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Kroll Bond Rating Agency Releases Comment: Silver Bay Realty Trust Corp. to be Acquired by Tricon Capital Group


Tricon Capital Group (Tricon Capital) this week announced that it has entered into an agreement to acquire public single-family rental (SFR) operator Silver Bay Realty Trust Corp. (Silver Bay) by way of an all-cash transaction for approximately $1.4 billion, which values the company at $21.50 per share. Tricon Capital indicated that the acquisition is expected to close by the end of Q2 2017.

Tricon Capital is the parent company of Tricon American Homes (TAH), which is the firm’s wholly owned operator of its U.S. single-family rental business. The acquisition of Silver Bay will create the fourth largest publicly-owned SFR company. After the completion of the acquisition, TAH will hold more than 16,800 homes in its total SFR portfolio, of which nearly 9,800 are currently included in three single-borrower securitizations totaling $1.1 billion, each of which has been rated by KBRA.

As of year-end 2016, TAH owned and internally managed nearly 7,800 SFR homes primarily located in nine markets across seven states. The remaining 9,000 homes are Silver Bay acquisitions, of which 2,998 are included in a KBRA-rated securitization that has an outstanding principal balance of $301.1 million as of the February 2017 distribution date. Tricon Capital expects to gain scale and enhance operating efficiencies by combining two geographically complimentary SFR portfolios. The combined portfolio will include six markets that are each expected to be comprised of over 1,000 homes.

Tricon Capital is an investor and asset manager with a primary focus on the North American residential real estate sector with approximately $3.0 billion of assets under management. The firm completed its initial public offering on the Toronto Stock Exchange in May 2010 (TCN.TO). Tricon Capital had a market capitalization of $1.2 billion as of March 1, 2017. The company entered the U.S. single-family rental sector in April 2012 and officially launched TAH in September 2014 as the asset and property manager for the single-family rental business.

Silver Bay is an internally managed, publicly traded real estate investment trust (REIT) listed on the New York Stock Exchange under the symbol “SBY.” The company, by way of its predecessors, began acquiring properties in 2009 and as of March 1, 2017 had a market capitalization of $808.7 million. Silver Bay’s portfolio consisted of approximately 9,000 properties as of December 2016.

Since their respective securitization dates, each of TAH’s two securitizations and the Silver Bay transaction have performed from a credit perspective. The deals have all experienced net operating income growth as well as deleveraging owing to the price appreciation of the underlying collateral. As a result, KBRA recently affirmed all of the outstanding ratings assigned in connection with the transactions, as noted in our Single-Borrower SFR: Comprehensive Surveillance Report, which was published on November 28, 2016. It is worth noting that one TAH securitization and the Silver Bay deal are each collateralized by a floating-rate loan with a fully extended term of five years and the other TAH securitization is collateralized by a fixed-rate loan with a five-year term, all of which will come due from September 2019 to November 2021. This concentrated debt maturity profile may result in increased financial stress for the company.

Should the transaction consummate as planned, KBRA believes it will provide certain advantages to TAH, including potential efficiencies relating to increased scale. However, all acquisitions generally introduce operational challenges and a degree of uncertainty. Despite this, KBRA does not expect that the contemplated transaction will have negative implications for any of KBRA’s ratings that are outstanding on the TAH and Silver Bay securitizations. KBRA will continue to monitor the status of the acquisition as it unfolds.

Representations & Warranties Disclosure:

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for the related transactions can be found here.

Related Publications (available at www.kbra.com):

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

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