Toronto-based Tricon Capital Group Inc. has announced a major American joint venture through which it plans to purchase up to 12,000 more single-family rental homes for its Tricon American Homes division.

The joint venture, involving an unnamed “sovereign wealth fund” and a U.S.-based state pension plan, will be capitalized with a total of US$750 million in equity, with each of the three partners committing $250 million. The total value of the acquisitions is estimated to be about $2 billion.

“The entry of two of the largest and most respected global real estate investors into single-family rental is not only a transformational milestone for Tricon but also a significant endorsement for this burgeoning asset class,” said Gary Berman, president and CEO of Tricon Capital, in a release announcing the venture. “The joint venture also provides us with a clear path to scale, enabling our TAH platform to grow to 25,000-30,000 homes over the next three years.”

TAH, which was formed by Tricon Capital in 2012, currently owns approximately 15,500 homes in 16 core markets across nine states, predominantly located in the Sun Belt.

Recent Silver Bay acquisition

The joint venture comes 16 months after TAH’s most recent major deal, the $1.4-billion acquisition of U.S.-based Silver Bay Realty Trust, which was then a major regional owner and operator of single-family rental homes. The Silver Bay transaction more than doubled the size of TAH, making it the fourth-largest privately owned company in the single-family home rental sector in the U.S. 

At that time, Berman touted the benefits of both scale, and adding a significant number of rental homes in markets where TAH was already active.

He continued to emphasize those benefits this week.

“Our objective since entering the single-family rental industry has been to build up our balance sheet and prove out new businesses in order to ultimately become a bigger and better asset manager,” Berman said in the release. “We have taken a major step towards achieving this goal by entering into this JV, and in doing so, we believe the earnings potential and financial flexibility that stem from being an asset manager will come back into focus.”

Tricon is coming off a strong financial performance during 2017.

The company reported a 16.6 per cent increase in its net income (to $69.3 million), and dividends to shareholders increased eight per cent. Its assets under management jumped 53 per cent to $4.6 billion.

Three-year deployment period

Tricon and its partners plan to make the purchases during the next three years, with its funding portion provided by internally generated cash flow. Additional funding will be provided through credit facilities, with a maximum of 65 per cent loan-to-value, Tricon says.

During the investment period, this venture will serve as TAH’s single-family rental home acquisition vehicle. Target markets include cities where TAH is already active, primarily located in the U.S. Sun Belt. The investment strategy will follow TAH’s current acquisition program, and will continue a focus on “middle market” households.

The homes will be managed by TAH, which will receive customary management and other fees-for-service.

At the conclusion of the JV term, Tricon and the Investors have the right to retain their interests in the portfolio or to liquidate their positions. In the case of a liquidation, Tricon has a right of first offer to acquire the Investors’ stake.

TAH’s existing portfolio and operating platform will remain wholly owned by Tricon — outside of the JV.

Earlier this year, Tricon’s Lifestyle Communities division sold its 14-property portfolio in Arizona and California to an institutional investor. The company did not announce the sale price, but Tricon had valued the assets at $132 million in its most recent financial report.

Tricon officials were not immediately available for comment.

About Tricon

Tricon is a principal investor and asset manager focused on the residential real estate industry in North America with approximately $5.5 billion (C$7.3 billion) of assets under management.

Tricon owns, or manages on behalf of third party investors, a portfolio of investments in land and homebuilding assets, single-family rental homes, manufactured housing communities and multi-family development projects.

Since its inception in 1988, Tricon has invested in real estate and development projects valued at approximately $19 billion.

TAH is headquartered in Orange County, Calif. and has a team of approximately 410 employees across the U.S.