0001047469-12-010963.txt : 20121204 0001047469-12-010963.hdr.sgml : 20121204 20121204111936 ACCESSION NUMBER: 0001047469-12-010963 CONFORMED SUBMISSION TYPE: S-11/A PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 20121204 DATE AS OF CHANGE: 20121204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Silver Bay Realty Trust Corp. CENTRAL INDEX KEY: 0001557255 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 900867250 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-11/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-183838 FILM NUMBER: 121239545 BUSINESS ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: SUITE 250 CITY: MINNETONKA STATE: MN ZIP: 55305 BUSINESS PHONE: 612-238-3300 MAIL ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: SUITE 250 CITY: MINNETONKA STATE: MN ZIP: 55305 S-11/A 1 a2211979zs-11a.htm S-11/A

As filed with the Securities and Exchange Commission on December 4, 2012

Registration No. 333-183838

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 4
to
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

Silver Bay Realty Trust Corp.
(Exact name of registrant as specified in its charter)

601 Carlson Parkway, Suite 250
Minnetonka, Minnesota 55305
(952) 358-4400
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

David N. Miller, President and Chief Executive Officer
Silver Bay Realty Trust Corp.
601 Carlson Parkway, Suite 250
Minnetonka, Minnesota 55305
(952) 358-4400
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:


Karen A. Dempsey Orrick, Herrington & Sutcliffe LLP The Orrick Building 405 Howard Street San Francisco, California 94105 Tel: (415) 773-5700 Fax: (415) 773-5759		David J. Goldschmidt Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Tel: (212) 735-3000 Fax: (212) 735-2000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer ý (Do not check if a smaller reporting company)		Smaller reporting company o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered(1)	Proposed Maximum Offering Price Per Share(2)	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee(3)




Common Stock, par value $0.01 per share	15,237,500	$20.00	$304,750,000	35,301

(1): Includes 1,987,500 shares which may be sold pursuant to the underwriters' over-allotment option.
(2): Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act.
(3): $32,948 has previously been paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission acting pursuant to Section 8(a) may determine.

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale thereof is not permitted.

SUBJECT TO COMPLETION, DATED DECEMBER 4, 2012

13,250,000 Shares

Common Stock

Silver Bay Realty Trust Corp. is a newly organized Maryland corporation focused on the acquisition, renovation, leasing and management of single-family properties for rental income and long-term capital appreciation.

This is our initial public offering and no public market currently exists for our common stock. We are offering 13,250,000 shares of our common stock as described in this prospectus. All of the shares of common stock offered by this prospectus are being sold by us. We expect the initial public offering price of our common stock to be between $18.00 and $20.00 per share. We have applied to have our common stock listed on the New York Stock Exchange, or the NYSE, under the symbol "SBY."

We will be externally managed by PRCM Real Estate Advisers LLC, or our Manager. As described more fully herein, our Manager is a joint venture of Pine River Domestic Management L.P., or Pine River, and Provident Real Estate Advisors LLC, or Provident, private capital management firms. An affiliate of Pine River also serves as the external manager of Two Harbors Investment Corp., or Two Harbors [NYSE: TWO], a publicly traded real estate investment trust, or REIT.

Concurrently with the closing of this offering, we plan to complete formation transactions pursuant to which we will acquire entities that own portfolios of single-family properties from Two Harbors and from entities managed by Provident, or the Provident Entities. In exchange, Two Harbors will receive approximately 47.7% of our outstanding common stock and the holders of interests in the Provident Entities, or the Prior Provident Investors, will receive, in the aggregate, a combination of shares of our common stock and common units in our operating partnership redeemable for cash or shares of our common stock on a one-for-one basis, which together represent approximately 16.4% of our outstanding common stock and approximately $5.1 million in cash (based on an assumed offering price of $19.00 per share, which is the midpoint of the price range indicated above). Two Harbors is restricted from disposing of the shares of our common stock until the expiration of a 90-day lock-up period following the completion of this offering, after which Two Harbors may, subject to the discretion and approval of its board of directors and in compliance with applicable securities laws, hold, sell or otherwise dispose of the shares, which may include a distribution of the shares by means of a special dividend to Two Harbors common stockholders.

We intend to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes. To assist us in qualifying as a REIT, stockholders are generally restricted from owning more than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common or capital stock without the prior consent of our board of directors. In addition, our charter contains various other restrictions on ownership and transfer of our common stock. See "Description of Capital Stock—Restrictions on Ownership and Transfer."

We are an "emerging growth company" under the federal securities laws. Investing in our common stock involves risks. See "Risk Factors" on page 19 for a discussion of the following and other risks:

•: We are an early entrant in an industry with no proven track record employing a new business model.
•: We have a limited operating history and may not be able to operate our business successfully or generate sufficient cash flows to make or sustain distributions to our stockholders.
•: The price you pay for the common stock in this offering may exceed the fair market value of the underlying assets represented by your ownership stake.
•: Our Manager and certain of its affiliates may have interests that diverge from the interests of our stockholders.
•: After the end of the exclusivity periods with our Manager and our Manager's operating subsidiary, our Manager and our Manager's operating subsidiary may manage other single-family real estate portfolios, which may result in certain conflicts of interest that could have an adverse effect on our business.
•: Our board of directors may change any of our strategy or investment guidelines, financing strategy or leverage policies without stockholder consent.
•: If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders.
•: REIT distribution requirements could adversely affect our economic performance.
•: Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.

	Public Offering Price	Underwriting Discounts and Commissions	Proceeds to Issuer

Per Share	$	$	$
Total	$	$	$

We have granted the underwriters the right to purchase up to 1,987,500 additional shares of our common stock from us at the initial public offering price, less the underwriting discount, within 30 days after the date of this prospectus to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares of common stock sold in this offering will be ready for delivery on or about , 2012.

Joint Book-Running Managers


Credit Suisse		BofA Merrill Lynch		J.P. Morgan

Co-Managers


Keefe, Bruyette & Woods	RBC Capital Markets	JMP Securities	Zelman Partners LLC

Prospectus dated , 2012

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TABLE OF CONTENTS


PROSPECTUS SUMMARY			1
RISK FACTORS			19
FORWARD-LOOKING STATEMENTS			48
USE OF PROCEEDS			49
DISTRIBUTION POLICY			50
CAPITALIZATION			51
DILUTION			52
SELECTED FINANCIAL AND OTHER DATA			54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			56
INDUSTRY OVERVIEW AND MARKET OPPORTUNITY			70
BUSINESS AND PROPERTIES			80
MANAGEMENT			94
OUR MANAGER AND THE MANAGEMENT AGREEMENT			108
STRUCTURE AND FORMATION OF OUR COMPANY			115
PRINCIPAL STOCKHOLDERS			121
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			123
DESCRIPTION OF CAPITAL STOCK			126
SHARES ELIGIBLE FOR FUTURE SALE			132
CERTAIN PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND OUR CHARTER AND BYLAWS			135
THE OPERATING PARTNERSHIP AND THE PARTNERSHIP AGREEMENT			142
U.S. FEDERAL INCOME TAX CONSIDERATIONS			153
ERISA CONSIDERATIONS			172
UNDERWRITING			175
NOTICE TO CANADIAN RESIDENTS			181
LEGAL MATTERS			183
EXPERTS			183
WHERE YOU CAN FIND MORE INFORMATION			183
GLOSSARY			184
INDEX TO FINANCIAL STATEMENTS			F-1

You should rely only on the information contained in this prospectus, or in any free writing prospectus prepared by us or information to which we have referred you. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and any free writing prospectus prepared by us is accurate only as of their respective dates or on the date or dates which are specified in these documents. Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates.

Dealer Prospectus Delivery Requirement

Until , 2013 (25 days after the date of this prospectus), all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Market, Industry and Other Data

Unless otherwise indicated, information contained in this prospectus concerning the housing industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the residential real estate market. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe our market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise.

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PROSPECTUS SUMMARY

This summary highlights some of the information in this prospectus. It does not contain all of the information that you should consider before investing in our common stock. You should read carefully the more detailed information set forth under "Risk Factors" and the other information included in this prospectus. Except where the context suggests otherwise, the terms "Silver Bay," "company," "we," "us," and "our" refer to Silver Bay Realty Trust Corp., a Maryland corporation; Silver Bay Operating Partnership, L.P., a Delaware limited partnership, the subsidiary through which we will conduct our business and which we refer to as the "Operating Partnership"; Two Harbors Property Investment LLC, which we refer to as "Two Harbors Property" or our "Predecessor"; Polar Cactus LLC, Polar Cactus II LLC, Cool Willow LLC, Provident Residential Real Estate Fund LLC and Resi II LLC, which we refer to collectively as the "Provident Entities"; and our other consolidated subsidiaries after giving effect to the formation transactions described herein. "Our Manager" refers to PRCM Real Estate Advisers LLC, a Delaware limited liability company, our external manager, and, unless the context otherwise requires, Silver Bay Property Corp., a Delaware corporation and a wholly owned subsidiary of PRCM Real Estate Advisers LLC, and their consolidated subsidiaries. Unless otherwise indicated, the information in this prospectus assumes (1) the common stock to be sold in this offering is sold at $19.00 per share, the midpoint of the price range indicated on the cover page of this prospectus, and (2) the underwriters do not exercise their over-allotment option to purchase up to an additional 1,987,500 shares of our common stock.

Our Company

Silver Bay Realty Trust Corp. is a newly organized Maryland corporation focused on the acquisition, renovation, leasing and management of single-family properties. We generate virtually all of our revenue by leasing our portfolio of single-family properties and, from this revenue, expect to pay the operating costs associated with our business and any distributions to our stockholders. Our principal objective is to generate attractive risk-adjusted returns for our stockholders over the long term, primarily through dividends and secondarily through capital appreciation. We seek to establish a reputation as a good landlord to our tenants and a good neighbor in the communities where we operate. We believe that we can achieve economies of scale and develop a valuable consumer brand and that we are well positioned to be a market-leading firm in the single-family rental industry.

We intend to elect and qualify to be taxed as a REIT for U.S. federal tax purposes. We are externally managed by PRCM Real Estate Advisers LLC, or our Manager, which is also our promoter. We will rely on our Manager to provide or obtain on our behalf the personnel and services necessary for us to conduct our business as we have no employees of our own.

Concurrently with this offering, we plan to complete a series of formation transactions, or the Formation Transactions, through which we will acquire our initial portfolio of single-family properties, or our Initial Portfolio, from Two Harbors Investment Corp., or Two Harbors, and the owners of the membership interests of entities managed by Provident Real Estate Advisors LLC, or Provident. The properties in our Initial Portfolio were acquired by the entities that will become our subsidiaries in the Formation Transactions between 2009 and the date of this prospectus, and are located in Arizona, California, Florida, Georgia, Nevada, North Carolina and Texas. As of September 30, 2012, the Initial Portfolio consisted of more than 2,540 single-family properties.

We intend to continue acquiring single-family properties located in our target markets through a variety of acquisition channels, including foreclosure auctions, online auctions, brokers, multiple listing services, or MLS, short sales and bulk purchases from institutions or investor groups disposing of portfolios of real estate owned by them. Upon completion of this offering, we will acquire more than 3,100 single-family properties, have net proceeds of approximately $229.1 million in cash plus any remaining cash contributed to us pursuant to the Formation Transactions, which will be available for pending and future acquisitions and working capital, and have no outstanding indebtedness.

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Our Manager

Our Manager was formed in December 2011 as a joint venture between Provident and Pine River Domestic Management L.P., or Pine River, which is an affiliate of both Pine River Capital Management L.P. and PRCM Advisers LLC, the external manager of Two Harbors. Our Manager was established with the mission of providing institutional capabilities in single-family property acquisition, renovation, management and leasing to an industry that has traditionally been fragmented in both its ownership and operations. Our Manager currently provides property management and acquisition services to Two Harbors Property Investment LLC, or Two Harbors Property, a subsidiary of Two Harbors, and property management services to the Provident Entities described below.

Pine River and Provident have experience and expertise in our business and related fields. Provident, a private capital management firm based in Minnesota, has been engaged in the acquisition, renovation, management and leasing oversight of a portfolio of predominantly single-family properties since 2009. Between 2009 and 2012, Provident raised approximately $92.4 million with which it acquired approximately 880 properties in Arizona, Florida, Georgia and Nevada. Provident acquired these properties through five private limited liability companies for which it serves as the managing member. We refer to these limited liability companies as the Provident Entities and will acquire them in the Formation Transactions. The Provident Entities are no longer raising additional funds or acquiring additional properties.

In building and managing its portfolio over the last three years, Provident developed a network of vendors, service providers and third-party property managers along with institutional knowledge related to the acquisition and management oversight of single-family properties. Our Manager has benefited from these relationships and experience by, where prudent, further developing such relationships. Our Manager has also sought to institutionalize the experience of Provident by hiring key members of its management team who have played important roles in the acquisition and management of Provident's portfolio. These relationships and personnel provide us with access to a base of knowledge and experience and a services infrastructure related to the acquisition, renovation, leasing and management of single-family properties across multiple markets.

Pine River is a global asset management firm with institutional capabilities in managing new ventures, risk management, compliance and reporting. With more than $10 billion in assets under management as of September 30, 2012, Pine River has valuable industry and analytical expertise, extensive long-term relationships in the financial community and established fixed-income, mortgage and real estate investment experience. In addition, Pine River's experience in launching and managing Two Harbors, a publicly traded mortgage REIT, provides us with knowledge, expertise and experience in managing Silver Bay.

In the first quarter of 2012, Two Harbors Property began acquiring a portfolio of single-family residential properties to rent for income and to hold for investment. As of September 30, 2012, Two Harbors Property had purchased approximately 1,660 single-family properties in Phoenix, Arizona, Tampa, Florida, Atlanta, Georgia, Las Vegas, Nevada, Tucson, Arizona, Orlando, Florida, Northern and Southern California and Charlotte, North Carolina, at a total cost of approximately $178.8 million. As of the date of this prospectus, Two Harbors Property owns more than 2,200 properties and continues to acquire properties in its target markets, which were recently expanded to include Dallas.

Our Manager's headquarters are located in Minnetonka, Minnesota, and its operating subsidiary has offices in Minnetonka, Phoenix, Atlanta, Las Vegas, Northern and Southern California, Charlotte and Dallas. Since its formation, our Manager has made significant investments to assemble acquisition and property management teams in our target markets. Our Manager's operating subsidiary currently has more than 60 employees and is a fully licensed real estate broker in the markets where we acquire properties. Our Manager has also made significant investments in a technology infrastructure, building proprietary valuation models and other analytical tools in order to assess market opportunities and our

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portfolio as a whole, and is developing customized technology to more efficiently acquire and manage properties and provide a high level of customer service to tenants.

Market Opportunity

We believe that recent turbulence in the U.S. housing and mortgage markets has created a unique opportunity to launch a large-scale endeavor in the single-family residential rental industry as a result of three key factors: housing prices in certain markets at a significant discount to replacement cost, availability of large numbers of single-family properties at these distressed prices and strong demand from tenants for single-family rental properties. We believe this presents an opportunity to accumulate a large portfolio of properties at attractive prices and to lease them to qualified tenants for attractive yields.

We view the single-family rental business as a long-term opportunity that is sustainable through economic cycles. As the housing market recovers and the cost of residential real estate increases, so should the underlying value of our assets. We believe that rental rates will also increase in such a recovery due to the strong correlation between home prices and rents. This trend also leads us to believe that the single-family residential asset class will serve as a natural hedge to inflation. As a result, we believe we are well positioned for the current economic environment and for a housing market recovery.

Supply of Single-Family Rental Properties

The current dislocation in the housing market has created a large inventory of properties available for acquisition through real estate owned, or REO, purchases, foreclosures and short sales. These distressed properties generally sell at a discount to comparable non-distressed properties, and we believe that these types of properties will be the primary source of single-family rental homes in the coming years.

Single-Family Property Rental Market

Single-family rental property has been an attractive investment class for many years because it generates a relatively stable income stream with a potential for capital appreciation. According to John Burns Real Estate Consulting, single-family rental properties represent approximately one-third of the renter-occupied units in the United States, yet larger institutional investors have not historically owned portfolios of single-family properties and have instead focused on medium-to large-sized multifamily properties. This has left smaller, local investors as the predominant owners of single-family and smaller multifamily properties.

Demand for Single-Family Rental Housing

We believe that the recent state of the housing market, which has displaced many homeowners and kept others from purchasing homes due to tighter credit standards, has contributed to conditions that will lead to increased demand for single-family rentals driven largely by an increase in demand in the general rental market. Rentals as a percentage of the total housing market are increasing while the percentage of owned homes is decreasing, despite improved affordability of homeownership due to low mortgage rates and housing prices. We expect that the residential rental market will continue to grow, driven in significant part by distressed owners who are displaced and converted to renters, and that many displaced homeowners will prefer to live in single-family rentals with similar characteristics and amenities to their former houses.

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Our Strengths

We believe the following strengths will provide us with a significant competitive advantage in implementing our business strategy:

Existing Portfolio of Single-Family Residential Rental Properties

As part of the Formation Transactions and upon completion of this offering, we will acquire a cash-generating portfolio of more than 3,100 single-family rental properties. We believe the creation of this portfolio demonstrates our Manager's ability to identify target markets that meet our criteria for depressed home prices and strong rental demand, to deploy significant amounts of capital in our target markets to achieve scale in a given market and to successfully execute our business strategy.

Multi-Channel Acquisition Platform Supported by a Disciplined and Proven Acquisition Strategy

In addition, we believe that our strategy of investing in multiple markets gives us flexibility to deploy capital and helps diversify our portfolio and mitigate risk and overexposure to any single market.

Established and Scalable Maintenance and Property Management Infrastructure

Experienced Management Team Supported by Analytics, Research and Housing Market Expertise

Our management team is supported by an extensive real estate finance analytical infrastructure developed by Pine River. Our Manager has also begun to develop an analytics/technology platform that will enable us to take a quantitative approach to efficiently manage a large portfolio of single-family rental homes. Our Manager has developed several proprietary tools including an automated valuation model, auction bidding technology and a database to track the status of our assets across our markets.

Commitment to Providing Institutional Platform and Excellence to Single-Family Residential Rental Market

We believe there is an attractive opportunity for an integrated institutional platform devoted to professionally managing a portfolio of single-family rental properties on a large-scale basis across multiple markets. Our strategy revolves around providing high quality institutional services to our rental tenants similar to that found in the multifamily sector. Our Manager is creating operations within each

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of our target markets that focus on customer service, maintenance, leasing, marketing and other services. We will strive to ensure a consistently high level of service and to standardize our best practices to provide customer satisfaction and to develop a trusted brand. We believe that over time, tenants will want to rent homes from an established institutional manager from which they can expect to receive high-quality services and homes.

General Business Strategy and Growth Opportunities

Our strategy is to acquire, renovate, lease and manage single-family residential properties located in markets with an oversupply of properties available at attractive prices that also exhibit favorable demographics, positive long-term economic trends and solid rental demand. Our current target markets are Phoenix, Tampa, Atlanta, Las Vegas, Tucson, Orlando, Northern and Southern California, Charlotte and Dallas. We continue to evaluate and monitor new markets. We acquire properties with the goal of generating rental income by leasing our properties at attractive yields to qualified tenants.

We intend to hold our properties over the long term. Although we may consider the opportunistic disposition of assets, we have no pre-set investment horizon that would require their sale. As a long-term investor, we seek to align our interests with those of local communities in which our properties are located. We believe that our focus on renovating and maintaining the physical quality of our homes and our desire to keep rent-paying tenants in houses offers the best solution to maintaining property values and the quality of the neighborhoods in which we invest. We also believe that our strategy will help to improve the balance and stability of communities that have suffered steep home price declines, and that by acquiring foreclosed, distressed properties, we will help clear excess inventory while making those communities more attractive.

Our Process

We employ a top-down selection process in our investment strategy. We start by identifying what we believe are the most attractive markets in the country for developing a single-family rental business, conducting extensive research and analysis on existing and potential target markets in order to fully evaluate existing and future housing dynamics. We have developed a regional market infrastructure with personnel working and residing in our current target markets who have extensive knowledge and understanding of the fundamentals of those markets and broad relationships across various constituencies. We believe that this centralized, integrated institutional platform with a strong local presence and an ability to scale is critical to success in the single-family residential rental business.

We believe we can differentiate ourselves from most other rental managers in our target markets by continuing our drive to institute a quality and consistency of customer service, maintenance, leasing, marketing and other services. The single-family rental business requires hands-on asset management capabilities and an integrated infrastructure in order to address a large-scale portfolio that is geographically dispersed. We believe we will be able to realize economies of scale through a superior technological platform and increasing portfolio size that will benefit investors by improving our expense ratios while providing institutional compliance, risk management and transparent reporting.

Investment Guidelines

Prior to the completion of this offering, our board of directors will adopt general investment guidelines and from time to time, as it deems appropriate or necessary, will review our investment portfolio and our compliance with our investment guidelines. These investment guidelines may be changed or waived from time to time by our board of directors (which will include a majority of independent directors) without the approval of our stockholders, and although we are not required to, we intend to disclose any such changes or waivers to our investment guidelines in the periodic reports we file with the SEC. For more information, see "Business and Properties—Investment Guidelines."

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Use of Leverage

To date, all of our properties have been purchased from equity capital, and we have no outstanding indebtedness. However, we may use leverage to increase potential returns to our stockholders in the future. Our decision to use leverage will be based on our Manager's assessment of a variety of factors, including the anticipated liquidity and price volatility of the assets in our investment portfolio, the cash flow generation capability of assets, the availability of credit on favorable terms, any prepayment penalties and restrictions on refinancing, the credit quality of our assets and our outlook for borrowing costs relative to the unlevered yields on our assets. Our decision to use leverage will not be subject to the approval of our stockholders. We are not restricted by our governing documents in the amount of leverage that we may use. We may, however, be limited or restricted in the amount of leverage we may employ by the terms and provisions of any financing or other agreements that we may enter into in the future.

Formation Transactions

Concurrently with the closing of this offering, we plan to complete the Formation Transactions, through which we will acquire more than 3,100 single-family properties from Two Harbors and the Prior Provident Investors. This portfolio of properties was acquired by entities that will become our subsidiaries in the Formation Transactions between 2009 and the date of this prospectus, and is located in Arizona, California, Florida, Georgia, Nevada, North Carolina and Texas. Upon completion of this offering we will have net proceeds of approximately $229.1 million in cash plus any remaining cash associated with the acquisition of Two Harbors Property, which will be available for working capital and pending and future acquisitions, and we will have no outstanding indebtedness.

Following the completion of this offering and the Formation Transactions, substantially all of our assets will be held by, and our operations will be conducted through, Silver Bay Operating Partnership L.P., or the Operating Partnership, a Delaware limited partnership of which we are the "Special Limited Partner." Our wholly owned subsidiary, Silver Bay Management LLC, or the General Partner, as the sole general partner of the Operating Partnership, will generally have the exclusive power to manage and conduct the business and affairs of the Operating Partnership, subject to certain limited approval and voting rights of the limited partners, which are described more fully herein.

Two Harbors Transactions

As of September 30, 2012, Two Harbors owned a portfolio of approximately 1,660 single-family properties through its wholly owned subsidiary, Two Harbors Property. Two Harbors Property will continue to acquire properties until the completion of this offering, and as part of the Formation Transactions, Two Harbors will transfer and assign all of the membership interests of Two Harbors Property to the Operating Partnership in exchange for approximately 17.8 million shares of our common stock and 1,000 shares of our 10% cumulative redeemable preferred stock having a liquidation preference of $1,000 per share (plus accrued and unpaid dividends), which it will immediately sell to an unaffiliated third-party investor.

Provident Transactions

The following entities managed by Provident own a portfolio of approximately 880 single-family properties: Polar Cactus LLC, Polar Cactus II LLC, Cool Willow LLC, Provident Residential Real Estate Fund LLC and Resi II LLC, which we refer to collectively as the Provident Entities. The Provident Entities are currently owned by private investors, or the Prior Provident Investors.

We will acquire each of the Provident Entities in one of two ways. The Prior Provident Investors who hold membership interests in Polar Cactus LLC, Polar Cactus II LLC and Cool Willow LLC will transfer and assign all of their membership interests to the Operating Partnership. Provident

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Residential Real Estate Fund LLC and Resi II LLC will enter into merger agreements with wholly owned merger subsidiaries of the Operating Partnership, and these two Provident Entities will survive as wholly owned subsidiaries of the Operating Partnership. In exchange for their interests in the Provident Entities, each of the Prior Provident Investors will receive shares of our common stock, common units of the Operating Partnership or cash, depending upon such Prior Provident Investor's election. In aggregate, the Prior Provident Investors will receive approximately 6.1 million shares of our common stock, approximately 27,000 common units and approximately $5.1 million in cash.

Lock-Up of Two Harbors and Provident Shares and Partnership Interests

Following the completion of this public offering and the closing of the Formation Transactions, Two Harbors will hold shares of our common stock and certain Prior Provident Investors will hold shares of our common stock or common units (which may be exchanged for shares of our common stock as described below) representing approximately 64.1% of the total shares and common units outstanding. The shares of common stock will be subject to a lock-up period of 90 days following the completion of this public offering, other than shares that are issued or distributed to our directors or officers, which will be subject to a 180-day lock-up period, and shares issued or distributed to Irvin R. Kessler, the managing member of Provident, or any partners of Pine River, which will be subject to a one-year lock-up period, subject to certain exceptions. During the applicable lock-up period, the holders of the shares will not be able to transfer or sell their shares, subject to certain limited exceptions.

The Prior Provident Investors who elect to receive common units of the Operating Partnership will be subject to limitations on their ability to sell or transfer their common units for one year following completion of this public offering. After expiration of the one-year lock-up period, these investors will have the right to have the Operating Partnership redeem their common units for cash or instead may receive one share of our common stock per common unit (subject to applicable adjustments), at the General Partner's election on behalf of the Operating Partnership.

We have agreed to use commercially reasonable efforts to ensure that the shares issued in the Formation Transactions, and the shares that may be issued in exchange for common units of the Operating Partnership, are the subject of a valid registration statement that will enable the holders to sell or distribute the shares publicly and without restriction at the end of the applicable lock-up period.

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Our Structure

We were formed as a Maryland corporation on June 29, 2012. The following chart shows our anticipated structure after giving effect to this offering and the Formation Transactions:

(1): We will also issue our cumulative redeemable preferred stock having an aggregate liquidation preference of $1 million (plus accrued and unpaid dividends) to Two Harbors in partial consideration for Two Harbors Property. Two Harbors will then immediately sell the cumulative redeemable preferred stock to an unaffiliated third-party investor. The Operating Partnership will issue 1,000 preferred units to us with the same aggregate liquidation preference and substantially the same terms as the cumulative redeemable preferred stock.
(2): Includes shares of restricted stock granted to our independent directors, certain of our executive officers and certain other personnel of our Manager and our Manager's operating subsidiary concurrently with the completion of this offering.
(3): Certain Prior Provident Investors will receive our common stock in exchange for their membership interests in the Provident Entities. Certain other Prior Provident Investors will receive common units in the Operating Partnership in exchange for their membership interests in the Provident Entities. The common units are redeemable for cash or shares of our common stock on a one-for-one basis (subject to applicable adjustments).
(4): Upon completion of the Formation Transactions, the Operating Partnership will own 100% of the equity interests in the Provident Entities and Two Harbors Property.

Advisory Management Agreement

We will enter into an advisory management agreement with our Manager effective upon the closing of this offering. Pursuant to the management agreement, our Manager will design and implement our business strategy and administer our business activities and day-to-day operations, subject to oversight by our board of directors. Our Manager will be responsible for, among other duties: (1) performing and administering all our day-to-day operations, (2) determining investment criteria in cooperation with our board of directors, (3) sourcing, analyzing and executing asset acquisitions, sales and financings, (4) performing asset management duties and (5) performing certain financial, accounting and tax management services. Our Manager has agreed not to provide these services to anyone other than us, our subsidiaries and any future joint venture in which we are an investor, prior to the third anniversary of this offering. In addition, our Manager and Pine River have agreed not to compete with us, our subsidiaries or any of our future joint ventures for three years following the closing of this offering.

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Under the management agreement, our Manager will be compensated on a fee plus pass-through-of-expenses basis. We will pay our Manager 0.375% of the daily average of our fully diluted market capitalization for the preceding quarter (a 1.5% annual rate), less any property management fees received by our Manager's operating subsidiary or its affiliates under the property management and acquisition services agreement described below. We will also reimburse our Manager for all expenses incurred on our behalf or otherwise in connection with the operation of its business, other than compensation for the CEO and personnel providing data analytics directly supporting the investment function. If our Manager provides services to a party other than us or one of our subsidiaries, a portion of these expenses will be allocated to and reimbursed by such other party in a fair and equitable manner as determined by our Manager in good faith.

The management agreement has an initial term of three years and will be automatically renewed for a one-year term each anniversary thereafter unless terminated. Upon termination of the management agreement by us for reasons other than cause, or by our Manager for cause that we are unwilling or unable to timely cure, we will pay our Manager a termination fee equal to 4.5% of the daily average of our fully diluted market capitalization in the quarter preceding such termination.

