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What Will Be the Impact of the Invitation Homes/Starwood Waypoint Merger?

The merger leaves only a few giant companies in the business of owning and managing SFR assets, including a few potential acquisition targets.

As Invitation Homes and Starwood Waypoint Homes announced an agreement to merge recently, the single-family home rental (SFR) industry is contemplating how the emergence of a giant new entity will impact the sector. Once the merger is complete, the combined company would own and manage about 82,000 SFR properties around the country.

The merger “shows that the single-family home rental market is strong, vibrant and deep,” says Diane Tomb, executive director of the National Rental Home Council, an industry advocacy group.

“We have proven this is a sustainable business model, capable of producing strong operating margins and financial results while providing exceptional customer service,” says a spokesperson for Starwood Waypoint. “Now that scale has been achieved and operating results have stabilized, growth through this merger is a natural next step.”

Institutional SFR owners are currently making far fewer acquisitions than they did a few years ago. Instead, they appear focused on improving operations and selling off underperforming assets. Now, it seems like mergers and acquisitions are also on the table. The merger leaves only a few giant companies in the business of owning and managing SFR assets, including a few potential acquisition targets.

“Prominent rental platforms still in the market include Progress Residential, a private owner of roughly 20,000 properties, and Tricon American Homes, a unit of Tricon Capital Group Inc.” according to an analysis by Standard & Poor’s. Tricon holds more than 16,000 properties.

Room to grow, eventually

The vast majority of rental houses in the U.S. are still owned by smaller companies and individual investors. While the combined Invitation Homes/Starwood Waypoint company would be the largest SFR company in the U.S., the joint portfolio would still represent just 0.5 percent of the nearly 16 million single-family homes for rent.

That leaves a lot of room to expansion. For now, however, Invitation Homes and its industry peers have not been buying a lot of new assets.

“Just because their share of the [total single-family home market is] a half a percent, there is no need to acquire more, especially when home prices are so high,” says Daren Blomquist, senior vice president with research firm ATTOM Data Solutions. “Why buy at or near the top of the market? They will wait till the next downturn.”

Instead, Invitation Homes and Starwood Waypoint have been content over the last year to improve the operations and consolidate their portfolios. The agreement to merge is a natural continuation of that refinement. “They are looking at squeezing every ounce of efficiency they can out of combining forces,” says Blomquist. “Their portfolios overlap in many markets.”

The two firms’ portfolios include approximately 26,000 homes in Florida, 13,000 in California and 12,000 in Georgia.

The new company plans to combine the best parts of the Invitation Homes and Starwood Waypoint platforms. “By bringing together the best of both companies, including Invitation Homes’ industry-leading, high-touch approach to customer service and Starwood Waypoint Homes’ industry-leading smart home and operating technologies, we will be even better positioned to serve our residents,” says the Starwood Waypoint spokesman.

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