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Massive single-family rental merger: Tricon Capital to acquire Silver Bay Realty Trust for $1.4 billion

Will create 4th largest publicly owned single-family rental operator

In a deal that will shake up the single-family rental industry, Tricon Capital Group announced this week that it plans to acquire Silver Bay Realty Trust in a $1.4 billion deal that will create one of the country’s largest operators of single-family rental homes.

Tricon Capital Group is the parent company of Tricon American Homes, which is also an operator of single-family rental homes.

Under the terms of the deal, Tricon Capital will acquire Silver Bay, a real estate investment trust, in an all-cash transaction that values Silver Bay at $21.50 per share.

For reference, Silver Bay closed Monday’s trading at $18.16, before rising sharply in Tuesday’s trading after the deal’s announcement. In a release, Silver Bay said that the purchase price presents a 19% premium of Silver Bay’s closing price on Feb. 24, 2017 of $18.01, and a 24% premium to the stock’s 90-day trailing average price as of the same date.

According to the companies, the deal will create the country’s 4th largest publicly owned single-family rental operator.

Upon completion of the deal, Tricon American will have more than 16,800 single-family rental homes in its portfolio.

The combined company will operate in 18 markets, including six markets where the company will have at least 1,000 homes, and ten markets where the company will have at least 500 homes.

According to Tricon, the combined portfolio will have a “strategic focus on the high growth Sun Belt,” because approximately 84% of Silver Bay's homes are located in Tricon American’s existing markets.

In a release, Tricon said that the deal will result in “enhanced scale and market density that is expected to drive meaningful operating cost savings.”

The deal 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, the companies said.

“The proposed acquisition of Silver Bay is an incredibly exciting and transformational event for Tricon. This acquisition will more than double the size of Tricon American Homes, establishing it as the fourth largest publicly owned SFR company in the U.S. Silver Bay's high-quality and well managed portfolio of SFR homes is a natural complement to our Tricon American assets, in particular given the geographic overlap in the Sun Belt,” Gary Berman, Tricon’s president and chief executive officer, said.

“We believe that the transaction will result in significant operating and overhead synergies creating immediate value for our shareholders,” Berman continued. “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.”

In terms of “simplifying” Tricon’s operations, the company said that it plans to conduct 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.”

According to Tricon, these decisions were made because of the “current challenges it faces in building effective scale and the prospect of better return opportunities in its core businesses.”

Going forward, the company said that it plans to focus on growing its “core investment verticals” of Tricon American Homes, Tricon Housing Partners, and Tricon Luxury Residences – Canada.

As for Silver Bay, the REIT’s CEO, Thomas Brock, said that the deal provides “significant and immediate value” to the company’s stockholders.

“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 said.

“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, which I credit to the dedication and focus of our Silver Bay team,” Brock added. “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.”

According to the companies, both boards of directors have approved the deal, which is expected to close in the second quarter of 2017.

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