Property Management and Acquisition Services Agreement

We will also enter into a property management and acquisition services agreement with Silver Bay Property Corp., a wholly owned subsidiary of our Manager, which we refer to as our Manager's operating subsidiary. Under this agreement, our Manager's operating subsidiary will acquire additional single-family properties on our behalf and manage our properties. Our Manager's operating subsidiary has agreed not to provide these services to anyone other than us, our subsidiaries and any future joint venture in which we are an investor, prior to the third anniversary of this offering.

Our Manager's operating subsidiary will receive a property management fee equal to 5% of certain costs and expenses incurred by it in the operation of its business that are reimbursed by us. This property management fee will reduce the advisory management fee paid to our Manager on a dollar for dollar basis and thus will not result in an additional fee being paid to our Manager. We will reimburse our Manager's operating subsidiary for all expenses incurred on our behalf. Additionally, for so long as it provides services exclusively to us, we will reimburse our Manager's operating subsidiary for all costs and expenses incurred by it in the operation of its business, including the compensation of its employees. If our Manager's operating subsidiary provides services to a party other than us or one of our subsidiaries, a portion of the corresponding expenses incurred by our Manager in doing so will be allocated to and reimbursed by such other party as reasonably determined by our Manager's operating subsidiary in good faith. This agreement will continue in effect until it is terminated in accordance with its terms.

For more information about the management agreement and the property management and acquisition services agreement, see "Our Manager and the Management Agreement."

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Summary Compensation

The following table summarizes the fees and expense reimbursements that we will pay to our Manager (or persons affiliated with or related to our Manager, including our officers) and to our independent directors:

Type of Compensation	Determination of Amount	Estimated Amount

Organizational and Offering Expenses	We will reimburse our Manager, Two Harbors and Provident for certain expenses incurred in connection with our formation, the Formation Transactions and the offering. Organizational and offering expenses include all expenses to be paid by us in connection with the offering, such as the legal, accounting, printing, mailing and filing fees, charges of our transfer agent and exchange listing fees. To date, we have incurred approximately $1,400,000 of organizational and offering expenses. The amount shown under "Estimated Amount" reflects our estimated payments upon completion of this offering and the Formation Transactions.	$3,700,000
Advisory Management Fee	We will pay our Manager 0.375% of the daily average of our fully diluted market capitalization for the preceding quarter (a 1.5% annual rate), less any property management fees received by our Manager's operating subsidiary described below.	Not determinable at this time.
Property Management and Acquisition Services Fee	We will pay our Manager's operating subsidiary a property management fee equal to 5% of certain costs and expenses incurred by it in acquiring, marketing, leasing and managing single-family properties on our behalf. We will pay our Manager's operating subsidiary on the first day of each calendar month. This fee will reduce the advisory management fee paid to our Manager, described above.	Not determinable at this time.
General and Administrative Expenses Reimbursement	We will reimburse our Manager for all expenses incurred on our behalf or otherwise in connection with the operation of its business, other than compensation for the CEO and personnel providing data analytics directly supporting the investment function.	Not determinable at this time.
	We will reimburse our Manager's operating subsidiary for all costs and expenses incurred by it in the operation of its business, including the compensation of its employees.

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Type of Compensation	Determination of Amount	Estimated Amount

Accrued Fees Upon Termination	If the advisory management or the property management and acquisition services agreement is terminated, our Manager or our Manager's operating subsidiary, as applicable, will be entitled to receive payment of any earned but unpaid compensation and expense reimbursements accrued as of the date of termination.	Not determinable at this time.
Advisory Management Termination Fee	If the advisory management agreement is terminated by us for reasons other than cause, or by our Manager for cause that we do not timely cure, our Manager will be entitled to receive a termination fee equal to 4.5% of the daily average of our fully diluted market capitalization in the quarter preceding the date of termination.	Not determinable at this time.
Awards Under Our Equity Incentive Plan	Prior to the completion of this offering, we will adopt an equity incentive plan, which is intended to align the interests of directors and key personnel with those of our stockholders. Pursuant to this plan, our directors, officers, advisors, consultants and other personnel, including personnel of our Manager and its affiliates, may receive grants of stock options, restricted shares of common stock, restricted stock units, phantom stock, dividend equivalent rights, and other equity-based awards. Our independent directors and those personnel whose compensation is reimbursed by us are eligible for these grants. Our compensation committee will administer the equity incentive plan. Concurrently with the completion of this offering, we intend to grant, in aggregate, approximately 157,895 restricted shares of our common stock to our independent directors, certain of our executive officers and certain other personnel of our Manager and our Manager's operating subsidiary.	The company has reserved 921,053 shares of common stock for issuance under its 2012 Equity Incentive Plan.

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Type of Compensation		Determination of Amount		Estimated Amount

Compensation to Independent Directors		Upon completion of this offering, we will pay to each of our independent directors an annual fee of $100,000. We will also pay an annual fee of $15,000 to each standing committee chair and $10,000 to our lead independent director. These fees will be payable in cash and restricted shares of our common stock.		The independent directors, as a group, will receive for a full fiscal year aggregate compensation of approximately $555,000, payable in cash and stock.

See "Our Manager and the Management Agreement" for more information about the management agreement and the property management and acquisition services agreement and the costs and expenses under these agreements.

See "Management—2012 Equity Incentive Plan" for more information about stock-based compensation.

Conflicts of Interest

We are externally advised by our Manager, which is a joint venture of Pine River and Provident. The management agreement was not negotiated at arm's length and may not be on terms as favorable as we could have negotiated with a third party. Pursuant to the management agreement, our Manager will be obligated to supply us with substantially all of our senior management team. Subject to investment and other guidelines or policies adopted by our board of directors, our Manager has significant discretion regarding the implementation of our investment and operating policies and strategies. Neither our Manager nor Pine River or Provident will be obligated to dedicate any specific personnel exclusively to us, nor will they or their personnel be obligated to dedicate any specific portion of their time to the management of our business. Each of our officers and non-independent directors is also an employee or partner of our Manager, Pine River, Provident, or one of their respective affiliates and may have responsibilities for other investment vehicles managed by Pine River or Provident. As a result of these relationships, these individuals have potential conflicts of interest with respect to our agreements and arrangements with our Manager.

Under the management agreement, we are required to pay our Manager an advisory management fee based on our market capitalization, regardless of the performance of our portfolio. Accordingly, increases in the price of our common stock will increase our expenses and reduce our profitability and distributable cash. In addition, our Manager might not have an adequate incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio, which could, in turn, adversely affect our financial results. Consequently, we may be required to pay our Manager significant advisory management fees despite experiencing a net loss or a decline in the value of our portfolio. Further, the advisory management fee structure gives our Manager an incentive to maximize market capitalization by the issuance of new common stock or the retention of existing equity, regardless of the effect of these actions on existing stockholders. In other words, the advisory management fee structure rewards our Manager primarily based on the size of the company and not on our returns to stockholders.

For additional discussion of potential conflicts of interest with our Manager, see "Risk Factors—Risks Related to Our Relationship with Our Manager" and "Our Manager and the Management Agreement—Conflicts of Interest Relating to Pine River, Provident and Our Manager."

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Emerging Growth Company Status

We currently qualify as an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We have not made a decision whether to take advantage of certain of these exemptions. If we do take advantage of any of these exemptions, we do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for all public companies which are not emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We could remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Summary Risk Factors

An investment in shares of our common stock involves various risks. You should consider carefully the risks discussed below and under "Risk Factors" before purchasing our common stock. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

•: We are an early entrant in an industry with no proven track record employing a new business model.
•: We have a limited operating history and may not be able to operate our business successfully or generate sufficient cash flows to make or sustain distributions to our stockholders.
•: The price you pay for the common stock in this offering may exceed the fair market value of the underlying assets represented by your ownership stake.
•: We may not have control over timing and costs arising from renovation of properties.
•: Real estate that we acquire may not appreciate at expected rates, and may decline in value, reducing the value of our assets.

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•: In our geographic markets, demand for single-family rentals may not increase as expected or may decline, and we may not be able to rent our properties, or rent them at rates sufficient to generate cash flows to make or sustain distributions to our stockholders.
•: Mortgage loan modification programs and future legislative action may adversely affect the number of available properties that meet our investment criteria.
•: Our portfolio consists of properties geographically concentrated in certain markets and any adverse developments in local economic conditions, the demand for single-family rental homes in these markets or natural disasters may negatively affect our operating results.
•: In each of the geographic areas where we operate, we are subject to landlord-tenant laws that affect our ability to rent and manage our properties and impose additional expenses and legal duties on us in dealing with prospective and current tenants. Because we intend to operate at scale in each geographic area where we own properties, we may become the focus of local law enforcement, legislative and regulatory scrutiny with respect to state and local landlord-tenant laws.
•: At the completion of this offering, we will not have committed a material portion of the net proceeds of the offering to any specific properties other than purchase agreements entered into by our Predecessor that have not yet closed.
•: We are dependent upon our Manager, our Manager's operating subsidiary and their key personnel, who provide services to us through the management agreement and the property management and acquisition services agreement, and we may not find suitable replacements if these agreements are terminated or these key personnel leave our Manager or our Manager's operating subsidiary or otherwise become unavailable to us.
•: Our Manager and certain of its affiliates may have interests that diverge from the interests of our stockholders.
•: Our board of directors may change any of our strategy or investment guidelines, financing strategy or leverage policies without stockholder consent.
•: If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders.

REIT Qualification

In connection with this offering, we intend to elect to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, commencing with our taxable year ending December 31, 2012. We believe that our organization and proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute at least 90% of our taxable income (excluding capital gains) to our stockholders. As a REIT, we generally will not be subject to federal income tax on our taxable income we currently distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax at regular corporate rates. Even if we qualify for taxation as a REIT, we may be subject to some federal, state and local taxes on our income or property. In addition, the income of any taxable REIT subsidiary, or TRS, that we own will be subject to taxation at regular corporate rates.

Restrictions on Ownership and Transfer of Our Stock

To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, our charter prohibits, with certain exceptions, any stockholder from beneficially

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or constructively owning, applying certain attribution rules under the Code, more than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or 9.8% by value or number of shares, whichever is more restrictive, of our outstanding capital stock. Our board of directors may, in its sole discretion, waive the 9.8% ownership limit with respect to a particular stockholder if it is presented with evidence satisfactory to it that such ownership will not then or in the future jeopardize our qualification as a REIT. Our board has adopted a resolution providing for the exemption of Two Harbors and certain of its affiliates from the ownership limits in connection with the Formation Transactions, which will allow them to own up to 49% of our stock.

Our charter also contains provisions designed to prohibit any person from, among other things:

•: beneficially or constructively owning shares of our capital stock that would result in our being "closely held" under Section 856(h) of the Code, or otherwise cause us to fail to qualify as a REIT; and
•: transferring shares of our capital stock if such transfer would result in our capital stock being owned by fewer than 100 persons.

In addition, our charter provides that any ownership or purported transfer of our capital stock in violation of the foregoing restrictions will result in the shares so owned or transferred being automatically transferred to a trust for the benefit of a charitable beneficiary, and the purported owner or transferee acquiring no rights in such shares. If a transfer to a trust would be ineffective for any reason to prevent a violation of the restriction, our charter provides that the transfer resulting in such violation will be void from the time of such purported transfer.

Corporate Information

Our principal executive office is located at 601 Carlson Parkway, Suite 250, Minnetonka, Minnesota. Our telephone number is (952) 358-4400. Our web address is www.silverbayrealtytrustcorp.com. The information on, or otherwise accessible through, our web site does not constitute a part of this prospectus or any other report or document we file with or furnish to the Securities and Exchange Commission, or the SEC.

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The Offering


Common stock offered by us		13,250,000 shares (plus up to an additional 1,987,500 shares of our common stock that we may issue and sell upon the exercise of the underwriters' over-allotment option).
Common stock to be outstanding after this offering		37,342,968 shares(1)
Common stock and common units to be outstanding after this offering		37,370,263 shares and common units(1)(2)
Use of proceeds		We intend to use the net proceeds of this offering to purchase additional single-family properties, to renovate such properties for rental to tenants, for working capital and to fund any cash payments to Prior Provident Investors as described herein. We expect that our initial focus will be on continuing to acquire, manage and lease residential real estate properties. See "Use of Proceeds."
Distribution policy		We intend to make quarterly cash distributions to holders of our common stock, consistent with maintaining our REIT qualification for U.S. federal income tax purposes.
Listing		We have applied to list our common stock under the NYSE under the symbol "SBY."

(1): Includes 23,935,073 shares to be issued in connection with the Formation Transactions and approximately 157,895 shares (based on the midpoint of the price range set forth on the cover of this prospectus) of restricted stock to be granted to our independent directors, certain executive officers and certain other personnel of our Manager and our Manager's operating subsidiary concurrently with the completion of this offering. Excludes (a) 1,000 shares issued to our Manager, which we will repurchase at cost upon completion of this offering, (b) 1,987,500 shares of our common stock that we may issue and sell upon the exercise of the underwriters' over-allotment option and (c) 763,158 shares reserved for future issuance under our 2012 Equity Incentive Plan.
(2): Includes 27,295 common units expected to be issued as part of the Formation Transactions, which units may, subject to certain limitations, be redeemed for cash or, at our option, exchanged for shares of common stock on a one-for-one basis. Unless otherwise indicated, all references to percentage ownership in the company assume the conversion of all common units issued in connection with the Formation Transactions into shares of our common stock.

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Summary Financial Data

We have presented the following summary financial and operating data on (1) a pro forma basis for Silver Bay after giving effect to the offering and the Formation Transactions, including the acquisition of the Provident Entities and required purchase accounting adjustments and the use of net proceeds therefrom, (2) the consolidated historical operations for Two Harbors Property Investment LLC and its subsidiaries, which we refer to collectively as our Predecessor and (3) the combined historical operating data for the Provident Entities. We have not presented historical information for Silver Bay Realty Trust Corp. because we have not had any corporate activity since our formation other than the issuance of 1,000 shares of common stock to our Manager in connection with our initial capitalization. We have not presented historical operating data for the year ended December 31, 2011 for our Predecessor because it did not begin acquiring properties until 2012.

You should read the following summary financial data in conjunction with our financial statements and the financial statements of our Predecessor and the Provident Entities and the related notes, which are included elsewhere in this prospectus, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

The summary historical consolidated balance sheet data as of September 30, 2012 and the summary historical consolidated financial information for the nine months ended September 30, 2012 for our Predecessor have been derived from the consolidated audited financial statements of our Predecessor included elsewhere in this prospectus. The summary historical combined operating data for the nine months ended September 30, 2012 and 2011 and for the years ended December 31, 2011 and 2010 for the Provident Entities have been derived from the combined statements of revenues and certain operating expenses of the Provident Entities included elsewhere in this prospectus. The combined statements of revenues and certain operating expenses for the Provident Entities have been prepared on the accrual basis of accounting for the purpose of complying with Rule 3-14 of Regulation S-X of the SEC. Certain historical expenses that may not be comparable to the expenses expected to be incurred in the future have been excluded, including depreciation and amortization and other overhead costs not directly related to the future operations of the Provident Entities. We have also not provided historical balance sheet data for the Provident Entities as the historical data will not be comparable to the balance sheet reflected in our consolidated financial statements and is not required under Rule 3-14.

Our unaudited summary pro forma condensed consolidated balance sheet as of September 30, 2012 and operating data for the nine months ended September 30, 2012 and for the year ended December 31, 2011 assumes completion of this offering, the Formation Transactions and the other adjustments described in the unaudited pro forma financial information beginning on page F-2 of this prospectus, as of January 1, 2011 for the statement of operations data and as of September 30, 2012 for the balance sheet data. The historical balances of our Predecessor have been reflected at carryover basis because, for accounting purposes, the Formation Transactions and this offering are not deemed a business combination and do not result in a change of control. The Provident Entities' basis, however, has been recorded at fair value as of September 30, 2012 because our acquisition of the Provident Entities is deemed to be a purchase of a controlling interest. The purchase price allocations have not been finalized and are subject to change based upon recording of actual transaction costs, finalization of working capital adjustments for our Predecessor and Provident Entities and completion of our analysis of the fair value of the Provident Entities.

The unaudited pro forma condensed consolidated balance sheet data is presented for illustrative purposes only and is not necessarily indicative of what the actual financial position would have been had the transactions referred to above occurred on September 30, 2012, nor does it purport to represent the future financial position of the company. The unaudited pro forma condensed consolidated statements of operations data are presented for illustrative purposes only and are not necessarily indicative of what the actual results of operations would have been had the transactions referred to above occurred on January 1, 2011, nor does it purport to represent the future results of operations of the company.

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	Nine Months Ended September 30,										Year Ended December 31,

	Pro Forma			Predecessor Historical			Provident Entities Historical				Pro Forma			Provident Entities Historical
(Dollar amounts in thousands except other data)	2012			2012			2012		2011		2011			2011		2010
	(Unaudited)						(Unaudited)		(Unaudited)		(Unaudited)
Statement of Operations Data:
Revenue:
Rental income	$	8,178		$	827		$	7,351	$	3,404	$	5,095		$	5,095	$	1,739
Other income		191			—			191		130		187			187		138

Total revenue		8,369			827			7,542		3,534		5,282			5,282		1,877
Expenses:
Property operating and maintenance		2,216			776			1,440		654		1,767			1,767		417
Real estate taxes		1,800			526			1,274		568		883			883		264
Home owner's association fees		1,083			162			921		479		790			790		272
Property management fees		5,771			64			531		229		7,692			354		120
Depreciation and amortization		3,038			475			—		—		6,106			—		—
Advisory management fee		7,725			804			—		—		10,300			—		—
General and administrative		3,242			296			—		—		3,928			—		—

Total expenses		24,875			3,103			4,166		1,930		31,466			3,794		1,073

Net income (loss)(1)	$	(16,506	)	$	(2,276	)	$	3,376	$	1,604	$	(26,184	)	$	1,488	$	804

	As of September 30, 2012

Balance Sheet Data:	Pro Forma		Predecessor Historical
	(Unaudited)
Net investment in real estate	$	309,912	$	190,907
Cash and cash equivalents		231,897		2,785
Escrow deposits(2)		130,822		33,960
Other assets		3,815		625
Total assets		676,446		228,277
Total liabilities		4,892		4,392
10% cumulative redeemable preferred stock		1,000		—
Total equity		670,554		223,885

	As of September 30, 2012

Other Data:	Combined			Predecessor			Provident Entities
	(Unaudited)			(Unaudited)			(Unaudited)
Total properties owned		2,548			1,667			881
Properties owned for at least six months		951			70			881
Leased properties owned for at least six months		865			59			806
Occupancy percentage of properties owned for at least six months		91	%		84	%		91	%
Average monthly rent per leased property owned for at least six months	$	1,126		$	1,066		$	1,130

(1): Amounts for the Provident Entities represent the excess of revenues over certain operating expenses.
(2): Escrow deposits consist primarily of refundable cash on deposit with property acquisition managers for property purchases, renovation costs, and earnest money deposits.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Risks Related to Our Business

We are an early entrant employing a new and untested business model in a new industry with no proven track record, which makes our business difficult to evaluate.

The large-scale single-family rental industry is relatively new in the United States. Until very recently, the single-family rental business consisted primarily of private and individual investors in local markets and was managed individually or by small, local property managers. We have been formed on the assumption that a company can acquire and operate single-family properties on a large-scale basis and achieve attractive yields employing technology through a disciplined approach to acquisitions and renovations, economies of scale in marketing and management and developing a brand-name presence. This is a new business model that has not been tested on a national scale. Our assumptions are unproven, and if they prove to be incorrect, then we may fail to provide the financial returns that investors hope or expect to receive.

Our investment strategy involves purchasing a large number of residential properties and leasing them to suitable tenants. We are unaware of any public REIT that is attempting to implement this strategy on the scale that we intend to pursue. No peer companies exist with an established track record from which to predict whether our investment strategy can be implemented successfully over time. While past performance is not indicative of future results, it will be difficult for you to evaluate our potential future performance without the benefit of established track records from companies implementing a similar investment strategy. We may encounter unanticipated problems implementing our investment strategy, which may have a material adverse effect on our results of operations, ability to make distributions on our common stock and cause our stock price to decline significantly. Accordingly, no assurance can be given that we will be successful in implementing our investment strategy or that we will be successful in achieving our objective of providing attractive risk-adjusted returns to our stockholders over the long term.

We believe the acquisition, operation and management of multifamily residential real estate is the most comparable established business model to our business, but in contrast to multifamily operations, the geographic dispersion of single-family properties creates significantly greater operational and maintenance challenges and, potentially, significantly higher per-unit operating costs. In addition, since each home has unique features, appliances and building materials, renovations, maintenance, marketing and operational tasks will be far more varied and demanding than in a typical multifamily setting. We cannot provide any assurance that operating a large portfolio of single-family rental properties can be executed in a cost-effective and profitable manner or that our business plan will succeed.

We have a limited operating history and may not be able to operate our business successfully or generate sufficient cash flows to make or sustain distributions to our stockholders.

We were organized in June 2012 and have a limited operating history. As of September 30, 2012, more than half of the homes owned by Two Harbors Property and the Provident Entities comprising our Initial Portfolio as of that date had been acquired within the preceding six months and a substantial number of those were still in the process of stabilization, the period of time during which time they are not generating revenue because we are gaining possession, conducting renovations or marketing and leasing such properties. There is no long-term historical financial data for our

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Predecessor, our acquired properties or other companies in the single-family rental industry available to assess our earnings potential or whether we can operate profitably. We cannot assure you that we will be able to operate our business successfully or implement our operating policies and strategies as described in this prospectus. The results of our operations will depend on many factors, including:

•: the availability of additional properties that meet our criteria and our ability to purchase such properties on favorable terms;
•: real estate appreciation or depreciation in our target markets;
•: our ability to contain renovation, maintenance, marketing and other operating costs for our properties;
•: our ability to maintain high occupancy rates and target rent levels;
•: general economic conditions in our target markets, such as changes in employment and household earnings and expenses;
•: costs that are beyond our control, including title litigation, litigation with tenants or tenant organizations, legal compliance, real estate taxes, homeowners' association fees and insurance;
•: judicial and regulatory developments affecting landlord-tenant relations that may affect or delay our ability to dispossess or evict occupants or increase rents;
•: judicial and regulatory developments affecting banks' and other mortgage holders' ability to foreclose on delinquent borrowers;
•: reversal of population, employment or homeownership trends in target markets; and
•: competition from other investors entering the single-family rental market.

Our Manager is still building its operational expertise and infrastructure, and it is dependent upon new employees and third-party service providers to manage and operate its properties.

As Two Harbors Property and the Provident Entities have acquired the properties that will become our Initial Portfolio, they and our Manager have been building their operational expertise by hiring new employees and establishing relationships with third-party service providers. Most of these employees and relationships are relatively new to our Manager, and as we grow and expand into new markets, our Manager will need to hire additional employees and find additional third-party resources and to retain these employees and third-party resources. In addition, our Manager is establishing new infrastructure and processes including those related to residential management and leasing, brand development, tracking, accounting systems and billing and payment processing.

Building operational expertise and establishing infrastructure are difficult, expensive and time-consuming tasks, and we can expect problems to arise despite the best efforts of our Manager and its affiliates. There is a significant risk that operational problems will have an adverse effect upon our financial performance, especially in newer markets that our Manager has recently entered.

We are dependent on our investment in a single asset class, making our profitability and balance sheet more vulnerable to a downturn or slowdown in the housing sector or other economic factors.

We expect to concentrate our investments in single-family properties. As a result, we will be subject to risks inherent in investments in a single type of property. A downturn or slowdown in the rental demand for single-family housing may have more pronounced effects on the cash available for distribution or on the value of our assets than if we had more fully diversified our investments.

Virtually all of our revenue comes from our rental operations, which are subject to many risks, including decreasing rental rates, increased competition for tenants, increased lease default rates and increased tenant turnover. As a result of various factors, including competitive pricing pressure or

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adverse conditions in our target markets, a general economic downturn and the desirability of our properties compared to other properties in our target markets, we may be unable to realize our asking rents across the properties in our portfolio, which will negatively affect our ability to generate cash flow. In addition, rental rates for expiring leases may be higher than starting rental rates for new leases. We will also compete for tenants with numerous other housing alternatives. We anticipate that our properties will compete directly with multifamily properties as well as condominiums and other single-family homes which are available for rent or purchase in the markets in which our properties are located. The ownership and management of such properties is diffuse and often highly localized, and some operators may have lower operating costs than we do. This competitive environment could have a material adverse effect on our ability to lease our properties as well as on the rents we may charge.

Our operating results and cash flows would be adversely affected if a significant number of our tenants were unable to meet their lease obligations. High unemployment and other adverse changes in the economic conditions in our target markets could result in substantial tenant defaults. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord and obtaining possession of the premises, may incur legal, maintenance and other costs in protecting our investment and re-leasing the property and may be unable to re-lease the property at the rental rate previously received. These events and others could reduce the amount of distributions available to our stockholders, reduce the value of our properties and cause the value of your investment to decline.

We intend to continue to expand our scale of operations and make acquisitions even if the rental and housing markets are not as favorable as they have been in recent months, which could reduce our yield per share.

We have benefited in the purchase of the properties currently in our Initial Portfolio from a confluence of factors and market conditions that have resulted in homes being available to us at prices that are below replacement cost and, we believe, below their value as rental properties, based on anticipated cash flows. We expect that in the future housing prices will stabilize and return to more normalized levels, and therefore future acquisitions may be more costly than the homes acquired by Two Harbors Property and the Provident Entities that comprise our Initial Portfolio. There are many factors that may cause a recovery in the housing market that would result in future acquisitions becoming more expensive and possibly less attractive than recent past and present opportunities, including:

•: improvements in the overall economy and job market;
•: a resumption of consumer lending activity and greater availability of consumer credit;
•: improvements in the pricing and terms of mortgage-backed securities;
•: the emergence of increased competition for single-family assets from private investors and entities with similar investment objectives to ours; and
•: tax or other government incentives that encourage homeownership.

Although we believe there will be benefits to increasing our scale of operations, our Manager's acquisition platform and property management operations represent a significant ongoing expense to us. These expenses include, among others, costs associated with establishing and maintaining fully staffed regional brokerage offices, inspections and due diligence, transaction costs, landlord-tenant and legal compliance, and renovating and marketing costs. In addition, we expect that recently acquired properties in the process of stabilization will be unproductive assets generating no revenue for up to six months after acquisition.

We have not adopted and do not expect to adopt a policy of making future acquisitions only if they are accretive to existing yields and distributable cash. We will continue to invest significant resources developing our Manager's acquisition and property management platforms and we plan to continue acquiring properties as long as we believe such properties offer an attractive total return

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opportunity. Accordingly, future acquisitions may have lower yield characteristics than our current portfolio and if such future acquisitions are funded through equity issuances, the yield and distributable cash per share will be reduced and the value of our common stock may decline.

We may need additional capital or may seek to employ leverage to expand our portfolio, and such financing may not be available.

To date, all of our properties have been purchased for cash and we have no outstanding indebtedness. However, we may use leverage to obtain additional capital or increase potential returns to our stockholders in the future. We may be unable to leverage our assets or obtain additional financing. We may also be limited or restricted in the amount of leverage we may employ by the terms and provisions of any financing or other agreements that we may enter into in the future and such agreements may contain covenants restricting our operating flexibility.

We have many competitors and may not become an industry leader.

Recently, several institutional investors have begun acquiring single-family homes on a large scale. Traditionally, foreclosed properties and loans in respect of properties in pre-foreclosure were sold individually to private home buyers and small-scale investors. The sale of these assets in bulk pools and the entry into this market of large, well-capitalized institutional investors, including us, are relatively recent trends, which we expect to intensify in the near future. Several other REITs and other funds have recently deployed, or are expected to deploy in the near future, significant amounts of capital to these asset categories, and may have investment objectives that overlap with ours. In acquiring our target assets, we will compete with a variety of institutional investors, including other REITs, specialty finance companies, public and private funds and other financial institutions. Many of our competitors may be larger and have greater financial, technical, leasing, marketing and other resources than we do. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us. At this time, neither we nor any other company has established a market-leading position, and even if we succeed in becoming an industry leader there can be no assurance that it will confer any long-term competitive advantage or positive financial results.

Our dependence upon third parties for key services may harm our financial results or reputation if the third parties fail to perform.

We have entered into agreements with third parties to provide some of the services required under the management agreement and the property management and acquisition services agreement, including acquisition services, property management, leasing, renovation and maintenance. For example, we currently use third-party property managers for approximately half of our current properties, and we also use third-party acquisition personnel in Tampa, Tucson and Orlando. Selecting, managing and supervising these third-party service providers requires significant management resources and expertise. Poor performance by third-party service providers, especially those who interact with tenants in our properties, will reflect poorly on us and could significantly damage our reputation among desirable tenants. In the event of fraud or misconduct by a third-party property manager, we could also be exposed to material liability and be held responsible for damages, fines and/or penalties. If our Manager does not select, manage and supervise appropriate third parties for these services, our reputation and financial results may suffer.

