AGOURA HILLS, CA and SCOTTSDALE, AZ—The single-family rental sector will now see its second major consolidation, as American Homes 4 Rent and American Residential Properties Inc. have agreed to merge. The tax-free combination is valued at $1.5 billion.

As part of the merger agreement, Agoura Hills, CA-based AMH will issue approximately 38 million common shares and assume or repay a total of approximately $0.8 billion of ARPI debt. Shareholders in Scottsdale, AZ-based ARPI will receive 1.135 common shares or limited partnership units for each share of ARPI they own.

The announcement comes three days after Jonathan Litt, founder and CIO of Land and Buildings, disclosed a 7.4% stake in ARPI and made public a letter to the REIT's CEO, Stephen Schmitz, calling for measures to boost shareholder value by year's end. It comes less than three months after news of the SFR sector's first major union, the $1.5-billion merger of Starwood Waypoint Residential Trust and Colony American Homes.

If the two merger deals are roughly the same size, the combined company emerging from the AMH/ARPI will be bigger in terms of portfolio size. The combined CAH/SWAY entity will own and manage about 31,000 homes, while the post-merger AMH—already the largest publicly traded player in the space—will own more than 47,000 properties in 22 states. It's expected to have a pro forma equity market capitalization of $5.5 billion and an aggregate real estate cost basis of over $8 billion.

In an investor presentation Thursday, AMH said the merger with ARPI would add further density in key target growth markets, while also providing opportunity for "significant incremental management, leasing and operational efficiencies with modest ?incremental costs." Eighty-five percent of the combined portfolio will be located in AMH's top 20 markets, with the greatest additional density occurring in Dallas-Fort Worth, Atlanta, Houston and Nashville.

"American Residential Properties has a high quality portfolio of homes which fit strategically in our markets, offering significant opportunities to capture further operating efficiencies on the combined platform," says David Singelyn, AMH's CEO. "Moving ahead, we look forward to creating additional value for the shareholders of the combined company while strengthening our position as a premier company in the single-family rental sector."

Schmitz and president and COO Laurie Hawkes will remain in their posts at ARPI until the merger closes. The combined company will maintain its headquarters in Agoura Hills, while also maintaining a presence in the Phoenix area.

Barclays is serving as lead financial advisor to ARPI with Raymond James also servicing as financial advisor, and Hunton & Williams LLP is serving as its legal counsel. On the AMH side, Hogan Lovells US LLP is serving as legal counsel. The merger is expected to close in the first half of 2016.