Amherst Holdings terminated its $2.3 billion deal to buy Front Yard Residential, sending shares of the single-family rental sliding the most in more than a year.
Amherst, which agreed to acquire Front Yard in February, will pay a $25 million termination fee and purchase shares of Front Yard common stock at an aggregate price of $55 million, according to a statement on Monday.
Front Yard put itself on the block last year after settling with an activist investor. The landlord owned more than 15,000 homes, making it an attractive target in an industry where efficiencies of scale are key.
The deal fell apart as the coronavirus outbreak roils real estate markets and increases the difficulty of doing diligence on an acquisition.
“The unprecedented global health crisis has made the integration of the organizations too operationally complex and uncertain at this time,” Amherst Chief Executive Officer Sean Dobson said.
Front Yard’s stock plunged as much as 23% to $8.33, the biggest intraday drop since March 2020. It had agreed to be acquired for $12.50 per share.
Front Yard is managed by an external company that employs staff in the U.S. Virgin Islands and India, increasing the challenge of closing the deal during a time when travel is limited.
Prior to the pandemic, single-family rentals had gained renewed interest from institutional investors who were betting that the lack of affordable starter homes for purchase would increase demand and allow landlords to raise rents.
It’s too soon to say how the property type will hold up amid the fallout from the outbreak, which has caused unprecedented job loss and provoked talk of rent strikes. Front Yard said April rent collections exceeded 99% of its trailing 12-month average.
“While we are disappointed that the transaction with Amherst will not close, we believe that we have reached an outcome that will allow the company to focus on delivering long-term shareholder value while putting it in a strong financial position going forward,” said George Ellison, Front Yard’s CEO.
Source: Patrick Clark (Bloomberg)
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