Notwithstanding our efforts to implement and enforce strong policies and practices regarding service providers, we may not successfully detect and prevent fraud, incompetence or theft by our third-party service providers. In addition, any delay in identifying a third-party service provider or removal or termination of existing third-party service providers would require us to seek new vendors or providers, which would create delays and adversely affect our operations. For example, in Las Vegas we began to acquire properties prior to having a third-party property management agreement in place for the

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renovation and leasing of such properties, which led to delays in renovating the properties and bringing them to market.

The price you pay for the common stock in this offering may exceed the fair market value of the underlying assets represented by your ownership stake.

We have not obtained third-party appraisals of the properties and other assets held by Two Harbors Property and the Provident Entities that we plan to acquire in connection with this offering and the Formation Transactions. The value of the cash, the common units in the Operating Partnership and the shares of our common stock that we will pay or issue as consideration will increase or decrease if our common stock is priced above or below the midpoint of the range shown on the front cover of this prospectus. The initial public offering price of our common stock will be determined by a negotiation between us and the representatives of the underwriters based on the information presented in this prospectus, the history and prospects for the industry in which we compete, the ability of our management, prospects for our future earnings, the present state of our development and current financial condition, the recent market prices of, and the demand for, publicly traded shares of generally comparable companies and the general condition of the securities markets at the time of this offering. The initial public offering price of our common stock will be higher than the net tangible book value per share of our common stock immediately after the consummation of this offering and the Formation Transactions. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $1.10 (or approximately 5.8%) in net tangible book value per share from the price you paid, based upon an assumed initial public offering price of $19.00 per share, the midpoint of the range shown on the front cover of this prospectus.

Many factors impact the single-family residential rental market and if rents in our target markets do not increase sufficiently to keep pace with rising costs of operations, our income and distributable cash will decline.

The success of our business model will depend, in part, on conditions in the single-family rental market in our target markets. Our asset acquisitions will be premised on assumptions about occupancy and rent levels, and if those assumptions prove to be inaccurate, our cash flows and profitability will be reduced. Rental rates and occupancy levels have benefited in recent periods from macro trends affecting the U.S. economy and residential real estate markets in particular, including:

•: a tightening of credit that has made it more difficult to finance a home purchase, combined with efforts by consumers generally to reduce their exposure to credit;
•: weak economic and employment conditions that have increased foreclosure rates and made it more difficult for families to remain in their homes that were purchased prior to the housing market downturn;
•: declining real estate values that have challenged the traditional notion that homeownership is a stable investment; and
•: the unprecedented level of vacant housing comprising the REO inventory held for sale by banks, government-sponsored entities, or GSEs, and other mortgage lenders or guarantors.

We do not expect these favorable trends in the residential rental market to continue indefinitely. Eventually, a strengthening of the U.S. economy and job growth, coupled with government programs designed to keep home owners in their homes and/or other factors may contribute to a stabilization or reversal of the current trend that favors renting rather than homeownership. In addition, we expect that as investors like us increasingly seek to capitalize on opportunities to purchase undervalued housing assets and convert them to productive uses, the supply of single-family rental properties will decrease and the competition for tenants may intensify. A softening of the rental market in our target areas would reduce our rental income and profitability.

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Mortgage loan modification programs and future legislative action may adversely affect the number of available properties that meet our investment criteria.

The U.S. government, through the Federal Reserve, the Federal Housing Administration and the Federal Deposit Insurance Corporation, has implemented a number of programs designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures, including the Home Affordable Modification Program, which seeks to provide relief to homeowners whose mortgages are in or may be subject to foreclosure, and the Home Affordable Refinance Program, which allows certain borrowers who are underwater on their mortgage but current on their mortgage payments to refinance their loans. Several states, including states in which our current target markets are located, have adopted or are considering similar legislation. These programs and other loss mitigation programs may involve, among other things, the modification or refinancing of mortgage loans or providing homeowners with additional relief from loan foreclosures. Such loan modifications and other measures are intended and designed to lead to fewer foreclosures, which will decrease the supply of properties that meet our investment criteria.

The pace of residential foreclosures is unpredictable and subject to numerous factors. In recent periods there has been a backlog of foreclosures due to a combination of volume constraints and legal actions, including those brought by the U.S. Department of Justice, or DOJ, the Department of Housing and Urban Development, or HUD, and State Attorneys General against mortgage servicers alleging wrongful foreclosure practices. Financial institutions have also been subjected to regulatory restrictions and limitations on foreclosure activity by the Federal Deposit Insurance Corporation. Legal claims brought or threatened by the DOJ, HUD and 49 State Attorneys General against the five largest residential mortgage servicers in the country were settled in 2012. As part of this approximately $25 billion settlement, a portion of the settlement funds will be directed to homeowners seeking to avoid foreclosure through mortgage modifications, and servicers are required to adopt specified measures to reduce mortgage obligations in certain situations. It is expected that the settlement will help many homeowners avoid foreclosures that would otherwise have occurred in the near term, and with lower monthly payments and mortgage debts, for years to come. It is also foreseeable that other residential mortgage servicing companies that were not among the five included in the initial $25 billion settlement will agree to similar settlements that will further reduce the supply of houses in the process of foreclosure.

In addition, numerous federal and state legislatures have considered, proposed or adopted legislation to constrain foreclosures, or may do so in the future. For example, in 2012, California enacted a law imposing new limitations on foreclosures while a request for a loan modification is pending. The Dodd-Frank Act also created the Consumer Financial Protection Bureau, which supervises and enforces federal consumer protection laws as they apply to banks, credit unions, and other financial companies, including mortgage servicers. It remains uncertain as to whether any of these measures will have a significant impact on foreclosure volumes or what the timing of that impact would be. If foreclosure volumes were to decline significantly, we would expect REO inventory levels to decline or to grow at a slower pace, which would make it more difficult to find target assets at attractive prices and might constrain our growth or reduce our long-term profitability. Also, the number of families seeking rental housing might be reduced by such legislation, reducing rental housing demand in our target markets.

Claims of deficiencies in the foreclosure process may result in rescission of our purchases at auction or reduce the supply of foreclosed properties available to us.

Allegations of deficiencies in foreclosure practices could result in claims challenging the validity of some foreclosures that have occurred to date, potentially placing our claim of ownership to the properties at risk. Our title insurance policies may not provide adequate protection in such instances or such proceedings may result in a complete loss without compensation.

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Each state has its own laws governing the procedures to foreclose on mortgages and deeds of trust, and state laws generally require strict compliance with these laws in both judicial and non-judicial foreclosures. Recently, courts and administrative agencies have been more actively involved in enforcing state laws governing foreclosures, and in some circumstances have imposed new rules and requirements regarding foreclosures. Some courts have delayed or prohibited foreclosures based on alleged failures to comply with proper transfers of title, notice, identification of parties in interest, documentation and other legal requirements. Further, foreclosed owners and their legal representatives, including some prominent and well-financed legal firms, have brought litigation questioning the validity and finality of foreclosures that have already occurred. These developments may slow or reduce the supply of foreclosed houses available to us for purchase and may call into question the validity of our title to houses acquired at foreclosure, or result in rescission rights or other borrower remedies, which could result in a loss of a property purchased by us that may not be covered by title insurance, an increase in litigation costs incurred with respect to properties obtained through foreclosure, or delays in stabilizing and leasing such properties promptly after acquisition.

Our underwriting criteria and evaluation of properties involves a number of assumptions that may prove inaccurate, which may cause us to overpay for our properties or incur significant costs to renovate and market a property.

In determining whether a particular property meets our investment criteria, we make a number of assumptions, including assumptions related to estimated time of possession and estimated renovation costs and time frames, annual operating costs, market rental rates and potential rent amounts, time from purchase to leasing and tenant default rates. These assumptions may prove inaccurate, causing us to pay too much for properties we acquire, overvalue our properties or our properties not to perform as we expect, and adjustments to the assumptions we make in evaluating potential purchases may result in fewer properties qualifying under our investment criteria. Improvements in the market prices for single-family homes in our target markets or decreases in the available inventory could also reduce the supply of properties that meet our investment criteria. Reductions in the supply of properties that meet our investment criteria may adversely affect our operating results and ability to implement our business plan.

Furthermore, the properties we acquire are likely to vary materially in terms of time to possession, renovation, quality and type of construction, location and hazards. Our success will depend on our ability to acquire properties that can be quickly possessed, renovated, repaired, upgraded and rented with minimal expense and keep them maintained in rentable condition. Our Manager's ability to identify and acquire such properties will be fundamental to our success.

In addition, the recent market and regulatory environments relating to single-family residential properties have been changing rapidly, making future trends difficult to forecast. For example, an increasing number of homeowners now wait for an eviction notice or eviction proceedings to commence before vacating foreclosed premises, which significantly increases the time period between the acquisition and leasing of a property. In recent months, approximately half of the properties we have acquired at auction have been occupied, requiring us to remove or evict the prior occupants before we begin our renovations. The accuracy of the assumptions we use in our underwriting criteria will affect our operating results.

The types of properties on which our acquisition strategy focuses have an increased risk of damage due to vandalism, mold and infestation, which may require extensive renovation prior to renting.

Our acquisition strategy predominately targets distressed single-family properties that often involve defaults by homeowners on their home loan obligations. For multiple reasons, distressed properties may be in worse physical condition than other similar properties. When homeowners fall behind on their mortgage payments, they may cease to maintain the property in good condition, vandalize it, or may

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abandon the property altogether. Vacant and neglected homes are subject to increased risks of vandalism, theft, mold, infestation, general deterioration and other maintenance problems that may worsen without appropriate attention and remediation. We generally will not hire independent third-party home inspectors to inspect properties before purchase and will instead rely primarily on the acquisition employees of our Manager's operating subsidiary to conduct detailed interior visual inspections when possible. Furthermore, although we intend to inspect our portfolio properties periodically, we may not become aware of conditions such as water infiltration, mold or infestation until significant damage has been done to our property requiring extensive remediation and repairs as well as providing substitute housing for a tenant.

Certain of our older properties may contain lead-based paint, which we may be required to remove or could expose us to liability, either of which would adversely affect our operating results.

Approximately 25% of the properties in the Initial Portfolio are over 30 years old, and those premises may contain lead-based paint. The existence of lead paint is especially a concern in residential units and can cause health problems, particularly for children. A structure built prior to 1978 may contain lead-based paint and may present a potential exposure to lead; however, structures built after 1978 are not likely to contain lead-based paint. Federal and state laws impose certain disclosure requirements and restrict and regulate renovation activities on housing built before 1978. Violation of these restrictions could result in fines or criminal liability, and we could be subject to liability arising from lawsuits alleging personal injury or related claims. Although we attempt to comply with all such regulations, we have not conducted tests on the properties in the Initial Portfolio to determine the presence of lead-based paint and we cannot guarantee that we will not incur any material liabilities as a result of the presence of lead paint in our properties.

A substantial portion of our properties are purchased at auction, where we generally are not able to conduct a thorough inspection before purchasing the properties, and we may not accurately assess the extent of renovations required.

Over 70% of the properties in our Initial Portfolio were purchased at auction, and we completed two bulk sales at which we purchased a total of approximately 120 properties. When we purchase properties at auction or in bulk sales, we generally do not have the opportunity to conduct interior inspections and may not be able to access a property to conduct more than the most cursory of exterior inspections. These inspection processes may fail to reveal major defects associated with properties we acquire, which may result in renovation and maintenance costs and time frames that far exceed our estimates and negatively affect our financial results and earnings.

The costs and time to secure possession and control of a newly acquired property may exceed our current assumptions, which would increase the costs and delay our receipt of revenue from the property.

Upon acquiring a new property, we may have to evict residents who are in unlawful possession before we can secure possession and control of the property. The holdover occupants may be the former owners or tenants of a property, or they may be squatters or others who are illegally in possession. Securing control and possession from these occupants can be both costly and time-consuming. If these costs and delays exceed our expectations in a large proportion of our newly acquired properties, our financial performance may suffer because of the increased expenses incurred or the unexpected delays in turning the properties into revenue-producing assets.

We may not have control over timing and costs arising from renovation of properties, which may adversely affect our earnings and distributable cash.

We expect that nearly all of our properties will require some level of renovation immediately upon their acquisition or in the future following expiration of a lease or otherwise. We may acquire

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properties that we plan to extensively renovate. We may also acquire properties that we expect to be in good condition only to discover unforeseen defects and problems that require extensive renovation and capital expenditures. In addition, we will be required to make ongoing capital improvements and replacements and may need to perform significant renovations from time to time to reposition properties in the rental market. Our homes will have infrastructure and appliances of varying ages and conditions. Consequently, we expect that our Manager will routinely retain independent contractors and trade professionals to perform physical repair work and we will be exposed to all of the risks inherent in property renovation, including potential cost overruns, increases in labor and materials costs, delays by contractors in completing work, delays in the timing of receiving necessary work permits, certificates of occupancy and poor workmanship. Although we do not expect that renovation difficulties on any individual property will be significant to our overall results, if our assumptions regarding the costs or timing of renovation across our portfolio prove to be materially inaccurate, our earnings and distributable cash may be adversely affected.

We may be subject to unknown or contingent liabilities or restrictions related to properties that we acquire for which we may have limited or no recourse.

Assets and entities that we have acquired or may acquire in the future, including the Initial Portfolio acquired upon acquisition of our Predecessor and the Provident Entities, may be subject to unknown or contingent liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for or with respect to liens attached to properties, unpaid real estate tax, utilities or homeowners' association, or HOA, charges for which a subsequent owner remains liable, clean-up or remediation of environmental conditions or code violations, claims of customers, vendors or other persons dealing with the acquired entities and tax liabilities, among other things. Purchases of single-family properties acquired at auction, in short sales, from lenders or in bulk purchases typically involve few or no representations or warranties with respect to the properties and may allow us limited or no recourse against the sellers of such properties. Such properties also often have unpaid tax, utility and HOA liabilities for which we may be obligated but fail to anticipate. As a result, the total amount of costs and expenses that we may incur with respect to liabilities associated with acquired properties and entities may exceed our expectations, which may adversely affect our operating results and financial condition. Additionally, these properties may be subject to covenants, conditions or restrictions that restrict the use or ownership of such properties, including prohibitions on leasing or requirements to obtain the approval of HOAs prior to leasing. We may not discover such restrictions during the acquisition process and such restrictions may adversely affect our ability to operate such properties as we intend.

Our operating performance is subject to risks associated with the real estate industry that could reduce the rent we receive, decrease the value of our properties and adversely affect our financial condition.

Real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond our control. Certain events may decrease cash available for dividends as well as the value of our properties. These events include:

•: adverse changes in national or local real estate, economic and demographic conditions;
•: vacancies or our inability to rent our homes on favorable terms or at favorable rental rates;
•: adverse changes in financial conditions of buyers, sellers and tenants of properties;
•: inability to collect rent from tenants;
•: reduced demand for single-family home rentals and changes in the relative popularity of properties and neighborhoods;
•: increased supply of single-family homes and availability of financing;

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•: increases in expenses, including insurance costs, labor costs, energy prices, real estate assessments and other taxes and costs of compliance with laws, regulations and governmental policies to the extent that we are unable to pass on these increases to our tenants;
•: the effects of rent controls, stabilization laws and other laws or covenants regulating rental rates; and
•: changes in, and changes in enforcement of, laws, regulations and governmental policies, including health, safety, environmental, rental property, zoning and tax laws, governmental fiscal policies and the Americans with Disabilities Act of 1990.

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If we cannot operate our properties to meet our financial expectations, our financial condition, results of operations, cash flow, per share trading price of our common stock, ability to satisfy our debt service obligations and ability to pay dividends to you could be adversely affected.

Short-term leases of residential property may expose us to the effects of declining market rents.

We anticipate that substantially all of our leases will be of a duration of less than two years and will be one year in the majority of cases. As these leases permit the residents to leave at the end of the lease term without penalty, we anticipate our rental revenues may be affected by declines in market rents more quickly than if our leases were for longer terms. Short-term leases may result in high turnover, which involves costs such as restoring the properties, marketing costs and lower occupancy levels. Because we have no track record, we cannot accurately predict our turnover rate or the associated costs we will incur.

Our revenue and expenses are not directly correlated, and because a large percentage of our costs and expenses are fixed, we may not be able to adapt our cost structure to offset declines in our revenue.

Most of the expenses associated with our business, such as acquisition costs, renovation and maintenance costs, real estate taxes, HOA fees, personal and ad valorem taxes, insurance, utilities, employee wages and benefits and other general corporate expenses are fixed and do not necessarily decrease with a reduction in revenue from our business. Our assets are also prone to depreciation and will require a significant amount of ongoing capital expenditures. Our expenses and ongoing capital expenditures will also be affected by inflationary increases and certain of our cost increases may exceed the rate of inflation in any given period. By contrast, as described above, our rental income will be affected by many factors beyond our control such as the availability of alternative rental housing and economic conditions in our target markets. As a result, we may not be able to fully offset rising costs and capital spending by higher lease rates, which could have a material adverse effect on our results of operations and cash available for distribution. In addition, state and local regulations may require us to maintain properties that we own, even if the cost of maintenance is greater than the value of the property or any potential benefit from renting the property.

Our portfolio consists of properties geographically concentrated in certain markets and any adverse developments in local economic conditions, the demand for single-family rental homes in these markets or natural disasters may negatively affect our operating results.

Our portfolio consists of properties geographically concentrated in Arizona, California, Florida, Georgia, Nevada, North Carolina and Texas. As such, we are susceptible to local economic conditions, other regulations, the supply of and demand for single-family rental properties and natural disasters in these areas. If there is a downturn in the economy, an oversupply of or decrease in demand for single-family rental properties in these markets or natural disasters in these geographical areas, our business

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could be materially adversely affected to a greater extent than if we owned a real estate portfolio that was more geographically diversified. Many of our initial properties are located in markets that have experienced a significant decline in home prices and it may take longer for housing prices to recover in those markets.

A significant number of our residential properties are part of HOAs and we and our tenants are subject to the rules and regulations of such HOAs, which may be arbitrary or restrictive, and violations of such rules may subject us to additional fees and penalties and litigation with such HOAs which would be costly.

A significant number of the properties in our portfolio are located within HOAs, which are private entities that regulate the activities of and levy assessments on properties in a residential subdivision. HOAs in which we own properties may have or enact onerous or arbitrary rules that restrict our ability to renovate, market or lease our properties or require us to renovate or maintain such properties at standards or costs that are in excess of our planned operating budgets. Such rules may include requirements for landscaping, limitations on signage promoting a property for lease or sale, or the use of specific construction materials be used in renovations. Some HOAs also impose limits on the number of property owners who may rent their homes, which if met or exceeded, would cause us to incur additional costs to resell the property and opportunity costs of lost rental income. Furthermore, many HOAs impose restrictions on the conduct of occupants of homes and the use of common areas and we may have tenants who violate HOA rules and for which we may be liable as the property owner. Additionally, the boards of directors of the HOAs in which we own property may not make important disclosures about the properties or may block our access to HOA records, initiate litigation, restrict our ability to sell our properties, impose assessments or arbitrarily change the HOA rules. We may be unaware of or unable to review or comply with HOA rules before purchasing the property and any such excessively restrictive or arbitrary regulations may cause us to sell such property at a loss, prevent us from renting such property or otherwise reduce our cash flow from such property, which would have an adverse effect on our returns on these properties.

We may be subject to losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.

Our properties may be damaged by adverse weather conditions and natural disasters such as earthquakes, tsunamis, wind, floods, landslides and fires. In addition, our properties may be subject to environmental liabilities and we will be exposed to personal liability for accidents which may occur on our properties. Our insurance may not be adequate to cover all damages or losses from these events, or it may not be economically prudent to purchase insurance for certain types of losses, such as hurricanes or earthquakes. As a result, we may be required to incur significant costs in the event of adverse weather conditions and natural disasters or events which result in environmental or personal liability. We may not carry or may discontinue certain types of insurance coverage on some or all of our properties in the future if the cost of premiums for any of these policies in our judgment exceeds the value of the coverage discounted for the risk of loss. Because we tend to concentrate ownership in target markets, if we own numerous properties in a geographic area affected by a natural disaster or similar catastrophic event, it could damage or destroy a substantial portion of our real estate assets, and expose us to liabilities to our affected tenants to immediately repair or replace their leaseholds on non-economic terms. If we experience losses that are uninsured or exceed policy limits, we could incur significant uninsured costs or liabilities, lose the capital invested in the properties, and lose the anticipated future cash flows from those properties. In addition, our environmental or personal liability may result in losses substantially in excess of the value of the related property.

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Compliance with new or existing laws, regulations and covenants that are applicable to our properties, including permit, license and zoning requirements, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy.

Our properties are subject to various covenants and local laws and regulatory requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers or HOAs, may restrict our use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and safety, seismic, asbestos cleanup or hazardous material abatement requirements. We cannot assure you that existing regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that would increase such delays or result in additional costs. Our failure to obtain permits, licenses and zoning approvals on a timely basis could have a material adverse effect on our business, financial condition and results of operations.

We are subject to tenant relief laws and may be subject to rent control laws, which will negatively impact our rental income and profitability.

Distressed properties that we purchase at auction are often occupied and may require us to evict the prior occupant of the premises. As landlord of numerous properties, we will also regularly be in the situation of having to evict tenants who are not paying their rent or are otherwise in material violation of the terms of their lease. Eviction activities will impose legal and managerial expenses that will raise our costs. The eviction process is typically subject to legal barriers, mandatory "cure" policies and other sources of expense and delay, each of which may delay our ability to gain possession and stabilize the property. Additionally, state and local landlord-tenant laws may impose legal duties to assist tenants in relocating to new housing, or restrict the landlord's ability to recover certain costs or charge tenants for damage tenants cause to the landlord's premises. Because such laws vary by state and locality, our regional and local property managers will need to be familiar with and take all appropriate steps to comply with all applicable landlord-tenant laws, and we will need to incur supervisory and legal expenses to insure such compliance. To the extent that we do not comply with state or local laws, we may be subjected to civil litigation filed by individuals, in class actions or by state or local law enforcement. We may be required to pay our adversaries' litigation fees and expenses if judgment is entered against us in such litigation, or if we settle such litigation.

Furthermore, rent control laws may affect our rental income. Especially in times of recession and economic slowdown, rent control initiatives can acquire significant political support. Were rent control to unexpectedly become applicable to certain of our properties, the effects on both our rental income and the value of such properties could be material and adverse.

Class action, tenant rights and consumer demands and litigation may result in increased expenses and harm our financial results.

There are numerous tenants' rights and consumer rights organizations throughout the country that operate in our target markets, and as we grow in scale, we may attract attention from some of these organizations and become a target of legal demands or litigation. Many such consumer organizations have become more active and better funded in connection with mortgage foreclosure-related issues, and with the large settlements identified above and the increased market for single-family rentals arising from displaced homeownership, some of these organizations may shift their litigation, lobbying, fundraising and grass roots organizing activities to focus on landlord-tenant issues. While we intend to conduct our business lawfully and in compliance with applicable landlord-tenant and consumer laws, such organizations might work in conjunction with trial and pro bono lawyers in one state or multiple

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states to attempt to bring claims against us on a class action basis for damages or injunctive relief. We cannot anticipate what form such legal actions might take, or what remedies they may seek. Additionally, these organizations may lobby local county and municipal attorneys or state attorneys general to pursue enforcement or litigation against us, or may lobby state and local legislatures to pass new laws and regulations to constrain our business operations. If they are successful in any such endeavors, they could directly limit and constrain our business operations, and may impose on us significant litigation expenses, including settlements to avoid continued litigation or judgments for damages or injunctions.

Poor tenant selection and defaults by renters may negatively affect our financial performance and reputation.

Our success will depend in large part upon our ability to attract and retain qualified tenants for our properties. This will depend, in turn, upon our ability to screen applicants, identify good tenants and avoid tenants who may default. We will inevitably make mistakes in our selection of tenants, and we may rent to tenants whose default on our leases or failure to comply with the terms of the lease or HOA regulations negatively affect our financial performance, reputation and the quality and value of our properties. For example, tenants may default on payment of rent, make unreasonable and repeated demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, make use of our properties for illegal purposes, damage or make unauthorized structural changes to our properties which may not be fully covered by security deposits, refuse to leave the property when the lease is terminated, engage in domestic violence or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with HOA regulations, sublet to less desirable individuals in violation of our leases, or permit unauthorized persons to live with them. In addition, defaulting renters of our residential real properties will often be effectively judgment-proof. The process of evicting a defaulting renter from a family residence can be adversarial, protracted and costly. Furthermore, some tenants facing eviction may damage or destroy the property. Damage to our properties may significantly delay re-leasing after eviction, necessitate expensive repairs or impair the rental income or value of the property, resulting in a lower than expected rate of return. In addition, we will incur turnover costs associated with re-leasing the properties such as marketing and brokerage commissions and will not collect revenue while the property sits vacant. Although our Manager will attempt to work with tenants to prevent such damage or destruction, there can be no assurance that our Manager will be successful in all or most cases. Such tenants will not only cause us not to achieve our financial objectives for the properties in which they live, but may subject us to liability, and may damage our reputation with our other tenants and in the communities where we do business.

Declining real estate valuations and impairment charges could adversely affect our earnings and financial condition.

Our success will depend upon our ability to acquire rental properties at attractive valuations, such that we can earn a satisfactory return on the investment primarily through rental income and secondarily through increases in the value of the properties. If we overpay for properties or if their value subsequently drops or fails to rise because of market factors, we will not achieve our financial objectives.

We will periodically review the value of our properties to determine whether their value, based on market factors, projected income and generally accepted accounting principles, has permanently decreased such that it is necessary or appropriate to take an impairment loss in the relevant accounting period. Such a loss would cause an immediate reduction of net income in the applicable accounting period and would be reflected in a decrease in our balance sheet assets. The reduction of net income from an impairment loss could lead to a reduction in our dividends, both in the relevant accounting period and in future periods. Even if we do not determine that it is necessary or appropriate to record an impairment loss, a reduction in the intrinsic value of a property would become manifest over time

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through reduced income from the property and would therefore affect our earnings and financial condition.

A prolonged economic slowdown or a lengthy or severe recession or stagnation or decline in home values could impair our assets and harm our operations.

The risks associated with our business are more severe during periods of economic slowdown or recession. For example, the ability of tenants to pay their rent typically depends on the income or assets of the tenant. During an economic slowdown, unemployment rises and increasing numbers of tenants have difficulty making payments on their obligations, including rent. Any sustained period of increased payment delinquencies or defaults could adversely affect our revenues, results of operations, financial condition, business prospects and ability to make distributions to stockholders. Thus any prolonged economic slowdown or a lengthy or severe recession, whether caused by global unrest, acts or threats of terrorism, breakdowns in the financial system or otherwise, could impair our assets or the performance of our assets and harm our operations.

Title defects and eminent domain could lead to material losses on our investments in our target assets.

Although we currently intend to acquire title insurance on the majority of our residential properties when it is available, we will also acquire a number of our homes on an "as is" basis at auctions, without the benefit of title insurance prior to closing. Increased scrutiny of title matters, particularly in the case of foreclosures, could lead to legal challenges with respect to the validity of the sale. In the absence of title insurance, the sale may be rescinded and we may be unable to recover our purchase price, resulting in a complete loss. Title insurance obtained subsequent to purchase offers little protection against discoverable defects as they are typically excluded from such policies. Although our Manager will implement policies, procedures and practices to assess the state of title prior to purchase, there can be no assurance that these policies and procedures will be completely effective, which could lead to a material if not complete loss on our investment in such properties. In addition, even if we are able to acquire title insurance on a property, the insurance may not cover all defects and/or the significant legal costs associated with obtaining clear title.

Our title to a property, especially those acquired at auction, may be challenged for a variety of reasons including allegations of defects in the foreclosure process. Title insurance may not prove adequate in these instances.

It is also possible that governmental authorities may exercise eminent domain to acquire land on which our properties are built in order to build roads and other infrastructure. Any such exercise of eminent domain would allow us to recover only the fair value of the affected properties. Our acquisition strategy is premised on the concept that this "fair value" will be substantially less than the real value of the property for a number of years, and we could effectively have no profit potential from properties acquired by the government through eminent domain. Several cities are also exploring proposals to use eminent domain to acquire mortgages to assist homeowners to remain in their homes, potentially reducing the supply of single-family properties in our markets.

We anticipate being involved in a variety of legal actions and administrative proceedings as a result of which we may incur significant costs.

We anticipate involvement in a variety of legal actions and administrative proceedings that arise from time to time in the ordinary course of business. In addition, as a result of the Formation Transactions, we expect to assume responsibility for various legal actions and administrative proceedings that may be in process on the date of closing. These matters may include eviction proceedings and other landlord-tenant disputes, challenges to title and ownership rights (including actions brought by prior owners alleging wrongful foreclosure by their lender or servicer), and issues with local housing

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officials arising from the condition or maintenance of the property. While we intend to vigorously defend any non-meritorious claim or proceeding, no assurance can be given that we will not incur significant costs or be subject to material losses as a result.

Increasing real estate taxes, HOA fees and insurance costs may negatively impact our financial results.

