Tricon Capital Group announced Tuesday that it plans to acquire Silver Bay Realty Trust in a $1.4 billion deal that will establish the fourth largest publicly-owned single-family rental company in the U.S.
The all-cash transaction values Silver Bay, a real estate investment trust, at $21.50 per share.
According to a Tricon press release, Tricon American Homes (TAH) will have more than 16,800 homes in its portfolio. At closing, the combined company will operate in 18 markets, including six markets with at least 1,000 homes and ten markets with at least 500 homes.
The combined portfolio will have a strategic focus on the Sun Belt, with approximately 84% of Silver Bay’s homes located in TAH’s existing markets.
The transaction has a total enterprise value of approximately $1.4 billion, comprised of the equity purchase price of approximately $820 million and approximately $600 million of Silver Bay debt that will be refinanced in conjunction with the acquisition, Tricon stated.
Moving forward, Tricon says it plans to focus on the Middle Market, which it defines as households earning between $50,000 and $95,000 per year who typically can pay monthly rent of between $1,000 and $1,600. “The Middle Market consists of approximately 11 million rental households that, in the opinion of management, tend to be stable, longer-term renters,” the company stated in a release. “This trend is evident in TAH’s and Silver Bay’s combined portfolio turnover rate of 28.3% for the twelve month period ended Dec. 31, 2016 as compared to turnover for sector peers of 35- 40%. Management expects a lower turnover ratio to result in lower operating costs and therefore enhanced financial performance over time.”
Gary Berman, Tricon’s president and CEO, said in a release that the proposed acquisition is a transformational event for Tricon. “We believe that the transaction will result in significant operating and overhead synergies creating immediate value for our shareholders,” he said. “In conjunction with the acquisition, we also intend to exit our smaller non-core businesses and take a meaningful step toward simplifying our overall corporate business model by focusing on scale, industry leadership, enhanced disclosure and operational integration across our investment verticals.”
To simplify its business model Tricon will be pursuing an orderly exit of its Tricon Lifestyle Communities manufactured housing land lease business after completing its existing value-add business plan, as well as disposing of its U.S. multi-family development assets upon their stabilization.
“Management has made the decision to exit these verticals because of the current challenges it faces in building effective scale and the prospect of better return opportunities in its core businesses,” Tricon stated in a release. “Going forward, Tricon will remain focused on growing its core investment verticals of Tricon American Homes, Tricon Housing Partners and Tricon Luxury Residences – Canada, all of which are well positioned for long-term leadership in their respective industry sectors.”
The Board of Directors of Silver Bay has unanimously approved the acquisition, which is expected to close in the second quarter.
“This transaction delivers significant and immediate value to our stockholders,” said Thomas W. Brock, CEO of Silver Bay, in a release. “We have continually evaluated the most prudent way to drive sustainable, long-term capital appreciation and we believe this transaction is the best opportunity to return maximum value to our stockholders.”
Brock continued, “Over the past year, we have been making excellent strides in driving efficiency across our operating platform. We closed out the year with the best quarter in our company’s history, including a 96.7% occupancy rate, strong rental increases on both re-leases and renewals, a Same-Home Core NOI Margin of 60.7% and record Core FFO, which I credit to the dedication and focus of our Silver Bay team. Our well-crafted portfolio of single family properties and the recent strong performance across our platform will serve as a great complement to Tricon Capital Group Inc.’s business as the single-family rental industry continues to evolve and consolidate.”
