman & Chief Executive Officer of Starwood Capital Group
The combined company is expected to generate projected annual run-rate cost synergies of $45-50 million, with potential additional upside from the implementation of best practices to optimize revenue management and operating efficiency. The transaction is expected to be accretive to core FFO and AFFO on a run-rate basis. The combined company is also expected to benefit from a flexible balance sheet with lower long-term cost of capital and a continued path towards deleveraging. The transaction will also significantly increase the free float of Invitation Homes’ shares and reduce Blackstone’s ownership stake in the combined company to 41 percent from 70 percent in the current, stand-alone Invitation Homes. The quarterly dividend is expected to be $0.11 per share post-close.
Timing and Approvals
The transaction has been unanimously approved by the boards of both Starwood Waypoint Homes and Invitation Homes. Following the execution of the definitive merger agreement, Blackstone, the majority stockholder of Invitation Homes, delivered a written consent approving the issuance of Invitation Homes common stock in the merger and the other transactions contemplated by the merger agreement. The transaction is expected to close by year-end, subject to approval by Starwood Waypoint Homes stockholders and other customary closing conditions.
Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC are acting as financial advisors and Simpson Thacher & Bartlett LLP is acting as legal advisor to Invitation Homes. Morgan Stanley & Co. LLC and Evercore are serving as financial advisors and Sidley Austin LLP is serving as legal advisor to Starwood Waypoint Homes.