As a result of our substantial real estate holdings, the cost of real estate taxes and insuring our properties is a significant component of our expenses. In addition, a substantial portion of the properties in the Initial Portfolio are subject to HOAs, which have the power to increase monthly charges and make assessments for capital improvements and common area repairs. Real estate taxes, HOA fees and insurance premiums are subject to significant increases, which can be outside of our control. If the costs associated with real estate taxes, HOA fees and assessments or insurance should rise significantly and we are unable to raise rents to offset such increases, our results of operations would be negatively impacted.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business we acquire and store sensitive data, including intellectual property, our proprietary business information and personally identifiable information of our prospective and current tenants, our employees and third-party service providers in our branch offices and on our networks and website. The secure processing and maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, which could adversely affect our results of operations and competitive position.

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We may be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting.

We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, investors could lose confidence in the accuracy and completeness of our financial

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reports, which could cause the price of our common stock to decline, and we may become subject to investigation or sanctions by the SEC. We will be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, if we take advantage of the exemptions contained in the JOBS Act. We will remain an "emerging growth company" for up to five years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an "emerging growth company" as of the following December 31. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. In addition, to comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

We may not be able to effectively manage our growth, which requires significant resources, and our results may be adversely affected.

Over 75% of the assets in the portfolio to be acquired by us in the Formation Transactions were purchased by our Predecessor and the Provident Entities within the past 12 months. After the consummation of this offering, we plan to continue our rapid acquisition strategy, which will demand significant resources and attention from our Manager and may affect our financial performance. Our future operating results depend on our ability to effectively manage this rapid growth, which is dependent, in part, upon the ability of our Manager to:

•: stabilize and manage a rapidly increasing number of properties and tenant relationships while maintaining a high level of customer service and building and enhancing our brand;
•: identify and supervise an increasing number of suitable third parties on which our Manager relies to provide certain services to our properties;
•: continue to improve our operational and financial controls and reporting procedures and systems; and
•: scale our technology and other infrastructure platforms to adequately service new properties.

We cannot assure you that our Manager will be able to achieve these results or that we may otherwise be able to manage our growth effectively. Any failure to do so may have an adverse effect on our business and financial results.

There are risks inherent in the Formation Transactions that may adversely affect the value of our properties.

We set the fair market value of the properties to be acquired in the Formation Transactions based on a number of estimates and assumptions. We did not obtain opinions of fair value from independent third-party appraisers for these properties. Our estimates and assumptions may prove incorrect or there may be unknown or unforeseen liabilities associated with these properties that could result in the fair market value of the properties being materially lower than our estimate.

Additionally, if we suffer harm as a result of our Predecessor or the Provident Entities breaching any of the representations, warranties or covenants made by them in the documents governing the Formation Transactions, we may not be fully indemnified or have other recourse against them. Further, to the extent that we do have any claims at law or equity against them for such breaches, we cannot assure you that we will be able to obtain or enforce a judgment in our favor. Therefore, any breaches

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of their representations, warranties or covenants could adversely affect the value of the properties that we acquire in the Formation Transactions and our financial results.

Our financial results in the period or periods immediately following the consummation of this offering may not be reflective of our earnings potential and may cause our stock price to decline.

Our financial results in the fiscal periods immediately following the consummation of this offering may not be representative of our future potential. Until we are able to fully deploy the proceeds of this offering, we will invest such funds in interest-bearing accounts and short-term, interest-bearing securities, with lower yield than we would expect to receive once these funds have been fully invested in our core single-family residential properties. In addition, since a significant portion of our Initial Portfolio was acquired within the past 12 months and we expect to experience rapid growth following this offering, we will have a greater percentage of our portfolio invested in assets in the process of stabilization than we would expect to have as a more mature operation. It will take time and significant cash resources to renovate, reposition and lease these properties in the process of stabilization. As a result, newly acquired properties will remain unproductive for some period of time following the offering and will reduce our overall financial performance. Our Manager will also incur additional reimbursable expenses to expand our operations, systems and infrastructure to support our growth. If we experience lower-than-expected financial results, our stock price and the value of your investment may decline.

In addition, future equity or debt financings may impact our financial results in the fiscal periods following such financings for the same reasons listed above, which may similarly cause our stock price and the value of your investment to decline.

Risks Related to Our Relationship with Our Manager

We are dependent upon our Manager, our Manager's operating subsidiary and their key personnel, who provide services to us through the management agreement and the property management and acquisition services agreement, and we may not find suitable replacements if these agreements are terminated or these key personnel leave our Manager or our Manager's operating subsidiary or otherwise become unavailable to us.

We have no employees and no separate facilities. Instead, we are completely dependent upon our Manager and our Manager's operating subsidiary, which have significant discretion as to the implementation and execution of our investment and operating policies and business strategies. Our success will depend upon the efforts, experience, diligence, skill and network of business contacts of the officers and key personnel of our Manager and our Manager's operating subsidiary. The departure of any of the officers or key personnel of our Manager or our Manager's operating subsidiary could have a material adverse effect on our performance.

Our Manager and our Manager's operating subsidiary will not be obligated to dedicate any specific personnel exclusively to us. Some of the officers of our Manager or Manager's operating subsidiary have significant responsibilities for the other business of Pine River and as a result, these individuals may not always be willing or able to devote sufficient time to the management of our business.

The initial terms of the management agreement with our Manager and the property management and acquisition services agreement with our Manager's operating subsidiary only extend until three years and one year after the close of this offering, respectively. If these agreements are terminated and no suitable replacement is found to manage us, we may not be able to execute our business plan.

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We are dependent upon Pine River and its personnel, but cannot be assured of their continuing availability.

Our Manager will, concurrently with the consummation of this offering, enter into a shared services and facilities agreement with Pine River pursuant to which Pine River provides our Manager with a portion of our Manager's personnel, services and resources necessary for our Manager to perform its obligations and responsibilities under the management agreement. Because we will not be a party to the shared services and facilities agreement, we will not have any recourse against Pine River if it does not fulfill its obligations under the shared services and facilities agreement or if Pine River and our Manager choose to amend or terminate the shared services and facilities agreement.

Our Manager and certain of its affiliates may have interests that diverge from the interests of our stockholders.

We are subject to conflicts of interest arising out of our relationship with our Manager, our Manager's operating subsidiary, Pine River, Provident and each of their affiliates. Our Manager is a joint venture owned by Pine River and Provident. Each of Brian C. Taylor (a director nominee), Thomas Siering (a director nominee) and Timothy O'Brien (our General Counsel and Secretary) is a partner and owner of equity interests in Pine River. Irvin R. Kessler (a director nominee) is the managing member and owner of equity interests in Provident. These individuals, as well as our other executive officers and the employees of our Manager and its affiliates on whom we rely, could make substantial profits as a result of investment opportunities allocated to entities other than us. As a result, these individuals could pursue transactions that may not be in our best interest, which could have a material adverse effect on our operations and your investment.

After the end of the exclusivity periods with our Manager and our Manager's operating subsidiary, our Manager and our Manager's operating subsidiary may manage other single-family real estate portfolios, which may result in certain conflicts of interest that could have an adverse effect on our business.

The management agreement and the property management and acquisition services agreement each provide that our Manager and our Manager's operating subsidiary, as applicable, may only manage single family real estate portfolios that are owned by us, our subsidiaries and any future joint venture in which we are an investor prior to the third anniversary of this offering. After the expiration of this exclusivity period, however, our Manager and our Manager's operating subsidiary will be free to manage single-family real estate portfolios owned by others. Our Manager and our Manager's operating subsidiary have developed and will continue to develop expertise, systems and relationships with third parties with respect to the acquisition, management and leasing of single-family real estate in our target markets. If our Manager and our Manager's operating subsidiary or another entity affiliated with these individuals were to manage other residential assets in the future, they may leverage the expertise and skills garnered as our Manager or our Manager's operating subsidiary to compete directly with us for acquisition opportunities, financing opportunities, tenants and in other aspects of our business, which could have an adverse effect on our business. Neither our Manager nor our Manager's operating subsidiary have any fiduciary duties to us and there is no assurance that any conflicts of interest will be resolved in favor of our stockholders.

In contrast to many publicly traded REITs owning more traditional real estate asset classes or real estate-related securities portfolios, we believe that the success of our business will require a significantly higher level of hands-on day-to-day attention from our Manager and our Manager's operating subsidiary. If our Manager and our Manager's operating subsidiary were to manage other residential assets in the future, they will have less time available to devote to our business and may be unable to effectively allocate their time and other resources among multiple portfolios. Accordingly, the quality of services provided to us by our Manager or our Manager's operating subsidiary could decline, which could adversely impact all aspects of our business, including our growth prospects, tenant retention, occupancy and/or our results of operations.

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The management agreement with our Manager and the property management and acquisition services agreement with our Manager's operating subsidiary were not negotiated on an arm's-length basis and may not be as favorable to us as if they had been negotiated with unaffiliated third parties.

The management agreement with our Manager and the property management and acquisition services agreement with our Manager's operating subsidiary were negotiated between related parties, and their terms, including fees payable to our Manager and our Manager's operating subsidiary, may not be as favorable to us as if they had been negotiated with unaffiliated third parties. The terms of these agreements and similar agreements may not solely reflect your best interest and may be overly favorable to the other party to such agreements including in terms of the substantial compensation to be paid to these parties under these agreements. Further, we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement or the property management and acquisition services agreement because of our desire to maintain our ongoing relationships with our Manager, our Manager's operating subsidiary, Pine River and Provident.

Our Manager may assign its obligations under the management agreement to its affiliates, who may not have the same expertise or provide the same level of service as our Manager.

Under the management agreement, our Manager may subcontract and assign its responsibilities under the agreement to any of its affiliates, or it may assign the management agreement to any of its affiliates without the approval of our independent directors. Although our Manager has informed us that it has no current intention to effect such an assignment, if there is such an assignment or transfer, the assignee may not have comparable operational expertise, have sufficient personnel, or manage our company as well as our Manager.

Under our management agreement, our Manager has a contractually defined duty to us rather than a fiduciary duty, which may cause our Manager to devote fewer resources to managing us than if it had a statutory duty.

Under the management agreement, our Manager maintains a contractual as opposed to a fiduciary relationship with us which limits our Manager's obligations to us to those specifically set forth in the management agreement. The ability of our Manager (or its personnel) and its officers and employees to engage in other business activities may reduce the time our Manager spends managing us. In addition, unlike for directors, there is no statutory standard of conduct under the Maryland General Corporation Law, or the MGCL, for officers of a Maryland corporation. Instead, officers of a Maryland corporation, including officers who are employees of our Manager, are subject to general agency principals, including the exercise of reasonable care and skill in the performance of their responsibilities, as well as the duties of loyalty, good faith and candid disclosure.

Our Manager and its employees and members have a conflict of interest because the advisory management fee is based on our fully diluted market capitalization, not our financial performance, and because our Manager passes through most of its costs and expenses to us regardless of performance or efficiency.

In contrast to other asset and property managers that receive a fee based on assets or properties under management or a success fee based on financial performance, our Manager is entitled to receive an advisory management fee that is based on the market capitalization of our common stock at the end of each quarter, regardless of our financial performance. Accordingly, significant advisory management fees will be payable to our Manager even if we experience net losses. The advisory management fee structure gives our Manager the incentive to maximize market capitalization by the issuance of new common stock and the expansion of our scale of operations, regardless of the effect of this action on existing stockholders. In other words, the advisory management fee structure rewards our Manager primarily based on the equity value of Silver Bay, and not based on our returns to stockholders. Our advisory management fee structure would reward our Manager for issuances of common stock in the

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future, even if the net proceeds of such offerings cannot be invested in single-family properties with attractive yield characteristics. Any such offering would dilute our earnings and reduce distributions to our then-existing stockholders, but would provide economic benefits to our Manager. In addition, our Manager will have an economic incentive to fund future growth through the issuance of equity capital as opposed to employing leverage. Although the use of leverage would be expected to increase returns on equity, which might make our stock price rise and, consequently, increase our market capitalization, debt financing would not be expected to have nearly the same direct and immediate impact on advisory management fees as equity financing.

In addition to the risk that our Manager may have financial incentives to take actions that are contrary to the interests of our stockholders, there is a risk that our advisory management fee structure will not provide adequate incentives to ensure that our Manager will devote its time and efforts to contain costs and maximize distributable cash. Because market capitalization can be increased through additional sales of common stock at reduced prices that provide new investors with an appropriate yield, there is a significant risk that our Manager could receive higher levels of compensation despite a failure to maximize distributable cash or achieve an attractive yield for the investors in this offering.

Pursuant to the management agreement we must pay all costs and expenses of our Manager incurred in providing services to us except for certain expressly defined employee costs. Pursuant to the property management and acquisition services agreement, we must pay all costs and expenses incurred on our behalf in the operation of our Manager's operating subsidiary, including all personnel costs. The right of our Manager and our Manager's operating subsidiary to such reimbursement reduces their incentive to negotiate favorable contracts with third parties and minimize costs and expenses in operating our business, which could negatively affect our financial results.

Our management agreement requires us to pay our Manager a substantial fee in the event of a termination of the management agreement, which may adversely affect our inclination to end our relationship with our Manager.

Termination of the management agreement with our Manager without cause is difficult and costly. The term "cause" is limited to certain specifically described circumstances. The management agreement provides that, in the absence of cause, we may only terminate it upon the vote of at least two-thirds of all of our independent directors and after giving 180 days' notice and providing our Manager with an opportunity to remedy any unsatisfactory performance.

Additionally, upon a termination by us without cause (or upon a termination by our Manager due to our material breach), the management agreement requires us to pay our Manager a termination payment equal to 4.5% of the daily average of our fully diluted market capitalization in the quarter preceding such termination. This provision increases the effective cost to us of terminating our relationship with our Manager, even if we believe that our Manager's performance is not satisfactory.

Our Manager is only contractually committed to serve us until the third anniversary of the closing of this offering. Thereafter, the management agreement is renewable on an annual basis; provided, however, that our Manager may terminate the management agreement annually upon 180 days' prior notice. If the management agreement is terminated and no suitable replacement is found to manage us, we may not be able to execute our business plan.

The liability of our Manager, Pine River and Provident are limited under the management agreement, and we have agreed to indemnify our Manager and its affiliates and advisers, including Pine River and Provident, against certain liabilities. As a result, we could experience poor performance or losses for which our Manager, Pine River and Provident would not be liable.

Pursuant to the management agreement, our Manager does not assume any responsibility other than to render the services called for thereunder and will not be responsible for any action of our

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board of directors in following or declining to follow its advice or recommendations. Our Manager and its officers, stockholders, members, managers, personnel and directors, any person controlling or controlled by our Manager and any person providing sub-advisory services to our Manager (which include Pine River and Provident) will not be liable to us, any of our subsidiaries, any of our directors, stockholders or partners or any subsidiary's stockholders, members or partners for acts or omissions performed in accordance with or pursuant to the management agreement, except by reason of acts constituting reckless disregard of our Manager's duties under the management agreement that have a material adverse effect on us, bad faith, fraud, willful misconduct or gross negligence, as determined by a final non-appealable order of a court of competent jurisdiction. We have agreed to indemnify our Manager and its affiliates, including Pine River and Provident, with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts or omissions of such indemnified parties not constituting reckless disregard of our Manager' duties under the management agreement that have a material adverse effect on us, bad faith, fraud, willful misconduct or gross negligence. As a result, if we experience poor performance or losses, our Manager would not be liable.

We expect our board of directors to approve very broad investment guidelines and not review or approve each acquisition decision made by our Manager.

Our board of directors will periodically review and update our investment guidelines and will also review our portfolio of residential real estate and short-term investments, but it will not review or approve specific property acquisitions. Our Manager has great latitude within the broad parameters of the investment guidelines set by our board of directors in determining our acquisition strategies, which could result in net returns that are substantially below expectations or that result in material losses.

Our board of directors may change any of our strategy or investment guidelines, financing strategy or leverage policies without stockholder consent.

Our board of directors may change any of our strategies, policies or procedures with respect to property acquisitions and divestitures, asset allocation, growth, operations, indebtedness, financing and distributions at any time without the consent of stockholders, which could result in our acquiring properties that are different from, and possibly riskier than, the types of single-family residential real estate investments described in this prospectus. These changes could adversely affect our financial condition, risk profile, results of operations, the market price of our common stock and our ability to make distributions to stockholders.

Risks Related to Our Common Stock

There is no public market for our common stock and a market may never develop, which could cause our common stock to trade at a discount and make it difficult for holders of our common stock to sell their shares.

Our shares of common stock are newly issued securities for which there is no established trading market. We have applied to list our common stock on the NYSE under the trading symbol "SBY." However, there can be no assurance that such listing will be approved or, if approved, that an active trading market for our common stock will develop, or if one develops, be maintained. Accordingly, no assurance can be given as to the ability of our stockholders to sell their common stock or the price that our stockholders may obtain for their common stock.

Some of the factors that could negatively affect the market price of our common stock include:

•: our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects;

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•: actual or perceived conflicts of interest with our Manager, our Manager's operating subsidiary or their affiliates and individuals, including our executives;
•: equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur;
•: actual or anticipated accounting problems;
•: publication of research reports about us or the real estate industry;
•: changes in market valuations of similar companies;
•: adverse market reaction to any increased indebtedness we incur in the future;
•: additions to or departures of our Manager's or our Manager's operating subsidiary's key personnel;
•: speculation in the press or investment community;
•: our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts;
•: increases in market interest rates, which may lead investors to seek alternative investments paying higher dividends or interest, or to demand a higher distribution yield for our common stock, if we have begun to make distributions to our stockholders, and would result in increased interest expense on our variable rate debt, if any;
•: failure to maintain our REIT qualification;
•: price and volume fluctuations in the stock market generally; and
•: general market and economic conditions, including the current state of the credit and capital markets.

Sales of common stock in the future may have adverse effects on our share price.

Subject to applicable law, our board of directors has the authority, without further stockholder approval, to issue additional authorized shares of common stock and preferred stock (or securities which are convertible or exchangeable for common stock or preferred stock) on the terms and for the consideration it deems appropriate. We cannot predict the effect, if any, of future sales of our common stock, or the effect, if any, of the availability of shares for future sales, on the market price of our common stock. We may expand the scale of our operations and may utilize the proceeds of future equity offerings to accomplish that strategy. To the extent the proceeds of any future equity offering are invested in residential assets that have less favorable yield characteristics than our then existing portfolio, our stockholders will suffer dilution in their yield and distributable cash per share.

As of the closing of this offering, Two Harbors, the Prior Provident Investors and their respective affiliates will beneficially own an aggregate of 23,962,368 shares of our common stock, or approximately 64.1% of the company after giving effect to the offering and the Formation Transactions. Shares distributed or issued to Two Harbors stockholders or Prior Provident Investors will be subject to a 90-day lock-up period, except for shares distributed or issued to our directors and officers, which will be subject to a 180-day lock-up period, and shares distributed or issued to Irvin R. Kessler or any partners of Pine River, which will be subject to a one-year lock-up period, subject to certain exceptions. Following such distributions, these shares will be freely transferable without restriction. The market price of our common stock may decline significantly when the restrictions on resale by certain of our stockholders lapse. Sales of substantial amounts of common stock or the perception that such sales could occur may adversely affect the prevailing market price for our common stock.

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We have not established a minimum distribution payment level and we cannot assure you of our ability to pay distributions in the future.

We are generally required to distribute to our stockholders at least 90% of our taxable income each year for us to qualify as a REIT under the Internal Revenue Code, or the Code, which requirement we currently intend to satisfy through quarterly cash distributions of all or substantially all of our REIT taxable income in such year, subject to certain adjustments. We have not established a minimum distribution payment level and our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this prospectus. All distributions will be made at the discretion of our board of directors and will depend on our earnings, financial condition, maintenance of our REIT qualification and other factors that our board of directors may deem relevant from time to time. As a result, no assurance can be given that we will be able to make distributions to our stockholders at any time or that the level of any distributions will achieve any specific market yield or will increase or be maintained over time. Any failure to achieve expected distributions could materially and adversely affect the price of our common stock.

We may use a portion of the net proceeds from this offering to make distributions, which would, among other things, reduce our cash available for investing.

Prior to the time we have fully invested the net proceeds of this offering or are generating positive cash flow from operations, we may fund our quarterly distributions out of the net proceeds of the offering, which would reduce the amount of cash we have available for investing and other purposes. Although we currently do not intend to use the proceeds from this offering to make distributions to our stockholders, if we do, such distributions could be dilutive to our financial results. In addition, funding our distributions from our net proceeds may constitute a return of capital to our investors, which would have the effect of reducing each stockholder's basis in its shares of our common stock.

We may employ leverage in the future which could expose us to additional risks, may impair our ability to pay dividends and may adversely affect the market price of our common stock.

If we incur indebtedness in the future to fund our growth or operations, it is likely that the instruments governing such indebtedness will contain covenants restricting our operating flexibility. We may incur debt that is secured by all or a portion of the residences in our portfolio. We will bear the costs and fees associated with any such incurrence and ongoing interest expense that will reduce the amount of funds available to common stockholders. Because our decision to issue debt will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future incurrence and any such incurrence could reduce the market price of our common stock.

We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We currently qualify as an "emerging growth company" as defined in the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

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Risks Related to Our Organization and Structure

Certain provisions of Maryland law could inhibit changes in control, preventing our stockholders from realizing a potential premium over the market price of our stock in a proposed acquisition.

Certain provisions of the MGCL may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock. We are subject to the "business combination" provisions of the MGCL that, subject to limitations, prohibit certain business combinations (including a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities) between us and an "interested stockholder" (defined generally as any person who beneficially owns 10% or more of our then outstanding voting capital stock or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting capital stock, provided that our board of directors did not approve in advance the transaction by which the stockholders otherwise would have become an interested stockholder) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder. After the five-year prohibition, any business combination between us and an interested stockholder generally must be recommended by our board of directors and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding shares of our voting capital stock; and (2) two-thirds of the votes entitled to be cast by holders of voting capital stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These super-majority vote requirements do not apply if our common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has by resolution exempted business combinations between us and any other person, provided that such business combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such person), and between us and Pine River, Provident, Two Harbors, or any of their respective affiliates, without the need for additional board approval. See "Certain Provisions of the Maryland General Corporation Law and Our Charter and Bylaws—Business Combinations."

The "control share" provisions of the MGCL provide that "control shares" of a Maryland corporation (defined as shares which, when aggregated with other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of "control shares") have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquiror of control shares, our officers and our personnel who are also our directors. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. There can be no assurance that this provision will not be amended or eliminated at any time in the future. See "Certain Provisions of the Maryland General Corporation Law and Our Charter and Bylaws—Control Share Acquisitions."

The "unsolicited takeover" provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain provisions if we have a class of equity securities registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act (which we will have upon the completion of

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this offering), and at least three independent directors. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide the holders of shares of common stock with the opportunity to realize a premium over the then current market price. Our charter contains a provision whereby we have elected to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on our board of directors. See "Certain Provisions of the Maryland General Corporation Law and Our Charter and Bylaws—Subtitle 8."

In addition, certain other provisions of Maryland law and our charter and bylaws may inhibit changes in control. See "Certain Provisions of the Maryland General Corporation Law and Our Charter and Bylaws."

Our authorized but unissued shares of common and preferred stock may prevent a change in our control.

Our charter authorizes our board of directors to issue additional authorized but unissued shares of common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a series or class of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our shares of common stock or otherwise be in the best interest of our stockholders.

Risks Related to Our Taxation as a REIT

If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders.

We intend to operate in a manner that will allow us to qualify as a REIT for federal income tax purposes. Although we do not intend to request a ruling from the Internal Revenue Service, or the IRS, as to our REIT qualification, we expect to receive an opinion of Orrick, Herrington & Sutcliffe LLP with respect to our qualification as a REIT in connection with the offering of our common stock. Investors should be aware, however, that opinions of counsel are not binding on the IRS or any court. The opinion of Orrick, Herrington & Sutcliffe LLP will not be binding on the IRS and will be based on Orrick, Herrington & Sutcliffe LLP's review and analysis of existing law and on certain representations as to factual matters made by us, including representations relating to our assets and the sources of our income. The opinion will be expressed as of the date issued and will not cover subsequent periods. Orrick, Herrington & Sutcliffe LLP will have no obligation to advise us or the holders of our common stock of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of Orrick, Herrington & Sutcliffe LLP, and our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis, the results of which will not be monitored by Orrick, Herrington & Sutcliffe LLP.

If we were to fail to qualify as a REIT in any taxable year, we would be subject to federal (and applicable state and local) income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Dividends paid to our stockholders would not be deductible by us in computing our taxable income and would be taxable to our stockholders under the rules generally applicable to corporate distributions. The corporate tax liability arising from this inability to deduct dividends paid could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of our common stock.

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Unless we were entitled to relief under certain Code provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year in which we failed to qualify as a REIT. The rule disqualifying us from taxation as a REIT following a loss of REIT status would also apply to us if Two Harbors fails to qualify as a REIT, and we are treated as a successor to Two Harbors for federal income tax purposes.

Dividends payable by REITs do not generally qualify for the reduced tax rates available for some dividends.

The federal income tax rate on certain corporate dividends paid to individuals and other non-corporate taxpayers is at a reduced rate of 15% (until December 31, 2012). It is uncertain whether this reduced rate will be continued beyond the scheduled expiration date. Dividends paid by REITs to individuals and other non-corporate stockholders are not generally eligible for the reduced rate. This may cause investors to view REITs investments to be less attractive than non-REIT investments, which in turn may adversely affect the value of stock of REITs, including our common stock.

REIT distribution requirements could adversely affect our economic performance.

We generally must distribute annually at least 90% of our taxable income, subject to certain adjustments and excluding any net capital gain, in order to comply with REIT requirements. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount required under the Code. We intend to make distributions to our stockholders to comply with the REIT requirements of the Code.

Compliance with the REIT distribution requirements may hinder our ability to grow, which could adversely affect the value of our common stock. Furthermore, we may find it difficult or impossible to meet distribution requirements in certain circumstances. The requirement to distribute most of our taxable income could cause us to: (i) sell assets in adverse market conditions, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be used to make future acquisitions or capital expenditures or (iv) make a taxable distribution of our shares as part of a distribution in which stockholders may elect to receive shares or cash, in order to comply with REIT requirements. These alternatives could adversely affect our economic performance.

If the initial tax basis that we establish for our assets is challenged by the IRS, we may have to distribute additional amounts in order to satisfy the REIT distribution requirements.

We will establish our initial tax basis in the assets received in the Formation Transactions in part by reference to the trading price of our common stock. The IRS could assert that our initial tax basis is less than the amount determined by us (or is a carryover basis). If the IRS were successful in sustaining such an assertion, this would result in decreased depreciation deductions and increased gain on any asset dispositions, and thus increased taxable income, as compared to the amounts we had originally calculated and reported. This could result in our being required to distribute additional amounts in order to maintain our REIT status and avoid corporate taxes and also could result in our owing interest and penalties.

The stock ownership limit imposed by the Code for REITs and our charter may restrict our business combination opportunities.

In order for us to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year following our first year. Our charter, with certain exceptions, authorizes our board of directors to take

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the actions that are necessary and desirable to preserve our qualification as a REIT. Our charter provides that, unless exempted by our board of directors, no person may own more than 9.8% of the aggregate value of our outstanding capital stock. Our board may grant an exemption in its sole discretion, subject to such conditions, representations and undertakings as it may determine. The ownership limits imposed by the tax law are based upon direct or indirect ownership by "individuals," but only during the last half of a tax year. The ownership limits contained in our charter key off of the ownership at any time by any "person," which term includes entities. These ownership limitations in our charter are common in REIT charters and are intended to provide added assurance of compliance with the tax law requirements and to minimize administrative burdens. However, these ownership limits might also delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, we could, in certain circumstances, be required to pay an excise tax or penalty tax (which could be significant in amount) in order to utilize one or more of the relief provisions under the Internal Revenue Code to maintain our qualification as a REIT. In addition, in order to meet the REIT qualification requirements or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from sales of "dealer property," we may hold some of our assets or conduct activities through subsidiary corporations that will be subject to corporate-level income tax at regular rates (a "taxable REIT subsidiary," or TRS). In addition, if we lend money to a TRS, the TRS may be unable to deduct all or a portion of the interest paid to us, which could result in an even higher corporate level tax liability. Any of these taxes would decrease cash available for distribution to our stockholders.

Furthermore, the Internal Revenue Code imposes a 100% tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's length basis. We will structure our transaction with any TRS on terms that we believe are arm's length to avoid incurring the 100% excise tax described above. There can be no assurances, however, that we will be able to avoid application of the 100% tax.

Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts that we distribute to our stockholders and the ownership of our stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-backed securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no

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more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer (other than a TRS), and no more than 25% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

We may in the future choose to pay dividends in our own stock, in which case our stockholders may be required to pay income taxes in excess of the cash dividends they receive.

We may in the future distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder, but subject to a limitation on the amount of cash that may be distributed. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend, whether received as cash or shares of our common stock, as ordinary income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.

Under a previously applicable Revenue Procedure, 90% of taxable cash/stock dividends of a REIT could be paid in stock. It is unclear whether and to what extent we will be able to pay taxable dividends in cash and stock. Moreover, various aspects of such a taxable cash/stock dividend are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable cash/stock dividends or assert that the requirements for such taxable cash/stock dividends have not been met.

