NEW YORK CITY—To date the single-family rental REIT sector has seen just one consolidation of note: the union of Starwood Waypoint Residential Trust and Colony American Homes, which will create a company with an aggregate asset value of $7.7 billion. However, in view of activist investor Land and Buildings now putting pressure on American Residential Properties Inc., analysts at Keefe, Bruyette & Woods say that other such deals may be in the offing. The KBW report raises anew a possibility that has come up for discussion more than once in the past few months.

Given the "continued languishing stock performance" among SFR REITs specifically, and with both privatizations and shareholder activism increasing among REITs in general, "we believe similar activist campaigns are possible in the case of SFR REITs and other REITs in our coverage where a disconnect between NAV and stock price is apparent," according to KBW analysts. In the SFR sector, KBR sees mergers structured on an NAV-for-NAV basis similar to the SWAY-CAH deal as a possibility, "given current valuation discounts and that existing shareholders may need to accept shares in other SFR REITs for companies to achieve the scale benefits that may eventually allow the names to trade closer to NAV."

KBR estimates that SFR REITs are trading at 1.0x book value, 0.7x NAV and 14x to 17x 2016-2017 funds from operations. That 30% discount to NAV contrasts with the long-term premium to NAV of an average of 3% among the REIT sector.

Along similar lines, the discount to NAV dovetails with a broader concern in the public markets. "Though single-family rental REIT executives say they are working hard to overcome doubts about their business model, there are signs that they still have not found widespread acceptance relative to their REIT peers," SNL Financial reported in August, in a series of dispatches which also hinted at future M&A activity. According to SNL data, SFR REITs had a median of 50 shareholders of record as of July 22, compared to a median of 228 for REITs publicly listed since 2013 and a median of 630 shareholders for all traded US equity REITs.

SNL's series on the SFR sector cited investor concerns over operational efficiencies in the REITs' business model. "You're talking about thousands of homes on different blocks in different cities across the country," Haendel St. Juste, an analyst with Morgan Stanley who covers the sector, told SNL in August. "I think we have this image of this handyman with a pickup truck driving around town with tools in the back of his truck, and thinking about it, there has got to be a lot of leakage and inefficiencies in that business model."

In his letter to ARPI CEO Stephen Schmitz, Land and Buildings founder Jonathan Litt cited "an inefficient corporate structure that appears to lack scale to effectively compete." KBW's report this week similarly noted, "we believe scale, referring to property count per market, property management infrastructure, and enterprise, are critical to allow companies to achieve 'the operational efficiencies necessary to drive returns, position companies to take advantage of upcoming industry consolidation and achieve a low cost of capital." KBW cited the pending merger between CAH and SWAY as a way of resolving many of the latter's strategic issues, "including scale and its externally managed corporate structure."