Front Yard Residential Corp. has been taken private as the $2.5 billion acquisition by Pretium and Ares Management Corp. closed this week, making Pretium the second-largest owner and operator of single-family rental properties in the U.S. The closing also marked the SFR industry’s first public-to-private transaction.
Pretium, an alternative investment management firm focused on residential real estate, mortgage finance and corporate credit that has more than $18 billion of assets under management, adds Front Yard’s portfolio of more than 14,500 rental homes to its portfolio that now spans more than 55,000 properties. Front Yard’s assets were mainly scattered across the Sunbelt along with several Midwestern states such as Indiana and Minnesota. About three-quarters of the properties are in markets where Pretium already operates allowing it to expand its scale and improve operating efficiencies in those areas.
Pretium will manage the venture and partner with Ares to further optimize and expand Front Yard’s portfolio of assets. The all-cash deal, which includes a group of Pretium investors and funds managed by the Real Estate Equity and Alternative Credit strategies at Ares, was announced in October. The parties amended the merger agreement in late November, boosting the amount of stock paid out to Front Yard stockholders from $13.50 per share in cash to $16.25 per share in cash, valuing the company at $2.5 billion instead of $2.4 billion as stated in October.
The revised transaction price represents a 63 percent premium over Front Yard’s closing share price on Oct. 16, 2020, up significantly from the approximately 36 percent premium over the Oct. 16 closing price. Front Yard and the Pretium partnership negotiated the amendment after Front Yard received an unsolicited binding proposal from an unaffiliated third party to acquire all the outstanding shares of Front Yard common stock. The amended deal still calls for the Pretium partnership to assume or refinance Front Yard debt.
George Ellison, Front Yard CEO, said in November the company and its board of directors believed it was the best way to maximize cash value to the Front Yard stockholders. After Monday’s closing, Ellison said in a prepared statement Pretium and Ares were the perfect partners to take Front Yard to the next level. He cited the firms’ extensive operating and investment experience combined with the depth and breadth of their real estate platforms to grow Front Yard’s business.
Don Mullen, Pretium chairman & CEO, said in prepared remarks the partnership looks forward to leveraging its operating platform and scale to capitalize on opportunities in the growing SFR market. He said there is urgency among institutional investors to deploy capital to the asset class because of its record-high occupancy rates, stable cash-flow characteristics and potential for continued capital appreciation.
Front Yard, which had been listed on the NYSE until this week’s deal closing, had previously struck a deal, announced last February, to be acquired by Amherst Holdings subsidiary Amherst Residential for $2.3 billion. The agreement fell apart in May.
RBC Capital Markets LLC, served as financial advisor to Pretium. BofA Securities served as financial advisor to Ares. Sidley Austin served as M&A legal counsel, Fried Frank as partnership legal counsel, and Hunton Andres Kurth as special tax and financing counsel to Pretium. Latham & Watkins served as legal counsel to Ares.
Deutsche Bank Securities Inc. served as financial advisor to Front Yard and Weil, Gotshal & Manges LLP served as Front Yard’s legal counsel.
More Players Enter Field
The pandemic, which ended Front Yard’s initial planned sale, is spurring investments in the SFR industry by major players like Blackstone, Nuveen Real Estate and JPMorgan Chase & Co.’s asset management since the COVID-19 crisis began last March.
On the same day in October when the original merger deal was announced by Pretium, Ares and Front Yard, global real estate investment management firm Rockpoint Group said it had formed a $250 million joint venture with Resicap, a major SFT owner and operator. Rockpoint and Resicap’s plan calls for the JV to acquire, renovate and lease 4,500 and 5,000 homes in suburban neighborhoods of the Southeast, Florida and Texas. Also in October, Nuveen announced it was investing up to $400 million in a new SFR startup called Sparrow, which will initially focus on properties in Arizona, Florida and Texas.
In November, multifamily firm RangeWater Real Estate, formerly known as Pollack Shores Real Estate Group, launched Storia, a new build-to-rent single-family platform. The firm plans to deploy about $800 million over the next 18 months by building about 15 communities in Sunbelt metros where it already operates.