The REIT rules relating to prohibited transactions could affect our disposition of assets and adversely affect our profitability.

From time to time, we may choose to transfer or dispose of some of the properties in our portfolios. A REIT's net income from "prohibited transactions" is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business, or "dealer property." We intend to conduct our activities so as not to generate prohibited transaction income. However, the avoidance of this tax on prohibited transactions could cause us to undertake less substantial sales of property than we would otherwise undertake in order to maximize our profits. In addition, we may have to sell numerous properties to a single or a few purchasers, which could cause us to be less profitable than would be the case if we sold properties on a property-by-property basis.

If the Operating Partnership fails to qualify as a partnership for federal income tax purposes, we could fail to qualify as a REIT and suffer other adverse consequences.

We believe that the Operating Partnership is organized and will be operated in a manner so as to be treated as a partnership and not an association or a publicly traded partnership taxable as a corporation, for federal income tax purposes. As a partnership, the Operating Partnership will not be

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subject to federal income tax on its income. Instead, each of the partners will be allocated its share of the Operating Partnership's income. No assurance can be provided, however, that the IRS will not challenge the operating partnership's status as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating the Operating Partnership as an association or publicly traded partnership taxable as a corporation for federal income tax purposes, we could fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, could cease to qualify as a REIT. Also, the failure of the Operating Partnership to qualify as a partnership would cause it to become subject to federal corporate income tax, which would reduce significantly the amount of its cash available for distribution to its partners, including us.

Distributions to tax-exempt investors may be classified as unrelated business taxable income.

Neither ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of common stock should generally constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:

•: part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as unrelated business taxable income if shares of our common stock are predominantly held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income;
•: part of the income and gain recognized by a tax-exempt investor with respect to our common stock would constitute unrelated business taxable income if the investor incurs debt in order to acquire the common stock; and
•: part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under the Code may be treated as unrelated business taxable income.

Qualifying as a REIT involves highly technical and complex provisions of the Code and a violation of these provisions could jeopardize our REIT status.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the requirements to qualify as a REIT may depend in part on the actions of third parties over which we may have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for federal income tax purposes.

New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT.

The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the federal income tax treatment of an investment in us. The federal income tax rules relating to REITs constantly are under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in frequent statutory changes and revisions to regulations and interpretations. Revisions in federal tax laws and interpretations thereof could adversely affect us or cause us to change our investments and commitments and affect the tax considerations of an investment in us.

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FORWARD-LOOKING STATEMENTS

Some of the statements contained in this prospectus constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this prospectus reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. Statements regarding the following subjects, among others, may be forward-looking:

•: use of proceeds in this offering;
•: our business and investment strategy;
•: our projected operating results;
•: adverse economic or real estate developments in our target markets;
•: defaults on, early terminations of or non-renewal of leases by tenants;
•: difficulties in identifying properties to acquire and completing acquisitions;
•: increased time and/or expense to gain possession and renovate properties;
•: our failure to successfully operate acquired properties and operations;
•: projected operating costs;
•: rental rates or vacancy rates;
•: our ability to obtain financing arrangements;
•: general volatility of the markets in which we participate;
•: our expected investments;
•: interest rates and the market value of our target assets;
•: impact of changes in governmental regulations, tax law and rates, and similar matters;
•: the upcoming U.S. "fiscal cliff" and its impact on the U.S. economy and real estate values;
•: our ability to maintain our qualification as a REIT for U.S. federal income tax purposes;
•: availability of qualified personnel;
•: estimates relating to our ability to make distributions to our stockholders in the future;
•: our understanding of our competition; and
•: market trends in our industry, real estate values, the debt securities markets or the general economy.

While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. Furthermore, we assume no obligation to update forward-looking statements to reflect changes in underlying assumptions or factors, or new information, except to the extent required by applicable laws. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, see the section above entitled "Risk Factors."

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USE OF PROCEEDS

We are offering 13,250,000 shares of our common stock at the anticipated public offering price of $19.00 per share (the midpoint of the price range set forth on the cover of this prospectus). We estimate that the net proceeds we will receive from selling common stock in this offering will be approximately $234.2 million, after deducting estimated underwriting discounts and commissions and offering expenses of approximately $17.5 million (or, if the underwriters exercise their over-allotment option in full, approximately $269.9 million, after deducting estimated underwriting discounts and commissions and offering expenses of approximately $19.6 million).

We will contribute the net proceeds of this offering to the Operating Partnership, which will use the net proceeds of this offering to purchase additional single-family properties, to renovate such properties for rental to tenants and for working capital. In addition, we plan to make cash payments to Prior Provident Investors in connection with the Formation Transactions of approximately $5.1 million, based on an anticipated offering price of $19.00 per share (the midpoint of the price range set forth on the cover of this prospectus). Pending application of any portion of the net proceeds, we or the Operating Partnership will invest such funds in interest-bearing accounts and short-term, interest-bearing securities as is consistent with our intention to qualify for taxation as a REIT. These investments are expected to provide lower net return than what we will seek to achieve from our target assets.

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DISTRIBUTION POLICY

We intend to make quarterly distributions to our common stockholders. U.S. federal income tax law requires that a REIT distribute annually at least 90% of its net taxable income, excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income, including capital gains. For more information, please see "U.S. Federal Income Tax Considerations." We currently do not intend to use the proceeds of this offering to make distributions to our stockholders.

To the extent that in respect of any calendar year, cash available for distribution is less than our taxable income, we could be required to sell assets to make cash distributions or make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. We generally will not be required to make distributions with respect to activities conducted through any TRS. For more information, see "U.S. Federal Income Tax Considerations—Requirements for Qualification as a REIT."

Dividends and other distributions will be authorized by our board of directors in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including actual results of operations, restrictions under Maryland law, our financial condition and other factors described below. We cannot assure you that our distributions will be made or sustained or that our board of directors will not change our distribution policy in the future. Any dividends or other distributions we pay in the future will depend upon our actual results of operations, economic conditions, debt service requirements and other factors that could differ materially from our current expectations. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our assets, our operating expenses, interest expense and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see "Risk Factors."

We anticipate that our distributions generally will be taxable as ordinary income to our stockholders, although a portion of the distributions may be designated by us as qualified dividend income or capital gain, or may constitute a return of capital. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. For a more complete discussion of the tax treatment of distributions to holders of shares of our common stock, see "U.S. Federal Income Tax Considerations."

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CAPITALIZATION

The following table sets forth the capitalization of (1) our Predecessor as of September 30, 2012 (2) on a pro forma basis to reflect the Formation Transactions and (3) on a pro forma, as-adjusted basis to reflect the Formation Transactions and the sale of 13,250,000 shares of our common stock in this offering at an assumed public offering price of $19.00 per share after deducting the underwriting discount and commissions and estimated organizational and offering expenses payable by us. You should read this table together with "Use of Proceeds" included elsewhere in this prospectus.

	As of September 30, 2012

	Predecessor		Pro Forma effect of Formation Transactions(1)		Pro Forma As Adjusted(1)(2)(3)
			(Unaudited)		(Unaudited)
	(in thousands, except share amounts)
Total debt	$	—	$	—	$	—
10% Cumulative Redeemable Preferred Stock with $1,000 liquidation preference per share, 1,000 shares authorized and 1,000 shares issued and outstanding, pro forma and 1,000 shares issued and outstanding, pro forma as adjusted		—		1,000		1,000
Stockholders' equity:
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 1,000 shares of 10% Cumulative Redeemable Preferred Stock with $1,000 liquidation preference per share (described above), issued and outstanding, pro forma and 1,000 shares of 10% Cumulative Redeemable Preferred Stock with $1,000 liquidation preference per share (described above), issued and outstanding, pro forma as adjusted		—		—		—
Common stock, par value $0.01 per share; 450,000,000 shares authorized, and 23,935,073 shares issued and outstanding, pro forma and 37,342,968 shares issued and outstanding, pro forma as adjusted		—		240		373
Additional paid in capital		—		435,597		669,696
Non-controlling interest:		—		—		—
Common units—Operating Partnership		—		513		485
Total equity of Predecessor(4)		223,885		—		—

Total stockholders' equity		223,885		436,350		670,554

Total capitalization	$	223,885	$	437,350	$	671,554

(1): Common units—Operating Partnership includes 27,295 common units that can be converted into shares of our common stock on a one-for-one basis.
(2): Common stock includes approximately 157,895 shares (based on the midpoint of the price range set forth on the cover of this prospectus) of restricted stock to be granted to our independent directors, certain executive officers and certain other personnel of our Manager and our Manager's operating subsidiary concurrently with the completion of this offering, and excludes (a) 1,000 shares of common stock initially issued to our Manager, which will be repurchased by us at cost upon the completion of this offering, (b) approximately 763,158 additional shares of common stock reserved for future issuance under the 2012 Equity Incentive Plan and (c) 27,295 shares of common stock that may be issued, at our option, upon exchange of common units in the Operating Partnership owned by Prior Provident Investors and issued as part of the Formation Transactions.
(3): Assumes 13,250,000 shares of our common stock are sold in this offering at $19.00 per share (the midpoint of the price range set forth on the cover page of this prospectus).
(4): The amount reflected in the Predecessor column represents the total historical equity interest as of September 30, 2012.

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DILUTION

Purchasers of shares of our common stock offered in this prospectus will experience an immediate dilution in the net tangible book value per share of our common stock from the initial public offering price. As of September 30, 2012, we had a pro forma combined net tangible book value of $434.7 million, or $18.14 per share of our common stock, after giving effect to the Formation Transactions. After giving effect to the sale of the shares of our common stock offered hereby, including the use of proceeds as described under "Use of Proceeds," and the Formation Transactions, and the deduction of underwriting discounts and commissions and estimated offering and formation expenses, the pro forma net tangible book value as of September 30, 2012 attributable to common stockholders would have been $668.9 million, or $17.90 per share of our common stock, assuming the redemption of common units representing limited partner interests in the Operating Partnership for shares of our common stock on a one-for-one basis. This amount represents an immediate increase in net tangible book value of $1.10 per share to existing investors and an immediate dilution in pro forma net tangible book value of $1.10 per share to new public investors. The following table illustrates this per share dilution:


Assumed initial public offering price per share				$	19.00
Net tangible book value per share before the Formation Transactions and this offering(1)	$	17.99
Net increase/decrease in pro forma net tangible book value per share attributable to the Formation Transactions(2)		0.15
Net increase/decrease in pro forma net tangible book value per share attributable to this offering(3)		(0.24	)

Pro forma net tangible book value per share after the Formation Transactions and this offering(4)					17.90

Dilution in pro forma net tangible book value per share to new investors(5)				$	(1.10	)

(1): Net tangible book value per share of our common stock before the Formation Transactions and this offering is determined by dividing net tangible book value based on September 30, 2012 net book value of the tangible assets of our Predecessor of approximately $320.7 million divided by the number of shares of our common stock to be received by our Predecessor in the Formation Transactions totaling approximately 17.8 million shares. Included in the pro forma net tangible book value before the Formation Transactions is approximately $96.9 million of additional contributed escrow deposits made by our Predecessor subsequent to September 30, 2012 but prior to the Formation Transactions that are attributable to the Formation Transactions. Our Predecessor was given credit for the value of these additional contributed escrow deposits in the total common shares to be received by our Predecessor in the Formation Transactions.
(2): The increase in pro forma net tangible book value per share of our common stock attributable to the Formation Transactions, but before this offering, is determined by the difference between (a) the pro forma net tangible book value per share before the Formation Transactions and this offering calculated in footnote (1) above and (b) the pro forma net tangible book value after the Formation Transactions and before this offering of approximately $434.7 million, divided by the number of shares of our common stock to be received by our Predecessor and the number of common shares and common units (assumes a one-for-one conversion) to be issued to the Prior Provident Investors in the Formation Transactions, totaling approximately 23.9 million shares and units.
(3): The decrease in pro forma net tangible book value per share of our common stock attributable to this offering is determined by the difference between (a) the pro forma net tangible book value

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per share after the Formation Transactions but before this offering calculated in footnote (2) above and (b) the pro forma net tangible book value after the Formation Transactions and this offering of approximately $668.9 million, divided by the number of shares of our common stock to be received by our Predecessor, the number of common shares and common units to be issued to the Prior Provident Investors in the Formation Transactions and the shares of our common stock issued to our new investors as part of this offering, totaling approximately 37.4 million shares and units.

(4): Pro forma net tangible book value per share after the Formation Transactions and this offering is based on pro forma net tangible book value of approximately $668.9 million divided by the sum of shares of our common stock and common units in the Operating Partnership to be outstanding following the completion of the Formation Transactions and this offering, totaling approximately 37.4 million shares and units.
(5): Dilution in pro forma net tangible book value per share to new investors is determined by subtracting pro forma net tangible book value per share of our common stock after giving effect to the Formation Transactions and this offering from the initial public offering price paid by a new investor for a share of our common stock.

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SELECTED FINANCIAL AND OTHER DATA

We have presented the following selected unaudited pro forma consolidated financial information on (1) a pro forma basis for Silver Bay after giving effect to the offering and the Formation Transactions, including the acquisition of the Provident Entities and required purchase accounting adjustments and the use of net proceeds therefrom, (2) the consolidated historical operations for Two Harbors Property Investment LLC and its subsidiaries, which we refer to collectively as our Predecessor and (3) the combined historical operating data for the Provident Entities. We have not presented historical information for Silver Bay Realty Trust Corp. because we have not had any corporate activity since our formation other than the issuance of 1,000 shares of common stock to our Manager in connection with our initial capitalization. We have not presented historical operating data for the year ended December 31, 2011 for our Predecessor because it did not begin acquiring properties until 2012.

The pro forma and combined historical financial information and the offering and the Formation Transactions, including the purchase accounting adjustments, are provided and discussed in detail in the unaudited pro forma financial information beginning on page F-2 of the financial statements included elsewhere in this prospectus.

You should read the following selected financial data in conjunction with our financial statements and the financial statements of our Predecessor and the Provident Entities and the related notes, which are included elsewhere in this prospectus, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

The selected historical consolidated balance sheet data as of September 30, 2012 and the historical financial information for the nine months ended September 30, 2012 for our Predecessor, and the historical information for the nine months ended September 30, 2012 and 2011 and the years ended December 31, 2011 and 2010 for the Provident Entities, have been derived from the consolidated audited financial statements of our Predecessor and the combined statements of revenues and certain operating expenses for the Provident Entities included elsewhere in this prospectus. The combined statements of revenues and certain operating expenses for the Provident Entities have been prepared on the accrual basis of accounting for the purpose of complying with Rule 3-14 of Regulation S-X of the SEC. Certain historical expenses that may not be comparable to the expenses expected to be incurred in the future have been excluded, including depreciation and amortization and other overhead costs not directly related to the future operations of the Provident Entities. We have also not provided historical balance sheet data for the Provident Entities as the historical data will not be comparable to the balance sheet reflected in our consolidated financial statements and is not required under Rule 3-14.

Our unaudited selected pro forma condensed consolidated balance sheet as of September 30, 2012 and operating data as of and for the nine months ended September 30, 2012 and for the year ended December 31, 2011 assumes completion of this offering, the Formation Transactions and the other adjustments described in the unaudited pro forma financial information beginning on page F-2 of this prospectus, as of January 1, 2011 for the statement of operations data and as of September 30, 2012 for the balance sheet data. The historical balances of our Predecessor have been reflected at carryover basis because, for accounting purposes, the transfer and assignment of our Predecessor's ownership interest in exchange for shares of our common stock and this offering are not deemed a business combination and do not result in a change of control. The Provident Entities' basis, however, has been recorded at fair value as of September 30, 2012 because our acquisition of the Provident Entities is deemed to be a purchase of a controlling interest. The purchase price allocations have not been finalized and are subject to change based upon recording of actual transaction costs, finalization of working capital adjustments for our Predecessor and the Provident Entities and completion of our analysis of the fair value of the Provident Entities.

The unaudited pro forma condensed consolidated balance sheet is presented for illustrative purposes only and is not necessarily indicative of what the actual financial position would have been

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had the transactions referred to above occurred on September 30, 2012, nor does it purport to represent the future financial position of the company. The unaudited pro forma condensed consolidated statements of operations are presented for illustrative purposes only and are not necessarily indicative of what the actual results of operations would have been had the transactions referred to above occurred on January 1, 2011, nor does it purport to represent the future results of operations of the company.

	Nine Months Ended September 30,										Year Ended December 31,

	Pro Forma			Predecessor Historical			Provident Entities Historical				Pro Forma			Provident Entities Historical
(Dollar amounts in thousands except other data)	2012			2012			2012		2011		2011			2011		2010
	(Unaudited)						(Unaudited)		(Unaudited)		(Unaudited)
Statement of Operations Data:
Revenue:
Rental income	$	8,178		$	827		$	7,351	$	3,404	$	5,095		$	5,095	$	1,739
Other income		191			—			191		130		187			187		138

Total revenue		8,369			827			7,542		3,534		5,282			5,282		1,877
Expenses:
Property operating and maintenance		2,216			776			1,440		654		1,767			1,767		417
Real estate taxes		1,800			526			1,274		568		883			883		264
Home owner's association fees		1,083			162			921		479		790			790		272
Property management fees		5,771			64			531		229		7,692			354		120
Depreciation and amortization		3,038			475			—		—		6,106			—		—
Advisory management fee		7,725			804			—		—		10,300			—		—
General and administrative		3,242			296			—		—		3,928			—		—

Total expenses		24,875			3,103			4,166		1,930		31,466			3,794		1,073

Net income (loss)(1)	$	(16,506	)	$	(2,276	)	$	3,376	$	1,604	$	(26,184	)	$	1,488	$	804

	As of September 30, 2012

Balance Sheet Data:	Pro Forma		Predecessor Historical
	(Unaudited)
Net investment in real estate	$	309,912	$	190,907
Cash and cash equivalents		231,897		2,785
Escrow deposits(2)		130,822		33,960
Other assets		3,815		625
Total assets		676,446		228,277
Total liabilities		4,892		4,392
10% cumulative redeemable preferred stock		1,000		—
Total equity		670,554		223,885

Other Data:	As of September 30, 2012

	Combined			Predecessor			Provident Entities
	(Unaudited)			(Unaudited)			(Unaudited)
Total properties owned		2,548			1,667			881
Properties owned for at least six months		951			70			881
Leased properties owned for at least six months		865			59			806
Occupancy percentage of properties owned for at least six months		91	%		84	%		91	%
Average monthly rent per leased property owned for at least six months	$	1,126		$	1,066		$	1,130

(1): Amounts for the Provident Entities represent the excess of revenues over certain operating expenses.
(2): Escrow deposits consist primarily of refundable cash on deposit with property acquisition managers for property purchases, renovation costs, and earnest money deposits.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial statements and related notes appearing elsewhere in this prospectus. Where appropriate, the following discussion includes analysis of the effects of the Formation Transactions, certain other transactions and this offering. These effects are reflected in the pro forma condensed consolidated financial statements located elsewhere in this prospectus. As used in this section, unless the context otherwise requires, "we," "us," "our," and "company" mean our predecessor, Two Harbors Property Investment LLC, and the Provident Entities for the periods prior to this offering and the Formation Transactions and Silver Bay Realty Trust Corp. and its consolidated subsidiaries upon consummation of this offering and the Formation Transactions.

Overview

Our Company

We intend to elect and qualify to be taxed as a real estate investment trust, or REIT, for U.S. federal tax purposes. For more information related to the consequences of this election, please see "Distribution Policy" and "U.S. Federal Income Tax Considerations."

We are externally managed by PRCM Real Estate Advisers LLC, or our Manager. We will rely on our Manager to provide or obtain on our behalf the personnel and services necessary for us to conduct our business as we have no employees of our own. Our Manager is a joint venture of Pine River Domestic Management, L.P., or Pine River, an affiliate of Pine River Capital Management L.P., and Provident Real Estate Advisors LLC, or Provident. Silver Bay Property Corp., or our Manager's operating subsidiary, is a wholly owned subsidiary of our Manager. As of the date of this offering, our Manager and our Manager's operating subsidiary together provide us with a comprehensive suite of investment, acquisition and property management services, utilizing the combined expertise of Pine River and Provident.

Upon completion of this offering and the Formation Transactions, we plan to acquire our initial portfolio of single-family properties, or our Initial Portfolio, from Two Harbors Investment Corp., or Two Harbors, and the owners of the membership interests of entities managed by Provident. The properties in our Initial Portfolio were acquired by entities that will become our subsidiaries in the Formation Transactions between 2009 and the date of this prospectus and are located in Arizona, California, Florida, Georgia, Nevada, North Carolina and Texas. As of September 30, 2012, the Initial Portfolio consisted of more than 2,540 single-family properties.

We plan to continue acquiring single-family properties located in our target markets with proceeds from this offering. We currently have no indebtedness and have acquired all properties to date without the use of debt. Over time, we may incur indebtedness if we believe doing so would enhance our ability to generate returns for our stockholders without jeopardizing our long-term prospects.

We will hold our properties in subsidiaries of an operating partnership, Silver Bay Operating Partnership L.P., or the Operating Partnership, for which our wholly owned subsidiary, Silver Bay Management LLC, or the General Partner, will serve as the sole general partner. Upon the completion

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of this offering, we will also own a limited partner interest in the Operating Partnership as the "Special Limited Partner." The remaining limited partner interests will be held by the Prior Provident Investors who elect to receive common units in the Operating Partnership rather than shares of our common stock or cash in the Formation Transactions. The common units represent limited partner interests in the Operating Partnership and are redeemable for cash or exchangeable for shares of our common stock on a one-for-one basis (subject to applicable adjustments).

Silver Bay has not had any activity since our formation other than the issuance of 1,000 shares of our common stock to our Manager in connection with the initial capitalization of the company (which will be repurchased at cost upon completion of this offering) and activities in preparation for this offering and the Formation Transactions. Accordingly, a discussion of the financial condition and historical operations of Silver Bay would not be meaningful. Instead, we describe herein the historical operations of our predecessor, Two Harbors Property Investment LLC, sometimes referred to as Two Harbors Property or our Predecessor, and our acquisition targets, Polar Cactus LLC, Polar Cactus II LLC, Cool Willow LLC, Provident Residential Real Estate Fund LLC and Resi II LLC, or collectively, the Provident Entities.

Formation Transactions

Concurrently with this offering, we plan to complete the Formation Transactions, pursuant to which we will acquire, through a series of contribution and merger transactions, our Predecessor and the Provident Entities and the portfolio of single-family properties held by them. For accounting purposes, Two Harbors Property will be treated as our predecessor, meaning our balance sheet will reflect the historical assets and liabilities of Two Harbors Property at historical cost. Acquisition of the Provident Entities, on the other hand, will be accounted for as an acquisition under the purchase method of accounting, meaning the assets and liabilities of the Provident Entities will be recorded at the estimated fair value of the acquired assets and assumed liabilities. The determination and the allocation of the fair values of tangible and intangible assets acquired will be made in accordance with our accounting policies described in "—Critical Accounting Policies" below.

Consummation of the Formation Transactions will enable us to (i) consolidate the ownership of our Initial Portfolio of single-family properties under the Operating Partnership and (ii) facilitate this offering.

For further information regarding the terms of the Formation Transactions, including the benefits to related parties, see "Structure and Formation of Our Company—Formation Transactions."

Background of Our Manager, Two Harbors Property and the Provident Entities

Our Manager was formed on December 22, 2011 as a joint venture between Pine River, which owns two-thirds of the limited liability company interests of our Manager, and Provident, which owns the remaining one-third of the limited liability company interest of our Manager. Our Manager's operating subsidiary was formed by our Manager on January 30, 2012.

Our Predecessor is an indirect, wholly owned subsidiary of Two Harbors. In the first quarter of 2012, our Predecessor began acquiring a portfolio of single-family properties to rent for income and to hold for investment. In initiating this activity, our Predecessor sought to take advantage of the availability of a large inventory of single-family properties at what it perceived to be attractive prices. Our Predecessor also entered into agreements with our Manager in February 2012 to assist in acquiring, managing and leasing its single-family property portfolio. Under these agreements, if our Manager identifies and acquires a single-family property on behalf of our Predecessor, our Predecessor pays our Manager a one-time acquisition fee in the amount of $2,000 per property. In addition, our Predecessor pays our Manager for various services in accordance with the following schedule: (1) a monthly property management fee equal to the greater of six percent of the gross collections (less security deposits) derived from the properties in the prior month or $50 per property (excluding any

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vacant property); (2) a one-time $500 per property fee for the leasing of a property to a new tenant and a one-time $200 per property fee for each renewal of an annual lease term to an existing tenant; (3) a monthly maintenance oversight fee of $25 per property and (4) a renovation oversight fee paid with respect the renovation of a newly acquired property equal to the lesser of ten percent of the actual costs of the renovation or $500 per property. These agreements will be terminated upon consummation of the Formation Transactions and no termination fee will be owed as a result of such termination and we will enter into a new property management and acquisition services agreement with our Manager's operating subsidiary as described in "Our Manager and the Management Agreement—Property Management and Acquisition Services Agreement."

As of September 30, 2012, our Predecessor had purchased approximately 1,660 single-family properties in Phoenix, Tampa, Atlanta, Las Vegas, Tucson, Orlando, Northern and Southern California and Charlotte at a total cost of approximately $178.8 million. As of the date of this prospectus, our Predecessor owns more than 2,200 single-family properties and continues to acquire additional properties in its target markets, which were recently expanded to include Dallas.

The Provident Entities consist of five limited liability companies for which Provident serves as managing member. As early entrants into the large-scale single-family property rental market, the Provident Entities acquired a portfolio of approximately 880 single-family properties between September 2009 and March 2012, with approximately two-thirds of the properties purchased in calendar years 2011 and 2012. Collectively, the Provident Entities have raised approximately $92.4 million. The following table shows the date each fund was formed and the amount of capital each fund raised:

Fund	Formation Date	Amount Raised

Polar Cactus LLC	August 7, 2009	$	5,400,000
Polar Cactus II LLC	December 18, 2009	$	7,850,000
Cool Willow LLC	June 24, 2010	$	14,000,000
Provident Residential Real Estate Fund LLC	September 21, 2010	$	34,193,000
Resi II LLC	July 27, 2011	$	30,915,000

The Provident Entities are no longer raising additional funds or acquiring additional properties and each has entered into an agreement with our Manager to assist in managing and leasing their single-family property portfolio. Under these agreements, the Provident Entities pay our Manager for various services in accordance with the following schedule: (1) a monthly property management fee equal to the greater of six percent of the gross collections (less security deposits) derived from the properties in the prior month or $50 per property (excluding any vacant property); (2) a one-time $500 per property fee for the leasing of a property to a new tenant and a one-time $200 per property fee for each renewal of an annual lease term to an existing tenant; (3) a monthly maintenance oversight fee of $25 per property and (4) a renovation oversight fee for renovations of a property to make them "rent-ready" equal to the lesser of ten percent of the actual costs of the renovation or $500 per property. These agreements will be terminated upon consummation of the Formation Transactions and no termination fee will be owed as a result of such termination and we will enter into a new property management and acquisition services agreement with our Manager's operating subsidiary as described in "Our Manager and the Management Agreement—Property Management and Acquisition Services Agreement."

Our Initial Portfolio

Concurrently with the closing of this offering, we plan to acquire a portfolio of more than 3,100 single-family properties, or the Initial Portfolio, from our Predecessor and the Provident Entities. The Initial Portfolio consists of a pool of single-family properties in targeted markets in Arizona, California, Florida, Georgia, Nevada, North Carolina and Texas. The following table provides a summary of the combined portfolio of properties held by our Predecessor and the Provident Entities as of September 30, 2012:

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Portfolio of Single-Family Homes as of September 30, 2012

Market				Aggregate Cost Basis(1) (millions)		Average Cost Basis Per Property(1) (thousands)						Average Monthly Rent for Leased Properties (Predecessor)		Average Monthly Rent for Leased Properties (Provident Entities)		Average Monthly Rent for Leased Properties(4)

Phoenix	360	426	786	$	97.5	$	124.0	15.8	1,730	506	280	$	1,124	$	993	$	1,026
Tampa	334	295	629		79.2		125.9	19.0	1,733	334	295		1,310		1,253		1,261
Atlanta	358	81	439		46.3		105.4	15.6	2,072	169	270		1,178		1,234		1,203
Las Vegas	126	35	161		20.0		124.5	12.1	1,765	46	115		1,145		1,107		1,126
Tucson	150	—	150		10.8		72.2	40.3	1,342	51	99		833		—		833
Orlando	34	44	78		11.2		143.1	15.4	1,940	48	30		1,016		1,355		1,313
Northern CA	167	—	167		28.5		170.5	37.0	1,503	29	138		1,539		—		1,539
Southern CA	127	—	127		15.2		120.1	37.9	1,376	3	124		1,115		—		1,115
Charlotte(5)	11	—	11		1.2		109.0	10.5	1,946	—	11		—		—		—

Totals	1,667	881	2,548	$	309.9	$	121.6	20.2	1,744	1,186	1,362	$	1,152	$	1,130	$	1,137

(1): Upon completion of the Formation Transactions, Two Harbors Property's properties will be recorded at an aggregate carryover net book value cost basis because Two Harbors Property is our predecessor and is the acquirer for accounting purposes. As of September 30, 2012, this cost basis was $190.9 million. The Provident Entities' properties aggregate cost basis is estimated to be $119.0 million (based on the midpoint of the range set forth on the cover page of this prospectus), which represents the fair market value of properties at the formation date due to the contribution of Provident Entities' properties being considered an acquisition subject to purchase accounting for accounting purposes. The Provident Entities' properties aggregate cost basis excludes any purchase price allocation for in-place leases.
(2): As of September 30, 2012, approximately 32% of the properties in the combined portfolio were less than 10 years old, 29% were between 10 and 20 years old, 14% were between 20 and 30 years old, 13% were between 30 and 40 years old, 5% were between 40 and 50 years old, and 7% were more than 50 years old.
(3): A significant portion of the Predecessor properties were purchased within the last six months and are still undergoing stabilization. Total number of vacant properties includes properties in the process of stabilization as well as those available for lease.
(4): Average monthly rent for leased properties was calculated as the average of the contracted monthly rent for all leased properties as of September 30, 2012. To date, rent concessions have been utilized on a limited basis and have not had a significant impact on our average monthly rent. If the use of rent concessions or other leasing incentives increases in the future, they may have a greater impact by reducing the average monthly rent we receive from leased properties.
(5): As of September 30, 2012, there were no properties yet leased in this market.

