The plan was short term but at this point, it is no longer the case. Investors were only supposed to buy foreclosed bargain-basement single-family homes, rent them out for several years and be done with it.
Now, the investors are looking at consolidating and the market is potentially more attractive than ever.
CNBC reports that a third deal in the assest class this year has been announced last week between Arizona-based American Residential Properties, owning 8,938 rental homes, and California-based American Homes 4 Rent, owning 38,377. It means that the combination of the two companies would result to owning and managing homes in a total of 22 states, with a projected equity market capitalization of $5.5 billion based on closing prices as of Dec. 2.
"In our view, this is a very positive outcome for both AMH and ARPI shareholders, with substantial upside opportunities for earnings accretion over time," said analysts at Raymond James, also acting as financial adviser to American Homes 4 Rent. "The sector's recent consolidation should only improve visibility, liquidity, and valuations among the remaining large players."
Although it is a done deal, the decision to merge was not an easy one for American Residential Properties co-founder, together with CEO Stephen Schmitz, jut three years ago. Both will remain with the company until everything about the consolidation has been ironed out.
She said, "The stock market expects us to accomplish in three years what it took the multifamily sector 25 years to do. The ability to raise capital to grow is the critical element for the single-family rental sector, but issuing dilutive equity or increasing leverage were not attractive options for ARPI. Absent access to growth capital, we concluded consolidation made sense in order to enhance scale, increase operating efficiencies, share best practices and create additional value for our investors. We are rearranging the chairs in the room to optimize performance."
To date, according to several reports, investors, the large-scale ones, have bought nearly 200,000 mostly distressed properties to reestablish and turn as rentals which started during the height of the housing crash. It's a small number compared to a total of about15 million single-family rental properties all over the country.
In addition, single-family rental homes has increased by 35 percent since 2006, and even smaller investors took on millions of distressed properties to rent. This became the trend as the nation's home ownership rate fell to the lowest level in half a century.
Others mergers were that of Starwood Waypoint Residential Trust and Colony American Homes while Silver Bay Realty Trust agreed to buy the entire portfolio of Atlanta-based The American home.
