September 21, 2015 / 12:06 PM / 4 years ago

UPDATE 3-Starwood Waypoint, Colony American merge to tap rising home rents

* Deal values Colony American at $1.48 bln

* Combined company to have $7.7 bln asset value

* Starwood Waypoint shares rise as much as 12 pct (Adds comment from Starwood Capital Group CEO in paragraphs 5-7, updates share rise)

By Ankit Ajmera

Sept 21 (Reuters) - Starwood Waypoint Residential Trust plans to merge with Colony American Homes Inc, which also rents out single-family residences, to tap growing U.S. demand as home ownership falls in a tight mortgage market.

Starwood Waypoint shares rose about 13 percent on Monday.

The company will issue 64.9 million of its shares for all outstanding Colony American shares. This values Colony American at about $1.48 billion, based on Starwood Waypoint’s Friday close of $22.75.

U.S. home ownership dropped to a 35-year low in the second quarter, Commerce Department data showed in July, as rising prices and tight lending standards kept first-time buyers from returning despite a strengthening jobs market.

If interest rates rise, home ownership rates will probably fall further, said Barry Sternlicht, chief executive and chairman of Starwood Capital Group, the company behind Starwood Waypoint’s spin-off from Starwood Property Trust in 2014.

Higher rates would give the company headroom to continue to raise rents, which already enjoy “fairly good” growth from its constant tenant base, he told investors on a conference call.

“This asset class (single-family residences) has equal returns, maybe better returns, than anything else we’re looking at today with less risk.”

The median U.S. monthly home rent rose a seasonally adjusted 4.2 percent to $1,376 in July, according to Zillow Group Inc's Zillow Rent Index. This is the highest since November 2010, when the real estate data firm started publishing the index. (bit.ly/1WdAkMA)

Starwood Waypoint and Colony American on Monday estimated the combined company would have an asset value of $7.7 billion, and own and manage over 30,000 homes.

Colony American shareholders will own about 59 percent of the combined company, with Starwood Waypoint shareholders holding the rest.

The companies overlap in most U.S. markets they operate in, including California, Arizona, Nevada, Colorado, Texas, Georgia and Florida.

The deal comes two months after Lennar Corp, the No.2 U.S. homebuilder, formed a joint venture with sovereign-wealth funds and institutional investors to create a $1.1 billion fund for development of multifamily rental apartments in up to 25 major U.S. markets. (bit.ly/1OdZUfV)

Colony American Chief Operating Officer Fred Tuomi will be CEO of the combined company, while Chief Financial Officer Arik Prawer will be the CFO.

Starwood Waypoint CEO Doug Brien will serve as the chief operating officer and president of the new company.

The merger, which is expected to close in the first quarter, is expected to save about $40 million to $50 million, the companies said.

Starwood Waypoint said the deal would add 23 percent to its core funds from operation per share in 2016 and about 50 percent in 2017.

Moelis & Co and Sidley Austin LLP were Starwood Waypoint’s advisers for the deal.

Colony American was advised by Morgan Stanley & Co LLC, Clifford Chance US LLP and Skadden, Arps, Slate, Meagher & Flom LLP.

Additional reporting by Herberg Lash in New York, reporting by Ankit Ajmera in Bengaluru, Editing by Kirti Pandey and Richard Chang

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