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Why Shares of Silver Bay Realty Trust Corp. Are Soaring

By Jordan Wathen - Feb 28, 2017 at 12:29PM

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The single-family home REIT agreed to an all-cash acquisition by Tricon Capital Group.

What happened

Shares of Silver Bay Realty Trust Corp. (NYSE: SBY) are up about 18% as of 11:30 a.m. EST after the single-family home real estate investment trust announced it would be sold to Tricon Capital Group (TCN 0.16%), a Canadian asset manager and principal investment group that specializes in real estate.

So what

Terms call for Silver Bay shareholders to receive $21.50 per share when the deal closes by the end of the second quarter of 2017. Including a $0.13-per-share dividend declared for April, shareholders can expect to receive $21.63 per share in combined dividends and cash consideration by closing.

Cardboard house on top of $100 bills.

Image source: Getty Images.

Shares of other single-family home REITs are rising today as investors try to handicap the odds that this deal will kick off M&A activity across the industry. Shares of Altisource Residential Corp. (RESI), which invests in single-family homes and non-performing mortgages, are up a little more than 4%.

In a presentation, Tricon Capital called the deal a "transformative acquisition" for its Tricon American Homes unit, which will become the fourth-largest single-family rental company on public markets. The combined company will own more than 16,800 homes, scale that Tricon believes will bring big rewards. In a presentation, the company noted that it expects to have about 100 homes per field employee following the acquisition, up from about 75 homes today.

Now what

Wall Street seems willing to wager on the prospect of a superior offer for Silver Bay. At the current market price of $21.50 per share, investors stand to gain just $0.13 per share (about 0.6%) by holding on to their shares until the April dividend. 

The current share price implies virtually zero risk that the deal falls through, and suggests that investors are willing to lock in a low and relatively certain return in exchange for the opportunity to profit if a better offer comes along.

 

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Stocks Mentioned

Front Yard Residential Corporation Stock Quote
Front Yard Residential Corporation
RESI
Tricon Capital Group Inc. Stock Quote
Tricon Capital Group Inc.
TCN
$15.85 (0.16%) $0.03

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