Agoura Hills single-family rental giant American Homes 4 Rent plans to acquire a smaller Phoenix-area rival for $1.5 billion, part of a consolidation trend in the maturing industry.
American Homes said its acquisition of American Residential Properties Inc. would significantly boost its heft. The Conejo Valley company is the largest publicly traded single-family landlord but still smaller than industry behemoth Invitation Homes, an arm of private equity firm Blackstone Group.
American Homes owned nearly 38,500 homes as of Sept. 30 but would have had 47,315 counting American Residential’s portfolio, according to regulatory filings. Invitation currently owns 47,906 homes, with another 363 under contract, spokeswoman Diane Tomb said.
“There is simply no way to effectively operate in this business without scale,” said David Singelyn, chief executive of American Homes, which will retain its local headquarters.
American Homes is offering 1.135 common shares for every share of American Residential. The offer is equivalent to a cash price of $19.01, which amounts to a 8.7% premium over American Residential’s closing price on Dec. 2.
The acquisition is valued by the companies at about $1.5 billion, including the assumption of $800 million of American Residential debt. American Residential shareholders will own 12.6% of the combined company.
Wall Street-backed single-family rental companies emerged following the recession as they picked up scores of homes at bargain-basement prices to rent out. But with home prices steadily climbing, that strategy has grown tougher.
In September, Starwood Waypoint Residential Trust and Colony American Homes announced a merger that would create a company with more than 30,000 homes.
American Homes and American Residential Properties of Scottsdale said their merger provides a good opportunity to cut costs, given the overlap of their two portfolios. The deal is expected to close in the first half of next year.
“We have demonstrated the power of scale and this combination provides even further opportunities to drive cost efficiencies,” Singelyn said.
Shares of American Homes closed down 77 cents, or 5%, to $15.98.
Shares of American Residential Properties rose 35 cents, or 2%, to $17.84.
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