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Factors Expected to Affect Our Operating Results and Financial Condition

Our results of operations and financial condition will be affected by numerous factors, many of which are beyond our control. The key factors we expect to impact our results of operations and financial condition include our pace of acquisitions and ability to deploy our capital, the time and cost required to stabilize a newly acquired property and convert the same to rental, rental rates, occupancy levels, rates of tenant turnover, our expense ratios and capital structure.

Property Acquisitions

Following this offering, we plan to continue to grow our portfolio of single-family properties. Our Manager's ability to identify and acquire single-family properties that meet our investment criteria will be impacted by home prices in our target markets, the inventory of properties available through our acquisition channels and competition for our target assets.

We have accumulated a substantial amount of recent data on acquisition costs, renovation costs and time frames for the conversion of single-family properties to rental. In acquiring new properties, we will use our Manager's operating subsidiary (which also provided the same services to our Predecessor) to acquire our portfolio and will monitor the pace and source of these purchases. The following chart shows the pace of monthly acquisitions by source of our Predecessor beginning in the first quarter of 2012 through October 31, 2012 and reflects total transactions closed in a period and does not reflect accepted purchase agreements that have not yet closed:

Predecessor Acquisition Pace

*: Purchase price does not include commissions, closing costs or initial renovation expenses.

For purposes of this chart:

"Broker" refers to a purchase of a single property directly from the owner, including REO, short sales and properties listed on a multiple listing service.

"Auction" refers to properties purchased at trustee or judicial auctions.

"Bulk" refers to purchases of more than one property in a single sale directly from the owner, often an investor group, bank, financial institution or governmental agency, and may include future acquisitions of entire legal entities holding single-family properties.

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See "Business and Properties—General Business Strategy and Growth Opportunities" for further description of each of these purchase methods.

Property Stabilization

Before an acquired property becomes an income-producing asset, we must possess, renovate, market and lease the property. We refer to this process as property stabilization. The acquisition of properties involves the outlay of capital beyond payment of the purchase price, including payments for property inspections, closing costs, title insurance, transfer taxes, recording fees, broker commissions and property taxes or HOA fees in arrears. The time and cost involved in stabilizing our newly acquired properties will impact our financial performance and will be affected by our time to possession, time and costs of renovations and time of marketing the property for rental. Our possession can be delayed for a multitude of reasons beyond our control, including applicable statutory rights of redemption, rescission rights and legal challenges to our ownership or unauthorized occupants living in the property at the time of purchase, each of which are described in greater detail in "Business and Properties—General Business Strategy and Growth Opportunities."

As part of our underwriting criteria in evaluating properties, we typically estimate renovation costs to be 10% to 15% of the purchase price, although actual costs may vary significantly based on markets, age and condition of the property. To date, the actual renovation costs incurred by our Predecessor have averaged approximately 15% of the purchase price, but we expect to reduce our costs over time as we centralize oversight of renovations and benefit from economies of scale. The time to renovate a newly acquired property can vary significantly among properties for several reasons including the acquisition channel by which it was acquired, and the age and condition of the property. Similarly, the time to market and lease a property will be driven by local demand, our marketing techniques and the size of our available inventory. We plan to actively monitor these measures and trends going forward.

We anticipate that on average, the stabilization period for each property will range from three to six months depending on the factors discussed above. Consequently, we expect that most properties should be stabilized within six months of purchase and that properties held more than six months provide the best indication of how we expect our overall portfolio to perform.

We plan to continue to assess the average time to gain possession, renovate, and market and lease a property to optimize our operational efficiency.

Over time we believe that the property-related expenses for vacancy, bad debt, property taxes, insurance, HOA fees, repairs and maintenance and capital expenditure reserves and the costs for property management services such as renovating, marketing, leasing and maintaining our stabilized single-family properties will average between 40% and 50% of gross rental revenue. Variations in asset level returns will be due to a variety of factors, including location, age and condition of the property and the efficiency of our property management services.

Revenue

We earn revenue primarily from rents collected from tenants under lease agreements for our properties. The most important drivers of revenue (aside from portfolio growth) are rental and occupancy rates. Our revenue may be impacted by macroeconomic, local and property-level factors, including market conditions, seasonality, tenant defaults or vacancies, timing of renovation activities and occupancy of properties and timing to re-lease vacant properties.

In each of our target markets, we monitor a number of factors that may impact the single-family real estate market and our tenants' finances, including the unemployment rate, household formation and net population growth, income growth, size and make-up of existing and future housing stock, prevailing market rental and mortgage rates and credit availability. Growth in demand for rental

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housing in excess of the growth of rental housing supply, among other factors, will generally drive higher occupancy rates and rental price increases. Negative trends in our target markets with respect to these metrics or others could adversely impact our rental income. For a more detailed discussion of important factors that impact our revenue, see "Industry Overview and Market Opportunity."

We will monitor the occupancy of our portfolio and the growth or decline in same property rental rates year over year. We also plan to monitor turnover rates, which affect both occupancy rates and maintenance costs, with lower turnover resulting in higher revenue from increased occupancy and reduced "turn" expenses. Turnover can be caused by a number of factors, including customer dissatisfaction, lease defaults leading to eviction and change in family, financial or employment status of the tenant. Overall, the quality of our property management execution, including tenant screening to reduce the likelihood of tenant defaults, property maintenance and other ongoing customer service efforts and marketing efficacy will be important drivers of occupancy and lower turnover.

The growth of our portfolio has been significant in recent months as we have increased the rate at which we acquire properties. Our Predecessor initially began acquiring properties in cities located in Arizona, Florida, Georgia and Nevada, and has more recently expanded into California, North Carolina and Texas. The table below shows the average rental rates and occupancy rates of properties in our Initial Portfolio that have been owned for longer than six months as of September 30, 2012:

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Properties Owned Six Months or Longer

	Provident											Predecessor											Combined

Market	Properties Owned 6 Months or Longer		Properties Leased		Properties Vacant		Occupancy Rate			Average Monthly Rent for Leased Properties		Properties Owned 6 Months or Longer		Properties Leased		Properties Vacant		Occupancy Rate			Average Monthly Rent for Leased Properties		Properties Owned 6 Months or Longer		Properties Leased		Properties Vacant		Occupancy Rate			Average Monthly Rent for Leased Properties
Phoenix		426		379		47		89	%	$	993		18		18		—		100	%	$	1,059		444		397		47		89	%	$	996
Tampa		295		288		7		98			1,253		—		—		—		—			—		295		288		7		98			1,253
Atlanta		81		74		7		91			1,234		28		24		4		86			1,182		109		98		11		90			1,221
Las Vegas		35		23		12		66			1,107		11		5		6		45			1,157		46		28		18		61			1,116
Tucson		—		—		—		—			—		13		12		1		92			810		13		12		1		92			810
Orlando		44		42		2		95			1,355		—		—		—		—			—		44		42		2		95			1,355
Northern CA		—		—		—		—			—		—		—		—		—			—		—		—		—		—			—
Southern CA		—		—		—		—			—		—		—		—		—			—		—		—		—		—			—
Charlotte		—		—		—		—			—		—		—		—		—			—		—		—		—		—			—

Totals		881		806		75		91	%	$	1,130		70		59		11		84	%	$	1,066		951		865		86		91	%	$	1,126

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Subsequent to September 30, 2012, our Predecessor has continued to acquire properties in these areas and in Texas. In October 2012, our Predecessor purchased more than 350 single-family properties.

Over time, we expect that the occupancy figures for our properties owned over six months, our leased and available for lease properties and our aggregate portfolio will converge as the proportion of recently acquired properties declines relative to the size of the entire portfolio. Nevertheless, in the near term, our ability to drive revenue growth will be dependent on our ability to efficiently renovate and lease our newly acquired properties as well as maintain high occupancy in the rest of our portfolio.

Expenses

Our ability to acquire, renovate, lease and maintain our portfolio in a cost-effective manner will be a key driver of our ultimate success. We intend to monitor the following categories of expenses that we expect to most significantly affect our results of operations.

Property-Related Expenses. Once we have acquired and renovated a property, we will have ongoing property-related expenses, including the ongoing operating costs to market and maintain the properties, expenses associated with the turnover of tenants and depreciation and amortization. Certain of these expenses are not subject to our control, including HOA fees, property insurance and real estate taxes. We expect that certain of our costs will account for a smaller percentage of our revenue as we expand our portfolio.

Property Management Services. Renovating, marketing, leasing and maintaining our properties requires a robust property management services infrastructure that our Manager's operating subsidiary provides to us. We utilize a hybrid approach for property management, using our Manager's operating subsidiary's internal team in Phoenix and Atlanta (representing approximately half of our properties) and using third parties in our other markets.

Rather than compensating our Manager's operating subsidiary with commissions or fees based on rental income as under our Predecessor's current management agreement, we will reimburse all costs and expenses of our Manager's operating subsidiary incurred on our behalf, including the compensation of its property management and acquisition staff, related overhead and payments to third-party property managers. In addition to these costs, we will pay a property management fee to our Manager's operating subsidiary equal to 5% of certain compensation and overhead costs incurred as a result of providing services to us, which will reduce the amount of the advisory management fee paid to our Manager by the same amount. This cost pass-through arrangement differs from the arrangement between our Manager's operating subsidiary and our Predecessor, pursuant to which our Predecessor paid fees based on the number of homes acquired, leased and renovated by our Manager's operating subsidiary in addition to compensation based on monthly rental income. This fee structure will allow us to benefit directly from any economic efficiencies gained by our Manager's operating subsidiary in providing the acquisition and property management services, but also subjects us to the risk of cost inefficiencies within our Manager's operating subsidiary.

As a result of the pass-through arrangement under the property management and acquisition services agreement, the costs related to the property management and acquisition services provided in the markets where our Manager's operating subsidiary uses an internal team will largely be tied to the compensation and related overhead of our Manager's operating subsidiary's property management and acquisitions staff as opposed to the number of properties we acquire or our rental income. At the same time, property management and acquisition fees in markets where our Manager's operating subsidiary uses third parties to perform services will be based on our Manager's operating subsidiary's contractual arrangement with these third parties, which generally have one-year terms with month-to-month renewals. The current arrangements between our Manager's operating subsidiary and the third parties for acquisition services pay the third parties a commission for each property acquired for our portfolio, and the property management arrangements pay the third parties a percentage of the rental income and other fees collected from our residents.

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See "Our Manager and the Management Agreement" for further description of the terms of the property management and acquisition services agreement, including the property management fees payable to our Manager's operating subsidiary thereunder and our reimbursement obligations to our Manager's operating subsidiary.

Investment Management and Corporate Overhead. We will incur significant general and administrative costs, including those costs related to being a public company and costs incurred under the management agreement with our Manager. We expect these costs to decline as a percentage of revenue as our portfolio grows. We rely on our Manager to provide or obtain on our behalf the personnel and services necessary for us to conduct our business because we have no employees of our own. Our Manager performs these services for us, and together with our Manager's operating subsidiary, provides us with a comprehensive suite of investment, acquisition and property management services, utilizing the combined expertise of Pine River and Provident. Under the management agreement, we will pay all costs and expenses of our Manager incurred in the operation of its business, including all costs and expenses of running the company, all compensation costs (other than for the CEO and personnel providing data analytics directly supporting the investment function), and all costs under the shared services and facilities agreement between our Manager and Pine River. We will also pay our Manager a quarterly advisory management fee equal to 0.375% (a 1.5% annual rate) of our average fully diluted market capitalization during the preceding quarter less any property management fee paid to our Manager's operating subsidiary.

See "Our Manager and the Management Agreement" for further description of the terms of the management agreement, including the advisory management fees payable to our Manager thereunder and our reimbursement obligations to our Manager.

Predecessor and Provident Results of Operations

As of the date of this prospectus, Silver Bay has not commenced any significant operations because we are in our organizational and ramp up stages and will not have any significant operations until we have completed this offering and the Formation Transactions. The following is a description of the historical results of operations for our Predecessor and the Provident Entities.

Our Predecessor commenced formal operations by acquiring properties in February 2012 and, through September 30, 2012, had acquired a total of 1,667 properties, with 70 homes acquired in the quarter ended March 31, 2012, 632 homes acquired in the quarter ended June 30, 2012, and 965 homes acquired in the quarter ended September 30, 2012. As noted in "—Property Stabilization," it generally takes up to six months to stabilize a property. As of September 30, 2012, a total of 381 of our Predecessor's properties were leased, generating rental income of approximately $0.8 million since March 2012 through September 30, 2012. During the nine months ended September 30, 2012, our Predecessor incurred total direct property expenses of approximately $2.0 million and allocated expenses from its parent of approximately $1.1 million, resulting in a net loss of approximately $2.3 million.

The Provident Entities commenced operations in September 2009 and continued acquiring properties through March 31, 2012, with approximately two-thirds of the properties acquired in 2011 and 2012. As of December 31, 2010 and 2011 and September 30, 2012, the Provident Entities owned 292 properties, 772 properties and 881 properties, respectively. In the second quarter of 2012, our Manager's operating subsidiary began to assume the operations, maintenance and leasing activities for these properties, and as of September 30, 2012, 806 of the properties owned by the Provident Entities were leased. During the years ended December 31, 2010 and 2011, the Provident Entities generated total revenue of approximately $1.9 million and $5.3 million, respectively, and in the nine months ended September 30, 2012, the Provident Entities generated total revenue of $7.5 million. During the years ended December 31, 2010 and 2011, the Provident Entities incurred total certain operating expenses of approximately $1.1 million and $3.8 million, respectively, resulting in revenue in excess of certain operating expenses of approximately $0.8 million and $1.5 million, respectively. In the nine

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months ended September 30, 2012, the Provident Entities incurred approximately $4.0 million in total certain operating expenses, resulting in revenue in excess of certain operating expenses of approximately $3.5 million. The increase in revenue and certain operating expense over these periods is directly attributable to the increase in the number of owned and leased properties described above.

The results of operations for the Provident Entities described above are derived from the audited combined statements of revenues and certain operating expenses for the Provident Entities included elsewhere in this prospectus and prepared on the accrual basis of accounting for the purpose of complying with Rule 3-14 of Regulation S-X of the SEC. Certain historical expenses that may not be comparable to the expenses expected to be incurred in the future have been excluded, including depreciation and amortization and other overhead costs not directly related to our future operations.

During the nine months ended September 30, 2012, our Predecessor spent approximately $178.8 million to acquire 1,667 properties. Before an acquired property is made available for lease, we must possess, renovate and market it. We typically estimate renovation costs to be 10% to 15% of the purchase price, although actual costs may vary significantly based on the market, age and condition of the property. During the nine months ended September 30, 2012, our Predecessor spent approximately $12.6 million on initial property renovations for the properties acquired during that period, which costs are capitalized. Our Predecessor funded all these capital expenditures through capital contributions from its parent.

Similar to our Predecessor, the Provident Entities had to incur renovation costs before an acquired property was made available for lease. The costs incurred varied significantly based on the market, age and condition of the property. The estimated renovation costs incurred by the Provident Entities for the years ended December 31, 2010 and 2011 and the nine months ended September 30, 2012 were $1.4 million, $2.7 million and $2.6 million, respectively.

The following table summarizes the acquisition and leasing activity of our Predecessor and the Provident Entities.



		2010 Acquisitions									2011 Acquisitions									2012 Acquisitions
		Mar. 31, 2010		June 30, 2010		Sep. 30, 2010		Dec. 31, 2010			Mar. 31, 2011		June 30, 2011		Sep. 30, 2011		Dec. 31, 2011			Mar. 31, 2012		June 30, 2012		Sep. 30, 2012
Acquisitions(1)
Provident Entities	57		51		61		87		36	292		79		110		135		156	772		109		—		—	881
Predecessor	—		—		—		—		—	—		—		—		—		—	—		70		632		965	1,667

(1): Represents the number of property acquisitions that were completed by quarterly period and the cumulative total owned at the end of the period. The Provident Entities acquired their first property in September 2009 and their last property in March 2012. Our Predecessor acquired its first property in February 2012 and continues to acquire properties.
(2): It generally takes up to six months to stabilize a property after its acquisition and for it to generate revenue. In addition, properties may be leased more than once in a given period. As of September 30, 2012, 381 of the properties owned by our Predecessor were leased and 806 of the properties owned by the Provident Entities were leased.

Critical Accounting Policies

The preparation of financial statements in accordance with generally accepted accounting principles requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in preparation of the statements. Our significant accounting policies are described below:

Accounting estimates are considered critical if the estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and if different estimates reasonably could have been used in the reporting period or changes in the accounting estimate are reasonably likely to occur from period to period that would have a material impact on our financial condition, results of operations or cash flows.

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Real Estate Acquisition Valuation

Property acquired not subject to an existing lease is recorded at the purchase price, including acquisition costs, allocated between land and building based upon their fair values at the date of acquisition. Property acquired with an existing lease is recorded at fair value (which usually approximates the purchase price), allocated to land, building and the existing lease based upon their fair values at the date of acquisition, with acquisition costs expensed as incurred. Fair value is determined under the guidance of ASC 820, Fair Value Measurements and Disclosures, primarily based on unobservable market data inputs, which are categorized as Level 3 valuations. In making our estimates of fair value for purposes of allocating purchase price, we utilize our own market knowledge and published market data. We are currently utilizing information obtained from county tax assessment records to develop regional averages to allocate the fair value to land and building. The estimated fair value of acquired in-place leases are the costs we would have incurred to lease the property at the date of acquisition, based upon our current leasing activity.

Impairment of Real Estate

We evaluate our long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If an impairment indicator exists, we will compare the expected future undiscounted cash flows against the net carrying amount of a property. Significant indicators of impairment may include declines in homes values, rental rate and occupancy and significant changes in the economy. We plan to make our assessment at the individual property level because it represents the lowest level of cash flows. We will prepare our future undiscounted cash flow analysis using estimates based on current rental rates, renewals and occupancy and using inputs from our annual long-range planning process and historical performance. When preparing these estimates, we will consider each property's historical results, current operating trends, current market conditions, anticipated future capital expenditures and remaining useful life. These estimates may be impacted by variable factors including inflation, expected rental rates, the general health of the economy and market competition. If the sum of the estimated undiscounted cash flows is less than the net carrying amount of the property, we will record an impairment loss for the difference between the estimated fair value of the individual property and the carrying amount of the property at that date. To determine the estimated fair value, we will consider both recent comparable homes sales and the use of discounted projected future cash flows. The rates used to discount projected future cash flows will reflect a weighted average cost of capital based on our capital structure.

Depreciation of Investment in Real Estate

Building depreciation is computed on the straight-line basis over the estimated useful lives of the assets, which is generally 27.5 years, with no salvage value. The value of acquired in-place leases are amortized over the average remaining term of the respective in-place acquired lease, which is generally short term in nature (one or two years).

Revenue Recognition

We expect to lease our single-family residences under operating leases with terms of one year. Generally, credit investigations are performed for prospective tenants and security deposits are obtained. Rental income, net of concessions, will be recognized on a straight-line basis over the term of the lease.

Recent Accounting Pronouncements

Under the Jumpstart Our Business Startups Act, or the JOBS Act, we meet the definition of an "emerging growth company." We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

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As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, fund and maintain our assets and operations, and make distributions to our stockholders and other general business needs. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control. Our near-term liquidity requirements consist primarily of purchasing our target assets, renovating properties, funding our operations and making distributions to our stockholders.

To date, all of the residential properties acquired by our Predecessor and the Provident Entities were purchased with cash and none of these entities has incurred any indebtedness in acquiring its residential portfolios. We are not incurring any debt in connection with the acquisition of the Initial Portfolio or this offering. In the future, we may incur indebtedness to various sources. We may also raise capital in the future through the sale of shares of our capital stock.

The acquisition of properties involves the outlay of capital beyond payment of the purchase price, including payments for property inspections, closing costs, title insurance, transfer taxes, recording fees, and broker commissions and property taxes or HOA fees in arrears. Typically, these costs would be capitalized as a component of the purchase price. We will also make significant capital expenditures to renovate and maintain our properties to our standards. Our ultimate success will depend in part on our ability to make prudent, cost-effective decisions measured over the long term with respect to these expenditures.

To date, we have not declared any dividends. Upon completion of the Formation Transactions, we will elect to be treated as a REIT. As a REIT, under U.S. federal income tax law we will be required to distribute annually at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. Subject to the requirements of the Maryland General Corporation Law, we intend to pay quarterly dividends to our stockholders, if and to the extent authorized by our board of directors, which in the aggregate approximately equal our net taxable income in the relevant year. Future dividends payable are indeterminable at this time.

In connection with the Formation Transactions, Prior Provident Investors will receive approximately $5.1 million, based on an anticipated offering price of $19.00 per share (the midpoint of the price range set forth on the cover of this prospectus). Furthermore, beginning on the date that is 12 months after we complete this offering, Prior Provident Investors who received common units in connection with the Formation Transactions will have the right to redeem all (but not less than all) of their common units for cash, provided that, at the General Partner's election, we may be required to issue shares of our common stock in exchange for the common units. To the extent that we pay cash in the Formation Transactions or redeem the common units for cash, our liquidity will be decreased.

Our Predecessor's liquidity and capital resources as of September 30, 2012 consisted of cash and cash equivalents of $2.8 million and escrow deposits of $34.0 million. Escrow deposits include refundable cash on deposit with property acquisition managers and property managers to be used for property acquisitions, renovation costs for acquired properties, earnest money deposits for broker purchases and tenant security deposits. As of September 30, 2012, for properties acquired through individual broker transactions which involve submitting a purchase offer, our Predecessor had offers accepted to purchase residential properties for an aggregate amount of $14.8 million, however not all of these properties are certain to be acquired as properties may fall out of escrow through the closing process for various reasons.

Upon completion of this offering and our Formation Transactions, we expect to have net proceeds of approximately $229.1 million in cash available to invest in residential properties and for other

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general corporate purposes, in addition to any remaining cash associated with the acquisition of Two Harbors Property. We believe that, upon completion of this offering, and as a publicly traded REIT, the cash provided by our operations, combined with the net proceeds of this offering, will be adequate to fund our business development plan, our operating requirements and the payment of dividends required for us to qualify as a REIT for at least the next 12 months.

Initially, we intend to satisfy our near-term liquidity requirements, including purchasing our target assets, renovating properties and funding our operations with proceeds from this offering, from our existing working capital and from cash provided by our operations. We believe our rental income net of operating expenses will generally provide cash inflows sufficient to fund our operations and declared dividend distributions. However, there may be times when we experience shortfalls which may cause us to seek additional financing to fund our operations or result in us not making dividend distributions. Should these shortfalls occur for lengthy periods of time or be material in nature, our financial condition may be adversely affected.

Our assets are illiquid by their nature. Thus, a timely liquidation of assets might not be a viable source of short-term liquidity should a cash flow shortfall arise that causes a need for additional liquidity. It could be necessary to source liquidity from other financing alternatives should any such scenario arise.

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We have not participated in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

Aggregate Contractual Obligations

Other than agreements to purchase homes entered into in the ordinary course and obligations under our Predecessor's existing property management and acquisition agreements, we had no contractual obligations as of September 30, 2012. Prior to the completion of this offering, we will enter into the management agreement with our Manager and the property management and acquisition services agreement with our Manager's operating subsidiary. Under the management agreement, our Manager will be entitled to receive an advisory management fee and the reimbursement of certain expenses. See "Our Manager and the Management Agreement—Management Agreement." Under the property management and acquisition services agreement, our Manager's operating subsidiary will receive a property management fee and the reimbursement of certain expenses. See "Our Manager and the Management Agreement—Property Management and Acquisition Services Agreement."

We expect to enter into certain contracts that may contain a variety of indemnification obligations, including with brokers and underwriters. The maximum potential future payment amount we could be required to pay under these indemnification obligations may be unlimited.

We may also enter into certain contracts related to office space leases.

Quantitative and Qualitative Disclosures About Market Risk

We do not currently have any market risk sensitive instruments.

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INDUSTRY OVERVIEW AND MARKET OPPORTUNITY

Market Opportunity

The large-scale single-family residential rental industry is relatively new in the United States. Until recently, this industry has been fragmented in both its ownership and operations, consisting primarily of private and individual investors in local markets and managed by local property managers. We believe that recent turbulence in the U.S. housing and mortgage markets, however, has created a unique opportunity to launch a large-scale endeavor as a result of three key factors: housing prices in certain markets at a significant discount to replacement cost, availability of large numbers of single-family properties at these distressed prices and strong demand from tenants for single-family rental properties. We believe these factors present a compelling entry point and opportunity to accumulate a large portfolio of properties at attractive prices and to lease them to qualified tenants for attractive yields.

We view the single-family rental business as a long-term opportunity that is sustainable through economic cycles. At this point in the cycle, we believe that disciplined growth through acquisitions is the most critical component of this opportunity and that we are strategically positioned to continue amassing a portfolio of single-family properties in targeted markets. While single-family properties may not always be as inexpensive to acquire as they currently are, we believe our strategy of building our portfolio and developing operational capabilities now will create a cash flow generating asset base that will increase in value over time. As the housing market recovers and the cost of residential real estate increases, so should the underlying value of our assets. We believe that rental rates will also increase in such a recovery due to the strong correlation between home prices and rents. According to data reported by the U.S. Census Bureau, since 1988 the correlation between the U.S. median asking rent and the U.S. median asking home sales price was over 92%. This trend also leads us to believe that the single-family residential asset class will serve as a natural hedge to inflation. As a result, we believe we are well positioned for the current economic environment and for a housing market stabilization and recovery.

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U.S. Housing Market

Overview

According to the Federal Reserve Board's Flow of Funds Accounts, the U.S. housing stock as of the first quarter of 2012 was an estimated $16.4 trillion market with over 130 million housing units. The chart below provides an overview of the U.S. housing market and its components, as estimated by John Burns Real Estate Consulting.

U.S. Housing Market by Component

¹JBREC calculations, white papers, and estimates of 2012 data using 2010 & 2011 CB figures.
²JBREC extrapolation from Mortgage Bankers Association and Census data.
³JBREC extrapolation from Corelogic published % negative equity.
⁴Assuming all delinquent borrowers have negative equity.
⁵From 1979-2006, average delinquency was 5.7% of outstanding mortgages.
Note that figures are not exact due to overlap (vacant homes with mortgages, etc.).

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Single-Family Home Pricing

Housing prices in certain markets in the United States increased rapidly from 2000 to 2005 and declined sharply from their 2005-2008 peaks through the first quarter of 2009 before leveling off during the past few years. This drop has led to home prices that are low from a historical perspective and as compared to rental rates and replacement costs. The following chart shows this increase and subsequent decline in single-family home prices in the United States since 2000:

U.S. Existing Home Sales Median Price

Source: Bloomberg, utilizing data from National Association of Realtors.

As the result of the drop in home prices, we can currently acquire properties at a significant discount to replacement cost. According to the National Association of Home Builders, the average national construction cost for a typical single-family home in 2011 (excluding land) was $80 per square foot, which is higher than the average cost per square foot of the homes (based on our estimated renovation costs and including land) in our Initial Portfolio.

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Despite the significant decline in housing prices since 2006, pricing appears to have begun stabilizing in certain markets. As the chart below demonstrates, housing in our target markets has increased off of its trough pricing and in some markets is up both in the last quarter and in the last year. Nevertheless, pricing is still significantly below the peak in many markets, offering continued opportunity to acquire additional properties.

Home Price Appreciation (HPA) as of October 2012

Market

Phoenix	-53	%	-43	%	21	%	2	%
Tampa	-49	%	-44	%	5	%	-1	%
Atlanta	-34	%	-26	%	3	%	0	%
Las Vegas	-60	%	-56	%	10	%	2	%
Tucson	-43	%	-38	%	9	%	1	%
Orlando	-55	%	-48	%	8	%	2	%
Northern California(2)	-60	%	-58	%	3	%	1	%
Southern California(3)	-54	%	-51	%	4	%	1	%
Charlotte	-17	%	-10	%	6	%	1	%
Dallas	-15	%	-7	%	5	%	1	%
National	-33	%	-27	%	6	%	0	%

Source: Corelogic.

