Starwood Property Trust’s board of directors has unanimously approved a spin-off of its single-family residential business to its stockholders.
The newly formed real estate investment trust (REIT), to be called Starwood Waypoint Residential Trust, will apply to list on the New York Stock Exchange and trade under the ticker symbol SWAY.
Upon completion of the spin-off, SWAY will be one of the largest publicly traded investors, owners and operators of US single-family rental homes and non-performing residential mortgage loans (NPLs) in the US.
SWAY Management, an affiliate of Starwood Capital Group, will serve as the manager of SWAY. In connection with the spin-off, Waypoint Real Estate Group, a single-family rental operating platform, will merge with SWAY Management. Terms of the transaction were not disclosed.
As of 30 September 2013, Starwood Property Trust’s single-family residential portfolio, which will be owned and operated by SWAY following the completion of the spin-off, consisted of approximately 5,817 units in single-family homes and NPLs, totalling approximately USD750m of invested capital. SWAY will leverage Waypoint’s management team, employees and operating platform to manage the assets, convert NPLs to single-family homes for sale or rent and continue to maximise total shareholder return on equity and grow the portfolio.
As part of the spin-off, Starwood Property Trust expects to contribute USD100m in cash to the anticipated unlevered balance sheet of SWAY to fund its growth and operations. In addition, at the time of the spin-off, SWAY also expects to have a fully committed financing line of credit with initial available borrowing capacity in excess of USD400m. Together, the available cash and credit facility will provide SWAY with significant financial capacity to support its growth and operating plans.
“Starwood Property Trust took advantage of the housing cycle and acquired both single-family homes and NPLs at prices that we believe were at a significant discount to replacement cost in our select target markets dominated by Florida and Texas in an effort to achieve an attractive long-term total rate of return on our shareholder’s capital. Recent third party valuation work suggests that the estimated fair value of our portfolio is between 1.10x and 1.20x our cost basis and we expect to provide updated third party valuations (NAVs) on at least an annual basis,” says Barry Sternlicht, Starwood Property Trust's chairman and chief executive officer. “Starwood Property Trust’s investment in the sector has now reached critical mass. It has become a distinct business separate from our core lending platform, more closely resembling an equity play.
“With Waypoint’s best-in-class management team and deeply experienced operating platform, we are positioned to grow Starwood Waypoint Residential Trust, effectively manage our growing NPL operation and maximize the value of our single-family residential investments in the coming years. Together with Waypoint, we expect to create a portfolio focused on markets where scale, current yield and home price appreciation should provide our shareholders with a very attractive total rate of return that we believe is at least as compelling as returns available in other major real estate asset classes. In addition, Starwood Property Trust expects to maintain its current dividend to its shareholders and to continue to deploy capital in a large pipeline of investment opportunities.”
Sternlicht will serve as chairman of SWAY. Gary Beasley and Doug Brien, Waypoint’s current co-chief executive officers, will serve as co-chief executive officers of SWAY and Colin Wiel, Waypoint’s current chief investment officer, will serve as chief investment officer of SWAY.