Two of the largest institutional single-family landlords, Colony American Homes and Starwood Waypoint Residential Trust, are merging. The move comes as the asset class grapples with less-than-stellar stock performance and companies search for more efficient long-term strategies.
A handful of institutional investors acquired hundreds-of-thousands of homes in the years following the recession, buying when values were low, renting the properties out, securitizing much of the portfolios and looking forward to increased profits as values increased.
But Barry Sternlicht, CEO and chairman of parent company Starwood Capital Group, noted in a call with investors that the asset class is “suffering from investor neglect.”
“Share prices do not reflect earnings power or the value of homes,” he said. “There’s no doubt that home prices are appreciating off of book value from 2011 or 2012, but none of these companies are [trading] close to fair value.”
The merger, expected to close in the first quarter of 2016, will create a combined company made up of 30,000 homes and an aggregate value of $7.7bn. Starwood shareholders will own about 41% of the combined company, and Colony American will own the rest.
Sternlicht and Thomas Barrack Jr., executive chairman of Colony, will serve as non-executive co-chairmen of the new company’s board of trustees. Fred Tuomi, president and COO of Colony, will serve as CEO. Doug Brien, CEO of Starwood Waypoint, will serve as president and COO.
“The opportunity in front of us is immense,” Barrack Jr. said. “We believe this merger demonstrates the power of scale and consolidation and really crystallizes the long-term durability of the single-family rental industry.”