Business Context and Reporting Period
This Form 8-K, filed on November 6, 2017, by Invitation Homes Inc. (INVH), serves as a supplement to the joint proxy statement/information statement and prospectus regarding the proposed merger with Starwood Waypoint Homes (SFR). The filing addresses two putative class action lawsuits challenging the merger and provides supplemental disclosures concerning financial advisor engagements, valuation analyses, and unaudited prospective financial information for both companies.
Key Financial Metrics and Valuation Data
The filing details unaudited prospective financial information and valuation ranges derived from Discounted Cash Flow (DCF) analyses performed by Deutsche Bank and Evercore. These figures represent management projections and advisor estimates, not historical results.
| Metric | INVH (2018E) | INVH (2021E) | SFR (2018E) | SFR (2021E) |
|---|---|---|---|---|
| Total Revenue ($ millions) | $1,028 | $1,165 | $755 | $901 |
| NOI ($ millions) | $658 | $765 | $458 | $527 |
| Adjusted EBITDA ($ millions) | $580 | $686 | $408 | $478 |
| Core FFO ($ millions) | $360 | $487 | $281 | $344 |
| AFFO / Core AFFO ($ millions) | $312 | $434 | $232 | $290 |
Valuation Ranges (Implied Equity Value per Share):
- INVH (Deutsche Bank DCF): $22.96 to $32.10
- INVH (Evercore DCF): $23.69 to $31.72 (EBITDA Multiple Method) or $25.83 to $49.27 (Perpetuity Growth Method)
- SFR (Deutsche Bank DCF): $36.92 to $51.50
- SFR (Evercore DCF): $28.60 to $41.59 (EBITDA Multiple Method) or $29.40 to $65.41 (Perpetuity Growth Method)
Implied Exchange Ratio: Evercore analysis indicated a range of 0.9018 to 1.7553 shares of INVH for each SFR share (EBITDA Multiple Method) and 0.5968 to 2.5321 shares (Perpetuity Growth Method), compared to the proposed exchange ratio of 1.6140.
Material Changes and Disclosures
The filing amends the joint proxy statement to clarify the timeline and scope of financial advisor engagements:
- Morgan Stanley Engagement: SFR engaged Morgan Stanley for financial advice. Between January 31, 2015, and July 31, 2017, Morgan Stanley received approximately $16 to $17 million for services to SFR and $3 to $4 million for services to INVH. Over the two years prior to July 31, 2017, Morgan Stanley received approximately $80 to $90 million for services to Blackstone and its affiliates.
- Evercore Engagement: SFR engaged Evercore on August 7, 2017, to provide a fairness opinion. Evercore began due diligence on August 1, 2017.
- Valuation Methodology Updates: The filing replaces previous sections with detailed DCF assumptions, including discount rates (6.5% to 8.0%), terminal capitalization rates (4.5% to 5.5%), and EV/EBITDA multiples (18.0x to 22.0x).
Guidance, Risks, and Contingencies
Litigation Risks: Two class action lawsuits have been filed challenging the merger: Berg v. Starwood Waypoint Homes (filed Sept 29, 2017) and Bushansky v. Starwood Waypoint Homes (filed Oct 4, 2017). Plaintiffs allege violations of Section 14(a) and Rule 14a-9 of the Exchange Act, claiming the proxy statement contains false and misleading information. Plaintiffs seek injunctive relief to stop the merger, rescission of the transaction, and damages. INVH and SFR believe the claims are without merit.
Forward-Looking Statements: The document contains significant forward-looking statements regarding anticipated synergies, future financial results, and the success of the merger. These are subject to risks including economic conditions, interest rate changes, competition, regulatory requirements, and the ability to consummate the merger.
Management Commentary: Management asserts that the supplemental disclosures are made voluntarily to provide shareholders with additional information, without admitting that the disclosures are material or legally required.
Key Facts for Investor Verification
- Verify the status of the Berg and Bushansky lawsuits and any potential impact on the November 14, 2017, shareholder meeting.
- Review the full joint proxy statement/information statement and prospectus (File No. 333-220543) for complete details on the merger terms and risk factors.
- Confirm the independence and specific fee arrangements of financial advisors Morgan Stanley and Evercore, particularly regarding their historical relationships with Blackstone.
- Assess the sensitivity of the valuation ranges to changes in discount rates, terminal growth rates, and capitalization rates as disclosed in the DCF analyses.
- Monitor the timeline for the SFR Shareholder Meeting scheduled for November 14, 2017.