(1): Peak refers to highest historical home prices in a particular market. Trough refers to lowest home prices in a particular market since the peak.
(2): MSA used for Northern California is Fairfield-Vallejo, which most closely approximates the geographic area in which we purchase homes in Northern California. This MSA is comprised of Solano County and the most populous cities in the MSA are Vallejo, Fairfield, Vacaville, Suisun and Benicia. As of September 30, 2012, we had purchased homes in the following cities outside of the Vallejo-Fairfield MSA: American Canyon, Antioch, Bay Point, Brentwood, Concord, Discovery Bay, El Sobrante, Martinez, Oakley, Pittsburg and San Pablo.
(3): MSA used for Southern California is Riverside-San Bernardino-Ontario. This MSA is comprised of Riverside and San Bernardino Counties and the most populous cities in the MSA are Riverside, San Bernardino, Fontana and Moreno.

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As the housing market recovers and home prices rise, we also expect the value of our properties to increase, providing long-term capital appreciation in addition to our rental income. A September 2012 Zillow Home Price Expectation Survey shows that professional forecasters expect home price to rise in future periods. The survey was compiled from 113 responses by a diverse group of economists, real estate experts and investment and market strategists. The chart below shows the forecasted, cumulative home price changes by quartile among the panelists. These panelists forecast additional increases in U.S. home prices by 2016, ranging from an average forecast of 5.8% for the most pessimistic quartile of projections to an average forecast of 24.2% for the most optimistic quartile of projections.

Supply of Single-Family Rental Properties

Establishment of a large-scale single-family property rental operation requires a significant supply of properties at prices that allow an investor to generate what it perceives to be an attractive yield from rental operations. The current dislocation in the housing market has created a large inventory of properties available for acquisition through real estate owned, or REO, purchases, foreclosures and short sales. These distressed properties generally sell at a discount to comparable non-distressed properties. We believe that distressed properties will be the primary source of single-family rental properties in the coming years.

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Mortgage delinquencies drive the supply of distressed properties. As depicted in the chart below, delinquencies and foreclosures increased sharply beginning in 2006 as compared to historic levels.

Mortgage Delinquencies and Foreclosures by Period Past Due

Source: John Burns Real Estate Consulting, April 2012, utilizing data from Mortgage Bankers Association.

Recently, Bloomberg (based on data from the Mortgage Bankers Association) reported that of the approximately 42.5 million total mortgage loans serviced by Mortgage Bankers Association participants as of the end of the second quarter of 2012, approximately 1.8 million (4.3%) were in foreclosure, 1.3 million (3.0%) were more than 90 days delinquent, 497,000 (1.2%) were between 60 to 90 days delinquent and 1.3 million (3.1%) were between 30 to 60 days delinquent. We believe this analysis indicates a continuing, but decreasing, supply of distressed properties.

Furthermore, negative equity, which means that the mortgage debt on a home exceeds the value of the home, is closely associated with increased delinquencies and foreclosure activity and may result in additional foreclosures unless home prices improve. Corelogic estimated that at the end of the fourth quarter of 2011, 11.1 million (22.8%) borrowers had negative equity and an additional 2.5 million (5.0%) borrowers had less than 5% equity in their homes, which collectively represented 27.8% of all residential properties with a mortgage nationwide.

In addition to the supply of distressed properties, a reduction in homeownership levels would also add to the inventory of available single-family properties, potentially increasing market dislocations caused by the imbalance of supply and demand. The homeownership rate, which reflects the proportion of households who own their homes as opposed to renting, is at the lowest level reported by the U.S. Census Bureau since 1997, which we believe is a result of borrowers losing homes to foreclosure and tighter credit standards keeping buyers out of the market. The Census Bureau reported a 65.5% homeownership rate as of the end of the second quarter of 2012. However, in August 2012, John Burns Real Estate Consulting estimated the "real" homeownership rate, which it defined as the percentage of households that own a home and are not 90 days or more delinquent on their mortgage, to be 62.1%. This represents approximately 3.8 million homeowners who are at least 90 days delinquent on their mortgage, a significant portion of whom may enter the rental market, increasing both the number of households needing rental housing and the supply of properties available for purchase.

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Single-Family Property Rental Market

Single-family rental property has historically been an attractive investment class due to its ability to generate a relatively stable income stream, accompanied by the potential for capital appreciation. According to John Burns Real Estate Consulting, single-family rental properties represent 13.6 million, or approximately one-third, of the 40.6 million renter-occupied units in the United States compared to 25.1 million multifamily units and 1.9 million units of other asset types. Despite representing a significant portion of the U.S. rental stock, larger institutional investors have not historically owned portfolios of single-family properties and have instead focused on medium to large sized multifamily properties. This has left smaller, local investors as the predominant owners of single-family and smaller multifamily properties. Recently, however, the acquisition and management of single-family properties has attracted significant interest from larger investors. We believe this interest has grown and will continue due to the significant number of homes available at attractive prices and due to investor expectations regarding the ability to generate attractive rental yields.

Demand for Single-Family Rental Housing

As demonstrated by the chart below, rentals as a percentage of the total housing market are increasing, while the percentage of owned homes is decreasing despite improved affordability of homeownership due to low mortgage rates and housing prices. This shift from homeownership to renting is the result of multiple factors. Many previous homeowners are now being forced to rent because of the effect of foreclosure, short sales and other issues on their credit records. A home foreclosure, for example, has a significant adverse effect on credit status and remains on a credit report for up to seven years. Stricter lending standards have also made it more difficult for individuals to obtain loans to purchase homes. Others who might have purchased houses in the past have decided not to do so at this time due to loss of equity in their prior or current home, to maintain geographic job flexibility or because of a lack of confidence in the labor market. The unemployment rate is expected to remain higher than historical average levels. Kiplinger recently forecast that the unemployment rate

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will fall slightly to around 8% by 2013, a figure that remains well above the average unemployment rate from 1948-2011, which was 5.8%.

Percentage of Homeowners vs. Renters

Sources: Department of Commerce, U.S. Census Bureau.

We expect that the residential rental market will continue to grow, driven in significant part by distressed owners who are displaced and converted to renters. According to estimates by John Burns Real Estate Consulting from March 2012, the residential rental market will grow by approximately 8.2 million households between 2010 and 2015 while homeownership during the same period will decrease by approximately 1.3 million households. John Burns Real Estate Consulting estimated that 3.9 million homeowners will be displaced and converted to renters between 2010 and 2015.

We believe that many homeowners displaced by foreclosure will prefer to live in single-family rentals with similar characteristics and amenities to their former houses. Single-family rental properties have advantages over apartments, where smaller spaces, shared amenities and the proximity of neighbors may be less desirable. A displaced household with school-aged children, for example, may seek a rental home in the same area, to avoid having to change schools. We believe that many of these households will welcome the opportunity to rent a house from a professionally managed, financially stable company. A study issued by the Federal Reserve in May 2011 indicates that approximately 75% of households live in single-family properties after going through foreclosure. We believe that a significant portion of these households will be renters and that this trend should continue as more families grapple with foreclosures and negative equity.

In addition to the increased demand from displaced homeowners, we believe a rise in household formations would also drive demand for housing, including single-family rentals. The chart below depicts the level of household formation versus single unit housing starts (new homes) and shows a significant decline in household formation since 2007, a trend that we believe has been caused primarily by young adults remaining or temporarily moving in with their parents because of difficult economic times, and that as the economy improves and the housing market stabilizes, household formations will increase as those same young adults seek independent dwellings.

This same chart also indicates a supply constraint for single-family properties because household formations have exceeded housing starts since 2010. This constraint implies that the increased demand for housing will be met in significant part by existing as opposed to new housing. Converting existing

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foreclosed and unoccupied homes into rental properties will help meet some of the anticipated increased demand. At the same time, the supply of new housing should continue to be constrained until home prices increase relative to the costs of new construction, which in turn should result in increased rental rates as described above.

Household Formations vs. Single-Unit Housing Starts
(in thousands)

Source: U.S. Census Bureau.

Key Elements of a Single-Family Rental Strategy

In order for an institutional manager and operator of single-family rentals on a large-scale basis to be successful, we believe it must: (i) ensure asset quality by building a multi-channel acquisition platform that enables it to achieve scale and acquire a large portfolio of homes in accordance with a disciplined investment policy; (ii) provide rental homes renovated to a modern rental standard with a high level of service to tenants, resulting in low turnover rates and high levels of occupancy; (iii) build a sophisticated infrastructure to oversee maintenance on a geographically diverse and unique asset class, and achieve economies of scale; and (iv) possess advanced technological systems to help manage the portfolio and provide top tier customer experience and services. Our Manager's ability to implement these activities is highlighted in "Business—General Business Strategy and Growth Opportunities."

Investment Strategy, Acquisition Infrastructure and Scale

The single-family rental business, like multifamily or other real estate rental operations, is, at its core, about the real estate. As a result, it is important that the acquirer be selective and disciplined in its acquisition of attractive, well-located properties that align with a set of pre-defined investment and acquisition criteria. At the same time, an institutional manager of single-family rental properties must acquire a sufficient portfolio of properties to allow it to achieve scale in its operations. In order to build scale while also meeting selective investment criteria, it is critical to have a robust acquisition infrastructure that enables the efficient deployment of capital through multiple channels. Our recent acquisition pace was approximately 300 homes per month, which we believe to be significant for an institutionally managed real estate business. An institutional manager of single-family rental properties driven by a disciplined investment approach will help ensure high quality of assets, create favorable leasing characteristics and produce attractive risk-adjusted returns for stockholders.

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Leasing Process and Customer Service

Single-family rentals appeal to those who either do not want to or cannot own their primary residence but seek more space and privacy or different living characteristics than those typically provided by multifamily units. Real estate alone, however, will not be the only factor influencing the decision of whether and what to rent. An institutional manager will need to provide high quality leasing and management services similar to many traditional large-scale multifamily apartments in order to attract and retain tenants.

Property Renovation, Maintenance and Management

Property renovation, regular maintenance, monitoring and budgeting for capital expenditures are critical aspects of a successful institutionally integrated operator of a geographically diverse single-family rental business. We believe that carefully managing capital expenditures related to renovating and maintaining the real estate we own will be an important factor driving overall profitability of our business. To do so, a manager must develop a strong project management and maintenance infrastructure across target markets, which consists of fully integrated offices in regional markets where sufficient scale exists and an additional network of local industry relationships with third-party property managers, contractors, agents and maintenance experts in the remaining markets.

Advanced Technological Systems

We believe technology will play an important role in the successful management of a diverse portfolio of single-family properties spread across various markets. This business requires maintenance and careful management of a large quantity of data. It is critical to be able to access real-time information on an individual property regardless of its location to allow for quick responses to any potential issues with the tenants or the property. In addition, accounting, reporting and billing infrastructure needs to be well designed to allow for efficient tracking of billing, lease payments, contractor invoices, and other operating expenses.

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BUSINESS AND PROPERTIES

Our Company

Silver Bay Realty Trust Corp., or Silver Bay, is a newly organized Maryland corporation focused on the acquisition, renovation, leasing and management of single-family properties. We generate virtually all of our revenue by leasing our portfolio of single-family properties and, from this revenue, expect to pay the operating costs associated with our business and any distributions to our stockholders. Our principal objective is to generate attractive risk-adjusted returns for our stockholders over the long term, primarily through dividends and secondarily through capital appreciation. We seek to establish a reputation as a good landlord to our tenants and a good neighbor in the communities where we operate. We believe that we can achieve economies of scale and develop a valuable consumer brand and that we are well positioned to be a market-leading firm in the single-family rental industry.

We are externally managed by PRCM Real Estate Advisers LLC, or our Manager, and will rely on our Manager to provide or obtain on our behalf the personnel and services necessary for us to conduct our business as we have no employees of our own. Our Manager is a joint venture of Pine River Domestic Management, L.P., or Pine River, and Provident Real Estate Advisors LLC, or Provident. Silver Bay Property Corp., or our Manager's operating subsidiary, is a wholly owned subsidiary of our Manager. As of the date of this offering, our Manager and our Manager's operating subsidiary together provide us with a comprehensive suite of investment, acquisition and property management services, utilizing the combined expertise of Pine River and Provident.

Upon completion of this offering and the Formation Transactions, we will own more than 3,100 single-family properties in ten markets located in Arizona, California, Florida, Georgia, Nevada, North Carolina and Texas. Our properties are located in target markets that we view as desirable because they have an oversupply of properties that can be acquired at attractive prices, favorable demographics and long-term economic trends and healthy demand for rental properties.

For further information regarding the terms of the Formation Transactions, including the benefits to related parties, see "Structure and Formation of Our Company—Formation Transactions."

We intend to continue acquiring single-family properties located in our target markets through a variety of acquisition channels, including foreclosure auctions, online auctions, brokers, multiple listing services, short sales and bulk purchases from institutions or investor groups disposing of portfolios of real estate owned by them. Upon completion of this offering, we will acquire more than 3,100 single-family properties, have net proceeds of approximately $229.1 million in cash plus any remaining cash contributed to us pursuant to the Formation Transactions, which will be available for pending and future acquisitions and working capital, and have no outstanding indebtedness.

Our History and Manager

Our Manager is a joint venture between Provident and Pine River, which is an affiliate of both Pine River Capital Management L.P. and PRCM Advisers LLC, the external manager of Two Harbors. Our Manager was established with the mission of providing institutional capabilities in single-family property acquisition, renovation, management and leasing to an industry that has traditionally been fragmented in both its ownership and operations. Our Manager currently provides property management and acquisition services to Two Harbors Property and property management services to the Provident Entities.

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properties through five private limited liability companies for which it serves as the managing member. We refer to these limited liability companies as the Provident Entities and will acquire them in the Formation Transactions. The Provident Entities are no longer raising additional funds or acquiring additional properties.

Pine River is a global asset management firm with institutional capabilities in managing new ventures, risk management, compliance and reporting. With more than $10 billion in assets under management as of September 30, 2012, Pine River has valuable industry and analytical expertise, extensive long-term relationships in the financial community and established fixed-income, mortgage and real estate investment experience. In addition, Pine River's experience in launching and managing a growing public REIT, Two Harbors Investment Corp., or Two Harbors, a publicly traded mortgage REIT, provides us with knowledge, expertise and experience in managing Silver Bay.

In the first quarter of 2012, Two Harbors Property, a subsidiary of Two Harbors, began acquiring a portfolio of single-family residential properties to rent for income and to hold for investment. As of September 30, 2012, Two Harbors Property had purchased approximately 1,660 single-family properties in Phoenix, Tampa, Atlanta, Las Vegas, Tucson, Orlando, Northern and Southern California and Charlotte, at a total cost of approximately $178.8 million. As of the date of this prospectus, Two Harbors Property owns more than 2,200 properties and continues to acquire properties in its target markets, which were recently expanded to include Dallas.

Our Manager's headquarters are located in Minnetonka, Minnesota, and its operating subsidiary has offices in Minnetonka, Phoenix, Arizona, Atlanta, Georgia, Las Vegas, Nevada, Northern and Southern California, Charlotte, North Carolina and Dallas, Texas. Since its formation in December 2011, our Manager has made significant investments to assemble acquisition and property management teams in our target markets. Our Manager's operating subsidiary currently has more than 55 employees and is a fully licensed real estate broker in the markets where we acquire properties. Our Manager has also made significant investments in a technology infrastructure, building proprietary valuation models and other analytical tools in order to assess market opportunities and our portfolio as a whole, and is developing customized technology to more efficiently acquire and manage properties and provide a high level of customer service to tenants.

Initial Portfolio

Concurrently with the closing of this offering, we plan to complete the Formation Transactions, pursuant to which we will acquire, through a series of contribution and merger transactions, Two Harbors Property and the Provident Entities, including the portfolio of single-family properties held by them in exchange for shares of our common stock and our cumulative redeemable preferred stock, common units in the Operating Partnership and approximately $5.1 million in cash. As of the date of this prospectus, this portfolio consists of more than 3,100 single-family properties. Our portfolio will increase by additional properties purchased by Two Harbors Property prior to the closing of the Formation Transactions. We refer to this portfolio as our Initial Portfolio.

Our Initial Portfolio currently consists of a diversified pool of single-family properties located in ten target markets in Arizona, California, Florida, Georgia, Nevada, North Carolina and, most recently, Texas. The table below provides a summary of our Initial Portfolio as of September 30, 2012:

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Initial Portfolio of Single-Family Homes as of September 30, 2012

				Average Monthly Rent for Leased Properties(2)

Phoenix	786	15.8	1,730	$	1,026
Tampa	629	19.0	1,733		1,261
Atlanta	439	15.6	2,072		1,203
Las Vegas	161	12.1	1,765		1,126
Tucson	150	40.3	1,342		833
Orlando	78	15.4	1,940		1,313
Northern CA	167	37.0	1,503		1,539
Southern CA	127	37.9	1,376		1,115
Charlotte(3)	11	10.5	1,946		—

Totals	2,548	20.2	1,744	$	1,137

(1): As of September 30, 2012, approximately 32% of the properties in the combined portfolio were less than 10 years old, 29% were between 10 and 20 years old, 14% were between 20 and 30 years old, 13% were between 30 and 40 years old, 5% were between 40 and 50 years old, and 7% were more than 50 years old.
(2): Average monthly rent for leased properties was calculated as the average of the contracted monthly rent for all leased properties as of September 30, 2012. To date, rent concessions have been utilized on a limited basis and have not had a significant impact on our average monthly rent. If the use of rent concessions or other leasing incentives increases in the future, they may have a greater impact by reducing the average monthly rent we receive from leased properties.
(3): As of September 30, 2012, there were no properties yet leased in this market.

The map below depicts the geographic distribution of our Initial Portfolio as of November 15, 2012, as well as the current property management infrastructure, which includes our Manager's internal teams in Phoenix and Atlanta and third-party property managers in our other target markets.

Geographic Distribution of Initial Portfolio
(Percentages based on number of homes)

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Our Strengths

Existing Portfolio of Single-Family Residential Rental Properties

As part of the Formation Transactions and upon completion of this offering, we will acquire a cash-generating portfolio of more than 3,100 single-family rental properties. Because our portfolio was originally acquired by members of our Manager through use of the same acquisition infrastructure we will use following the offering, it demonstrates our Manager's ability to identify target markets that meet our criteria for depressed home prices and strong rental demand, to deploy significant amounts of capital in our target markets to achieve scale in a given market and to successfully execute our business strategy. We believe that the experience gained in acquiring this portfolio will allow us to continue to build our portfolio in an efficient manner.

Multi-Channel Acquisition Platform Supported by a Disciplined and Proven Acquisition Strategy

Our Manager has developed expertise in the single-family housing market, invested in significant infrastructure and established many industry relationships, which together provide us with an institutional platform for our institutional single-family rental business. Our Manager has also developed proprietary systems and tools that allow us to efficiently screen target properties for those investments that meet our acquisition criteria. These tools and infrastructure are important because they enable us to effectively use multiple channels for our property acquisitions, including foreclosure and online auctions, brokers, MLS listings and bulk purchases. As evidenced by our Initial Portfolio and recent acquisition track record, this multi-channel acquisition infrastructure allows us to quickly and efficiently accumulate significant numbers of properties in one or multiple transactions.

Our acquisition strategy couples our multi-channel acquisition infrastructure with a disciplined property selection process. This property selection process begins with a broad-based market assessment of various housing markets to identify attractive markets and investment opportunities. We then utilize what we believe are appropriate assumptions when valuing prospective properties and continually review and adjust them to incorporate new market data and trends. We seek properties that meet our investment criteria, and we do not make purchases for the sole purpose of deploying capital at predetermined speeds. We believe this disciplined approach will help us avoid overpaying for properties and allow us to focus on the best return opportunities. We ultimately only make offers on a small percentage of the assets that we analyze, research and submit bids on. Current valuations in our target markets should permit us to effectively use our disciplined property acquisition strategy while maintaining adequate capital deployment rates. In addition, we believe that our strategy of investing in multiple markets gives us flexibility to deploy capital and helps diversify our portfolio and mitigate risk and overexposure to any single market.

Established and Scalable Maintenance and Property Management Infrastructure

We believe that our Manager's centralized property management and monitoring infrastructure, combined with local personnel located in our target markets, enables us to provide an institutionalized approach to managing a geographically diverse portfolio of single-family properties. Our Manager manages our portfolio through a well-developed local market infrastructure, which includes its own offices and personnel in some markets and third-party managers where appropriate. Our Manager's network of local industry relationships with third-party acquisition and property managers, contractors, agents and maintenance experts complements its internal expertise and allows it to provide a full suite of property management services. Our Manager's leasing operations also utilize a wide spectrum of marketing, tenant sourcing and leasing techniques from traditional newspaper ads and yard signage to online social media and website marketing to lease our properties to qualified tenants following stabilization and upon vacancy. Additionally, as part of our post-leasing and ongoing property management activities, our Manager's local teams will be involved in periodic site visits to monitor the use of our assets, to ensure compliance with homeowners' association rules and regulations and to demonstrate our commitment to provide superior single-family rental homes and service to our tenants.

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Experienced Management Team Supported by Analytics, Research and Housing Market Expertise

Our senior management team and that of our Manager includes individuals with decades of experience in the real estate and housing finance markets. Throughout their careers, these executives have managed various real estate-related businesses and executed structured real estate and financing transactions through multiple market cycles. In addition, Pine River has demonstrated a strong track record managing Two Harbors, a public REIT focused on acquiring and managing billions of dollars of residential mortgage-backed securities and other real estate related assets.

Our management team is supported by an extensive real estate finance analytical infrastructure developed by Pine River, from which we will benefit. Our Manager has also begun to develop an analytics/technology platform that will enable it to take a quantitative approach to efficiently manage a large portfolio of single-family rental homes. Our Manager has developed several proprietary tools including an automated valuation model, auction bidding technology and a database to track the status of our assets across our markets. The analytics platform is intended to monitor the portfolio and individual properties on a real-time basis, and to monitor publicly available data in each market to compare our portfolio's rent and occupancy statistics among our target markets and to those of the greater market. Gathering and analyzing real-time information such as single-family rental demand, inventory of homes, leasing rates and other data in our markets will allow us to run our business more efficiently.

We will also use our Manager's technology to provide high quality tenant services and believe it will eventually help us dispatch maintenance staff to service calls quickly and efficiently. We believe that technology is a critical component of our execution capabilities and it will enable us to scale our capabilities across multiple markets.

Commitment to Providing Institutional Platform and Excellence to Single-Family Residential Rental Market

The single-family residential rental market has historically been fragmented in both ownership and operations. We believe there is an attractive opportunity for an integrated institutional platform devoted to professionally managing a portfolio of single-family rental properties on a large-scale basis across multiple markets. Our strategy revolves around providing high quality institutional services to our rental tenants similar to that found in the multifamily sector. Our Manager is creating operations within each of our target markets that focus on customer service, maintenance, leasing, marketing and other services. We will strive to ensure a consistently high level of service and to standardize our best practices to provide customer satisfaction and to develop a trusted brand. We believe that over time, tenants will want to rent homes from an established institutional manager from which they can expect to receive high-quality services and homes.

General Business Strategy and Growth Opportunities

We intend to hold our properties over the long term. Although we may consider the opportunistic disposition of assets, we have no pre-set investment horizon that would require their sale. As a long-term investor, we seek to align our interests with those of local communities in which our properties are located. We recognize that the opportunities we intend to pursue in the residential real estate market result in part from great strains on the local communities caused by falling home prices, foreclosed and distressed properties, neglected and abandoned homes and a glut of relatively inexpensive housing inventory. We believe that our focus on renovating and maintaining the physical quality of our homes and our desire to keep rent-paying tenants in houses offers the best solution to

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maintaining property values and the quality of the neighborhoods in which we invest. We also believe that our strategy will help to improve the balance and stability of communities that have suffered steep home price declines, and that by acquiring foreclosed, distressed properties, we will help clear excess inventory while making those communities more attractive.

Our Target Markets

We employ a top-down selection process in our investment strategy. We start by identifying what we believe are the most attractive markets in the country for developing a single-family rental business, conducting extensive research and analysis on existing and potential target markets in order to fully evaluate existing and future housing dynamics. Housing prices and rental demand are driven in part by macroeconomic and demographics factors. We scrutinize many of these factors including existing supply of homes, vacancy, prior and projected population and household growth, prior and projected migration, regional market-building activity, mortgage delinquency figures, employment trends, income ratios and price-to-rent ratios. A small subset of these market-level statistics is highlighted below. We believe our initial target markets provide ample opportunity for growth while allowing flexibility in deploying capital.

In addition to market-level statistics, we incorporate local knowledge of communities and subdivisions in order to understand the fundamentals of the housing markets in which we operate. Our Manager has developed a regional market infrastructure with personnel working and residing in our current target markets who have extensive knowledge of those markets and broad relationships across various constituencies. We believe that this centralized, integrated institutional platform with a strong local presence and an ability to scale is critical to success in the single-family residential rental business.

The table below sets forth certain criteria that our Manager analyzes in the markets that comprise our current portfolio or in which we expect to purchase property. We continue to acquire properties in these markets and will also opportunistically explore new markets using similar criteria.

Key Criteria for Our Target Markets

	Phoenix		Tampa		Atlanta		Las Vegas		Tucson		Orlando		Northern California(3)		Southern California(4)		Charlotte		Dallas

Total Housing Units (2011)(1)		1,813,000		1,360,000		2,170,000		848,000		442,000		950,000		153,000		1,509,000		743,000		2,533,000
Median House Price (2011)(1)	$	155,600	$	137,400	$	166,100	$	153,800	$	165,700	$	152,400	$	256,400	$	217,800	$	166,100	$	147,700
Estimated Current Population (2011) (in thousands)(1)		4,263		2,825		5,366		1,970		990		2,171		416		4,305		1,795		6,527
Population Growth (2005-2011)(1)		12.0%		8.8%		11.1%		16.5%		9.6%		14.1%		5.3%		12.5%		20.4%		14.0%
Estimated Median Household Annual Income (2011)(1)	$	50,058	$	43,832	$	52,639	$	48,215	$	44,112	$	46,123	$	63,795	$	52,042	$	50,671	$	56,543
Average Building Permits (2009, 2010, 2011)(1)		8,884		6,602		7,581		5,436		2,103		5,415		480		5,802		6,275		21,585
Average Building Permits (1995-2011)(1)		39,100		18,179		48,795		26,193		6,577		21,044		1,905		22,851		17,755		43,307
Unemployment (Sep. 2012)(2)		6.9%		8.7%		8.4%		11.5%		7.0%		8.4%		9.3%		11.6%		9.1%		6.3%

(1): Source: U.S. Census Bureau.
(2): Source: Bureau of Labor Statistics.
(3): Northern California is represented by MSA Vallejo-Fairfield, which most closely approximates the geographic area in which we purchase homes in Northern California. This MSA is comprised of Solano County and the most populous cities in the MSA are Vallejo, Fairfield, Vacaville, Suisun, and Benicia. As of September 30, 2012, we had purchased homes in the following cities outside of the Vallejo-Fairfield MSA: American Canyon, Antioch, Bay Point, Brentwood, Concord, Discovery Bay, El Sobrante, Martinez, Oakley, Pittsburg and San Pablo.
(4): Southern California is represented by MSA Riverside-San Bernardino-Ontario. This MSA is comprised of Riverside and San Bernardino Counties and the most populous cities in the MSA are Riverside, San Bernardino, Fontana and Moreno.

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Property Selection Criteria

To help standardize acquisitions and to grow our business, we have developed certain criteria to guide our property selection process, some of which are presented below.



Segment of Housing Stock		• Entry-level single-family homes
		• Home size and price
		• Rent vs. purchase affordability

Vintage		• Age and condition of a property
		• Expected annual maintenance costs

Location		• Proximity to major employers
		• Ease of transportation/commute
		• Neighborhood
		• Homes that are part of cluster/community vs. "free standing"
		• Proximity to other properties in our portfolio
		• School districts and property taxes
		• Homeowners' association and rules

Property Description		• Size/square footage
		• Number of rooms (beds/baths)
		• Basements (finished vs. unfinished)
		• Pools
		• Lot size

Renovations Required		• Need and cost of renovation required vs. acquisition price and available rents in the market
		• Ranges of renovation acceptable

Acquisition Cost		• Price vs. estimated replacement cost

Rental Rates		• Focus on attractive risk-adjusted net rental yields

After we have identified a property as meeting our acquisition criteria, we employ a rigorous underwriting process that involves physical inspections whenever possible and a review of title to the property. We visit substantially all properties before purchase and when possible perform an interior inspection. If we are unable to inspect the interior of a property prior to acquisition, our regional personnel utilize our vast database of prior acquisitions to guide estimates of potential renovation costs. Our regional market infrastructure allows for efficient site visits, neighborhood evaluations and property inspections. Our expertise in housing market trends, extensive databases of local market statistics and on-the-ground personnel provides an ability to quickly assess rental rates and potential tenant pool availability.

We also conduct preliminary title work before each purchase, especially important in situations where a title policy will not be available prior to closing. We utilize closing agents and title insurance providers at the local level because we believe these relationships provide the most benefit as many help with services such as preliminary title checks that help us through the diligence process.

Our Manager has built a proprietary database specifically designed to help with the underwriting, closing and documentation processes. This database helps track individual properties giving us the ability to store and track closing documents and property specific details and centralizes all data so that it can be reviewed by the central office at any time. Our Manager has also developed internal systems, infrastructure and personnel focused on legal documentation and closing of transactions. In addition, our Manager's ability to navigate local markets and state-specific laws and regulations on property acquisitions and rentals helps us scale our business and expand it in an efficient manner.

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Acquisition Channels and Infrastructure

Our Predecessor and Provident have acquired and we will continue to acquire properties through multiple channels, including foreclosure and online auctions, listed sales of lender owned property, brokers, short sales, bulk purchases and traditional MLS-listed properties. The ability to effect transactions through each of these channels has enabled us to achieve a rapid acquisition pace but also requires a robust infrastructure. We utilize a hybrid approach for property acquisitions, using our Manager's operating subsidiary's internal teams in certain markets and using third parties in our other markets. For acquisitions in the Phoenix, Atlanta, Las Vegas, Northern and Southern California, Charlotte and Dallas markets, our Manager uses its internal teams of more than 30 brokers and sales agents. Our Manager relies on third parties to provide such services in the Tampa, Tucson and Orlando markets and will evaluate future markets on a case-by-case basis as we expand. This approach enables us to take advantage of local knowledge and rental trends in making pricing decisions and pursuing our acquisition strategy.

The chart below shows the pace of monthly acquisitions by Two Harbors Property beginning in the first quarter of 2012 through October 31, 2012 and reflects total transactions closed in a period and does not reflect accepted purchase agreements that have not yet closed:

Two Harbors Acquisition Pace

*: Purchase price does not include commissions, closing costs or initial renovation expenses.

For purposes of this chart:

"Broker" refers to a purchase of a single property directly from the owner, including REO, short sales and properties listed on a multiple listing service.

"Auction" refers to properties purchased at trustee or judicial auctions.

A further description of each of these purchase methods is provided below.

Foreclosure and Online Auction Purchases. Our Predecessor and Provident have acquired most of their properties to date through auction purchases. Properties become available at auction when a person with a lien on the property forecloses on the lien. The property is then sold at auction, either by a court or trustee, in order to satisfy the debt owed to the lien holder. Auction processes vary significantly between jurisdictions driven by differences in state and local laws. In all cases, the careful

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evaluation and purchase of properties at auction requires a substantial investment of time and the ability to be nimble and disciplined on the day of the sales, as auctions tend to be fast-paced and disorganized. Our Manager's local teams have experience in evaluating target assets, conducting due diligence and bidding at foreclosure auctions and have developed the necessary skills to compete effectively within the parameters of the local rules. Additionally, our Manager has developed proprietary software to provide analytical support to our workforce, enabling them to quickly screen available properties according to a set of guidelines designed to ensure that acquisitions are in compliance with our overall strategy.

Broker Purchases, Including REO and Short Sales. We have and will continue to make purchases of single properties through direct contracts with property owners. Most of the single property purchases made outside of the auction channel involve sales of REO property or short sales listed through a broker or a local multiple listing service. REO refers to real estate owned by financial institutions or GSEs that they acquired by foreclosing on a mortgage or deed of trust and successfully bidding for the property at the ensuing auction. Short sales refer to properties sold by the homeowner for an amount less than the amount owed to lenders with a lien on the property. Because the purchase price will not satisfy the amounts owed, short sales require lender consent.

In order to purchase a high volume of listed properties, we must assess a significant number of properties and make offers on many, all of which requires a substantial amount of dedicated effort. We believe the size and efficiency of our Manager's acquisition team, together with our Manager's technological systems that enable faster property evaluations, allow us to effectively pursue this strategy.

Bulk Purchases. We also expect to acquire properties through bulk purchases from financial institutions or other property owners, although we do not anticipate this channel will provide a predictable, consistent supply. Many financial institutions, including GSEs, hold large portfolios of REO property. In addition to selling these properties individually through a broker or a multiple listing service described above, since the beginning of 2012, financial institutions have begun bundling and selling these properties in bulk sales. Our Predecessor acquired approximately 120 properties in such sales and we anticipate bidding on bulk REO portfolios in the future. We believe that our deep relationships with many of the entities who are potential bulk sellers will enhance our ability to participate in and negotiate such sales. We also expect that private investors will begin offering portfolios of properties for sale in the coming years and expect an opportunity to bid on such portfolios.

Performing adequate due diligence on a bulk portfolio requires a high volume of work, some of which can be accomplished through the use of our analytics systems and the rest of which requires substantial amounts of time and labor. Because of the scope of our Manager's acquisition infrastructure and the prior experience of our Manager's personnel, we are well positioned to perform these assessments without substantially disrupting the rest of our acquisition operations.

Property Renovation, Leasing and Management

We believe we can differentiate ourselves from most other rental managers in our target markets by continuing our drive to institute a quality and consistency of customer service, maintenance, leasing, marketing and other services. Our Manager is focused on the full spectrum of the property management process, engaged in all required activities from the moment a property is identified and acquired through obtaining possession, renovation, marketing, tenant identification and screening, leasing, rent collections, tax and homeowners' association disbursements and ongoing property maintenance.

The single-family rental business requires hands-on asset management capabilities and an integrated infrastructure in order to address a large-scale portfolio that is geographically dispersed. To support the portfolio and support the scalability of our property management operations, our Manager uses a solid staffing base, an efficient information technology infrastructure, outsourced vendors and a mix of in-house and third party managers. We believe we will be able to realize economies of scale

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through a superior technological platform and increasing portfolio size that will benefit investors by improving our expense ratios while providing institutional compliance, risk management and transparent reporting.

Our Manager's core operations team, who oversees our renovation and property management teams, has substantial experience in residential property management. To implement our property management strategy, we are focused on using a centralized structure with significant local presence and expertise. Our Manager uses internal teams consisting of more than 25 employees in the Phoenix and Atlanta markets and rely on third parties to provide property management services in the Las Vegas, Tampa, Tucson, Orlando, Northern and Southern California, Charlotte and Dallas markets.

Property Renovation and Maintenance. Most of the properties we acquire require some level of renovation and standardization before they are ready for leasing. We maintain consistent, system-wide standards for our properties that are implemented at the local level. Upon acquisition, our local teams determine the work needed to bring a property up to our desired standards and identify potential improvements that may increase attractiveness to potential tenants, reduce future maintenance expense and generally increase the long-term value of the property. Our teams then work closely with local vendors and contractors to perform this work.

In markets where we have an internal property management team, our project managers oversee the work of local contractors engaged to renovate our homes. In markets where we rely on third-party managers, those managers oversee renovations, each having been trained with respect to our expectations and standards.

Our renovation and maintenance approach is generally consistent across the various acquisition channels employed in building the investment portfolio. We are focused on maximizing long-term rental income and cash flows from our portfolio. As a result, our maintenance and renovation team strives to minimize the time required to renovate the property and prepare it for marketing and leasing. Depending on the market, we have historically been able to make the vast majority of our properties ready for lease within three to six months from the date of purchase, which includes time to obtain possession, renovate, and market for leasing.

We believe there are economies of scale embedded in many aspects of the single-family residential rental business ranging from property acquisition to operations and management. We believe our scale will allow us to negotiate favorable rates on outsourced maintenance activities. Because of the high volume of business we do in our target markets we are able to get volume pricing from contractors and sub contractors and have been able to purchase materials at discounts through local and national buying programs.

Leasing and Marketing. We utilize the efforts of our local personnel and relationships with real estate agents in our target markets to advertise and lease our properties. In order to minimize the time to rent from initial listing, we market our properties through a variety of channels, including real estate brokers, newspapers and internet sites and the MLS.

Prospective tenants are required to undergo background checks that include income verification, employment history, criminal record check, income-to-rent ratios, and credit score. We believe our focus on tenant screening will allow us to minimize charge offs and evictions.

The vast majority of our leases are structured for 12 months. Under our leases, our tenants are responsible for utility payments and, typically, yard and garden maintenance. Security deposits are required for all leases and are refunded or forfeited after expiration of the lease in accordance with applicable law.

As part of our ongoing property management and monitoring activities, our local teams will be involved in periodic site visits. This will help us monitor the condition and use of our assets, compliance with homeowners' association rules and regulations and will demonstrate our commitment to our tenants. We believe that better service could result in lower turnover rates than our competition. Single-family home renters usually have stronger ties to the community and are less likely to want to

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move than their multifamily counterparts and as a result, we believe the turnover rate for single-family homes is significantly lower than multifamily rentals.

Portfolio Management

As our portfolio matures, we will periodically review our properties, and will consider selective sales of properties to improve and rationalize the portfolio. The REIT rules impose certain limitations on the number and manner of any such sales.

Technology

We endeavor to become a leader in the single-family rental business and see a robust analytics platform as imperative to this goal. As a first step towards this goal, our Manager hired an experienced director of data analytics who has been responsible for building its analytics platform, specifically the Automated Valuation Model, or AVM. Our AVM provides two main functions: (1) quick and accurate assessment of potential acquisitions on both an individual and bulk basis and (2) continual evaluation of our existing portfolio to help gauge performance. To better track market specific data, work has begun on a local market overlay system that will allow us to access real-time market data down to the zip code level. This will provide the data that is essential in order to conduct a quick and thorough analysis of our local markets and to adjust our strategy to coincide with changing market conditions.

Given the operationally intensive nature of this business, it is also important to develop an information technology infrastructure that can help realize desirable economies of scale. To centralize all our properties and the related data, our Manager has developed Abacus, a proprietary cloud-based database platform. Abacus enables our local market teams to enter and edit property data continuously via their desktop or mobile device. Simultaneously, the corporate offices are able to track acquisition, renovation and property management activity without the delay associated with many other systems.

The rest of our information technology infrastructure is provided by cloud-based vendors who provide scalable solutions that help prevent such infrastructure from becoming an impediment to growth. For example, in order to manage property management duties associated with bill payment, rent collection, rental availability and other property management duties, we use a nationally recognized property management software program that feeds directly to our website to provide ease of use to our tenants. Harnessing technology such as this will be essential to the eventual success of our business, and the cloud-based vendors providing the bulk of our information technology infrastructure provides scalable solutions that help prevent such infrastructure from becoming an impediment to growth.

Competition

The residential rental market is fragmented in both its ownership and operations. We believe that bringing an institutionalized approach to the business carries many benefits. We will face competition in property acquisition from individual investors, private pools of capital and other institutional buyers which may increase the prices for properties that we would like to purchase and impact our ability to achieve our expected yields. We will also compete for the best tenants. However, we believe that being an early institutional participant in this sector, having an integrated and scalable platform with local market presence and using our wealth of existing in-house expertise will give us competitive advantages.

Investment Committee

Substantially all of our investment activities will be conducted by our Manager and its affiliates. Our investment objectives are to maximize the cash flow of our properties, acquire properties with cash flow growth potential, provide quarterly cash distributions to stockholders and achieve long-term capital appreciation through increases in the value of our portfolio. It is our policy to acquire assets primarily for long-term rental income and secondarily for capital appreciation.

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We expect our Manager to establish an investment committee, which will review our strategy periodically and will act in accordance with guidelines established by our board of directors for the investment of our capital and the purchase of new properties. The investment committee of our Manager may, without a vote of the stockholders, consider any investment, including investments in non-single-family properties, consistent with the investment guidelines.

Investment Guidelines

Our board of directors is expected to adopt the following investment guidelines, which may be modified by our board of directors without the approval of our stockholders:

•: no investment will be made that would cause us or any of our subsidiaries to fail to qualify as a REIT for U.S. federal income tax purposes;
•: no investment will be made that would cause us to be required to register as an investment company under the Investment Company Act of 1940;
•: our investments will be limited to (a) single-family properties and investments that are directly related to the acquisition, maintenance, ownership and leasing thereof, provided that bulk purchases of assets that are within this guideline may include other assets to the extent the purchase of such other assets is necessary in order to effect such bulk purchases; and (b) up to 5% of the company's assets may consist of other investments; and
•: until appropriate investments can be identified, we may invest available cash in interest-bearing and short-term investments that are consistent with (i) our intention to qualify as a REIT and (ii) our and our subsidiaries' exemption from "investment company" status under the Investment Company Act of 1940.

Use of Leverage

To date, all of our properties have been purchased from equity capital. However, we may use leverage to increase potential returns to our stockholders in the future. Our decision to use leverage will be based on our Manager's assessment of a variety of factors, including the anticipated liquidity and price volatility of the assets in our investment portfolio, the cash flow generation capability of assets, the availability of credit on favorable terms, any prepayment penalties and restrictions on refinancing, the credit quality of our assets and our outlook for borrowing costs relative to the unlevered yields on our assets. Our decision to use leverage will not be subject to the approval of our stockholders. We are not restricted by our governing documents in the amount of leverage that we may use. We may, however, be limited or restricted in the amount of leverage we may employ by the terms and provisions of any financing or other agreements that we may enter into in the future.

Risk Management

We will face various forms of risk in our business ranging from broad economic, housing market and interest rate trends to more specific factors such as credit risk related to our tenants, releasing of properties and competition for properties. We believe that the housing market and credit risk expertise developed by Pine River and our Manager will allow us to navigate these risks. Pine River has historically focused on credit research and the development of sophisticated analytical tools to help manage various types of risk. Additionally, the management team of Two Harbors has deep credit expertise and has successfully grown to over $16 billion of residential mortgage and other real estate-related assets since 2009, focusing on loan level and local market analysis and analyzing individual borrower behavior.

Insurance

We carry comprehensive liability and commercial property insurance covering most of the properties in our portfolio under a blanket insurance policy. In some cases, we carry individual property policies where we deem it economically prudent. We believe the policy specifications and insured limits

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are appropriate and adequate for our properties given the relative risk of loss, the cost of the coverage and industry practice; however, our insurance coverage may not be sufficient to fully cover our losses. In addition, there are certain types of extraordinary losses, such as losses from terrorism and earthquakes, for which we do not have insurance. We specifically review those areas that are at a higher risk of potential loss from natural catastrophes as part of our initial property acquisition criteria. We will continue to monitor third-party earthquake insurance pricing and conditions for those of our properties located in earthquake prone areas and may consider obtaining third-party coverage if it is cost-effective.

Policies with Respect to Certain Other Activities

We intend to raise additional funds through future offerings of equity or debt securities or the retention of cash flow (subject to REIT distribution requirements) or a combination of these methods. In the event that our board of directors determines to raise additional equity capital, it has the authority, without stockholder approval, to issue additional common stock or preferred stock in any manner and on such terms and for such consideration as it deems appropriate, at any time.

In addition, we may borrow money to finance the acquisition of properties. Our investment guidelines, the assets in our portfolio, the decision to use leverage and the appropriate level of leverage will be based on our Manager's assessment of a variety of factors, including the anticipated liquidity and price volatility of the assets in our investment portfolio, the cash flow generation capability of assets, the availability of credit on favorable terms, any prepayment penalties and restrictions on refinancing, the credit quality of our assets and our outlook for borrowing costs relative to the unlevered yields on our assets. Our decision to use leverage will be at our Manager's discretion and will not be subject to the approval of our stockholders. We are not restricted by our governing documents in the amount of leverage that we may use.

We have not made any loans to third parties, although we may make loans to third parties, including to joint ventures in which we participate.

In connection with the Formation Transactions, we will issue equity securities in exchange for property or property interests. Other than the repurchase of shares from our Manager as described elsewhere in this prospectus, we have no current intention to repurchase or otherwise reacquire our shares, though we do so may in the future.

As of the date of this prospectus, we do not intend to invest in the securities of other REITs, other entities engaged in real estate activities or securities of other issuers for the purpose of exercising control over such entities. We do not intend that our investments in securities will require us to register as an investment company under the Investment Company Act of 1940, and we would intend to divest such securities before any such registration would be required. We do not intend to underwrite securities of other issuers.

We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by our independent registered public accountants and file quarterly reports with the SEC containing unaudited consolidated financial statements for each of the first three quarters of each fiscal year.

Our board of directors may change any of these policies without prior notice to you or a vote of our stockholders.

Regulation

General

Our properties are subject to various covenants, laws and ordinances, and certain of our properties are also subject to the rules of the various homeowners' associations where such properties are located. We believe that we are in compliance with such covenants, laws, ordinances and rules and also require

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that our tenants agree to comply with such covenants, laws, ordinances and rules as a condition of their leasing terms.

Fair Housing Act

The Fair Housing Act, or FHA, its state law counterparts and the regulations promulgated by HUD and various state agencies, prohibit discrimination in housing on the basis of race or color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women and people securing custody of children under the age of 18) or handicap (disability) and, in some states, on financial capability. We believe that our properties are in substantial compliance with the FHA and other regulations.

Environmental Matters

As a current or prior owner of real estate, we are subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to third parties as a result of environmental contamination or noncompliance at our properties even if we no longer own such properties. See the discussion under the caption "Risk Factors—Risks Related to our Business—We may be subject to unknown or contingent liabilities or restrictions related to properties that we acquire for which we may have limited or no recourse."

REIT Qualification

In connection with this offering, we intend to elect to qualify as a REIT commencing with our initial taxable year ending on December 31, 2012. Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares. We believe that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT.

So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on our REIT taxable income we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income or property. In addition, any TRS we own will be subject to U.S. federal, state and local taxes on its income or property.

Investment Company Act of 1940

We intend to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act.

Employees

We will be managed by our Manager pursuant to the management agreement between our Manager and us. Each of our officers is an employee or partner of Pine River. With the exception of our general counsel and secretary, we expect all of our officers to be devoted full-time to our business. We expect our general counsel and secretary to devote his time to our business as his duties may require, which we expect to be less than 50% of his time in any given year. We will have no employees upon completion of this offering. See "Our Manager and the Management Agreement."

Legal Proceedings

From time to time, we are party to claims and routine litigation arising in the ordinary course of our business. We do not believe that the results of the results of any such claims or litigation individually or in the aggregate, will have a material adverse effect on our business, financial position or results of operations.

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MANAGEMENT

General

We are externally managed by PRCM Real Estate Advisers LLC, or our Manager, a joint venture between Pine River and Provident. Pursuant to the terms of the management agreement, our Manager provides us with our senior management team, including officers, along with appropriate support personnel. Each of our officers is an employee or partner of Pine River. With the exception of our general counsel and secretary, we expect all of our officers to be devoted full-time to our business. We expect our general counsel and secretary to devote his time to our business as his duties may require, which we expect to be less than 50% of his time in any given year. We do not have any employees. Our Manager will at all times remain subject to the supervision and oversight of our board of directors.

Our Directors, Director Nominees and Executive Officers

Upon completion of this offering, we expect to have a nine-member board of directors. We have entered into a Director Designation Agreement pursuant to which Two Harbors shall be entitled to nominate two of these nine members, who qualify as independent directors under the rules of the NYSE and SEC, in connection with the Formation Transactions. Pursuant to our charter, our stockholders will elect each of our directors at each of our annual meetings to serve until the next annual meeting of our stockholders and until their successors are duly elected and qualify. See "Certain Provisions of Maryland Law and Our Charter and Bylaws—Our Board of Directors." Subject to rights pursuant to any employment agreements, officers serve at the pleasure of our board of directors. The board of directors intends to generally appoint executive officers annually following our annual meeting of stockholders to serve until the meeting of the board of directors following the next annual meeting of stockholders.

The following table sets forth certain information with respect to our executive officers, directors and other individuals who have agreed to become directors in connection with this offering:

Name		Position Held with Us

*Executive Officers*
David N. Miller	36	Chief Executive Officer, President and Director
Christine Battist	43	Chief Financial Officer and Treasurer
Patrick Freydberg	58	Chief Operating Officer
Timothy O'Brien	53	General Counsel and Secretary
*Director Nominees*
Brian C. Taylor	48	Director Nominee
Irvin R. Kessler	57	Director Nominee
Thomas Siering	53	Director Nominee
Tanuja M. Dehne(1)(2)	41	Director Nominee
Stephen G. Kasnet(1)(3)	67	Director Nominee
William W. Johnson(2)(3)	50	Director Nominee
Thomas W. Brock*(1)(3)	65	Director Nominee
Ronald N. Weiser(2)	67	Director Nominee

*: Lead independent director
(1): Member of Compensation Committee
(2): Member of Nominating and Corporate Governance Committee
(3): Member of Audit Committee

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Director Nominees

Brian C. Taylor will be appointed to our board of directors in connection with this offering and will serve as chairman. Mr. Taylor is the Chief Executive Officer and Chief Investment Officer of Pine River. Mr. Taylor founded Pine River in 2002 and is responsible for management of the business and oversight of its funds. Prior to Pine River's inception, Mr. Taylor was with EBF & Associates from 1988 to 2002; he was named head of the convertible arbitrage group in 1994 and Partner in 1997. His responsibilities included portfolio management, marketing, product development and trading information systems development. Mr. Taylor received an MBA from the University of Chicago and a B.S. from Millikin University. Mr. Taylor passed the Illinois Certified Public Accountant Examination in 1986. Mr. Taylor also serves as chairman of the board of directors of Two Harbors Investment Corp. We believe Mr. Taylor is an appropriate director because of his knowledge of our Manager and its affiliate organizations. Mr. Taylor will also play a key liaison role between day-to-day management of Silver Bay and our independent directors. We also believe Mr. Taylor is an appropriate director because of his investment expertise.

Irvin R. Kessler will be appointed to our board of directors in connection with this offering and will serve as vice-chairman. Mr. Kessler is the Chief Executive Officer and managing member of Provident Real Estate Advisors LLC, the managing member of each of the Provident Entities and one-third owner of our Manager. Mr. Kessler formed Provident Real Estate Advisors LLC in June 2007 and through it and the Provident Entities began to implement a strategic residential real estate investment strategy with hubs in Minnesota, Arizona, Nevada, Florida and Georgia. Mr. Kessler served as the Chief Executive Officer of our Manager from January 2012 to September and helped oversee the buildup of our Manager's operational capabilities. Mr. Kessler has extensive experience as an investor in a variety of asset classes. From 2003 through 2008, Mr. Kessler opened multiple funds focused on varying investment strategies. In 1994 and 1995, he co-founded Deephaven Capital Management and Arbitrade LLC, an options market making firm, respectively; he served as Chief Investment Officer and Chief Executive Officer from 1998 until retiring in 2001 and selling the parent company of both firms to Knight Trading Group in 2000. Mr. Kessler was also a director on the boards of the Chicago Board Options Exchange, or CBOE, and the Cincinnati Stock Exchange beginning in 1988. Prior to that, Mr. Kessler was a floor trader on various Chicago Exchanges including CBOE, the Chicago Board of Trade and the Chicago Mercantile Exchange. We believe Mr. Kessler is an appropriate director because of his experience investing in and overseeing the management of single-family properties gained in the past three years. Mr. Kessler also has an intimate knowledge of the operations of our Manager and our Manager's operating subsidiary, which should prove a valuable resource to our board of directors. We also believe Mr. Kessler is an appropriate director because of his general investment expertise.

Thomas Siering will be appointed to our board of directors in connection with this offering. Mr. Siering is the Chief Executive Officer and a director of Two Harbors Investment Corp. and a Partner of Pine River. Prior to joining Pine River in 2006, Mr. Siering was head of the Value Investment Group at EBF & Associates, a private investment firm, from 1999 until 2006. During that period, he was also the manager for Merced Partners, LP, a private investment firm, and Tamarack International Limited, a closed-end, non-diversified investment management company. Mr. Siering was named a Partner at EBF & Associates in 1997. Mr. Siering joined EBF & Associates in 1989 as a trader. From 1987 to 1989, Mr. Siering held various positions in the Financial Markets Department at Cargill, Inc. From 1981 until 1987, Mr. Siering was employed in the Domestic Soybean Processing Division at Cargill in both trading and managerial roles. Mr. Siering holds a B.B.A. from the University of Iowa with a major in Finance. We believe Mr. Siering is an appropriate director because of his knowledge of our Manager and its affiliate organizations, which will help ensure that our Manager devotes adequate resources to us. We also believe Mr. Siering is an appropriate director because of his investment and public company management expertise.

Tanuja M. Dehne will be appointed to our board of directors in connection with this offering. Since 2011, Ms. Dehne has been Senior Vice President, Human Resources of NRG Energy, Inc. [NYSE:

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NRG], a publicly listed power generation and retail electricity company. Ms. Dehne leads all areas of Human Resources at NRG Energy, Inc. as well as benefits, compensation, labor and employee relations, recruiting and staffing, organizational development and training and human resources information systems for the company. From 2005 to 2011, Ms. Dehne served as the Corporate Secretary of NRG Energy, Inc., where she was responsible for corporate governance, corporate transactions, including financings, mergers and acquisitions, public and private securities offerings and securities and stock exchange matters and reporting compliance for the company. In this role, Ms. Dehne also served as the primary executive liaison to the Board of Directors and each of its standing committees. From 2004 to 2007, Ms. Dehne was Assistant General Counsel, Securities and Finance at NRG Energy, Inc. and was promoted to Deputy General Counsel in 2007. Prior to joining NRG Energy, Inc., Ms. Dehne was an associate at Saul Ewing's law firm in Philadelphia, Pennsylvania and Princeton, New Jersey. Ms. Dehne received a J.D. from Syracuse University, an M.A. from the University of Pennsylvania and a B.A. from Lafayette College. She is admitted to practice law in New York, New Jersey, Pennsylvania and before the U.S. Supreme Court. We believe Ms. Dehne is an appropriate director because of her broad public-company experience, including her knowledge of corporate governance, securities law, human resources and complex transactions.

Stephen G. Kasnet will be appointed to our board of directors in connection with this offering, pursuant to contractual rights of Two Harbors granted in connection with the Formation Transactions. Mr. Kasnet is the lead independent director of Two Harbors Investment Corp. Mr. Kasnet has also been a director of Columbia Laboratories, Inc., a specialty pharmaceuticals company [NASDAQ: CBRX], since August 2004 and Chairman of the Board of Columbia Laboratories since November 2004. From 2007 to 2009, Mr. Kasnet was the Chairman of Dartmouth Street Capital LLC, a private investment firm. He was also the President and Chief Executive Officer of Raymond Property Company LLC, a real estate company, from 2007 through October 2009. From 2000 to 2006, he was President and Chief Executive Officer of Harbor Global Company, Ltd., an asset management, natural resources and real estate investment company, and Chairman of the PIOglobal, a Russian real estate investment fund. From 1995 to 1999, Mr. Kasnet was a director and member of the Executive Committee of The Bradley Real Estate Trust. He was Chairman of Warren Bank from 1990 to 2003. Mr. Kasnet has also held senior management positions with other financial organizations, including Pioneer Group, Inc., First Winthrop Corporation and Winthrop Financial Associates, and Cabot and Forbes. He serves as Chairman of the Board of Rubicon Ltd., a forestry company, as a director of Tenon Ltd., a wood products company, and as a director of First Ipswich Bancorp, a bank holding company. He is also a trustee and vice president of the board of the Governor's Academy, a private coed boarding high school in Byfield, Massachusetts. Mr. Kasnet received a B.A. from the University of Pennsylvania. We believe Mr. Kasnet is an appropriate director based on his audit committee experience, his real estate knowledge and his past and current experience as a director of other public companies.

William W. Johnson will be appointed to our board of directors in connection with this offering, pursuant to contractual rights of Two Harbors granted in connection with the Formation Transactions. Mr. Johnson is an independent director of Two Harbors Investment Corp. From 2010 to May 2012, Mr. Johnson was a Partner and Deputy Head of Asset Management at Perella Weinberg Partners in New York, a privately owned financial services firm. Previously, he was a Managing Director of J.P. Morgan, a financial services firm, from 2006 to 2009, where he held senior roles including Divisional Management and Risk Committee Member, Head of Proprietary Positioning Business and Head of Tax-Exempt Capital Markets. From 2004 to 2005, Mr. Johnson was a private investor. From 2001 to 2003, Mr. Johnson was President of Paloma Partners, a private capital management company in Greenwich, Connecticut. From 1984 to 2001, Mr. Johnson worked for UBS and its predecessors in Chicago, Singapore, London and Basel. He began his career at UBS in currency options trading and served in several senior management functions including Divisional Management and Risk Committee Member and Global Head of Treasury Products. Mr. Johnson received an MBA from the University of Chicago and a B.S. from the University of Pennsylvania Wharton School. We believe Mr. Johnson is an

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appropriate director because of his knowledge of financial markets and trading and his career in financial markets.

Thomas W. Brock will be appointed to our board of directors in connection with this offering and will serve as our lead independent director. Since 2006, Mr. Brock has been the Chief Executive Officer of Stone Harbors Investment Partners, a fixed income investment manager focused on credit and multi-sector allocation strategies. Prior to joining Stone Harbors Investment Partners, Mr. Brock was an adjunct professor of Finance at Columbia University Graduate School of Management from 1998 to 2005, where he taught courses relating to money management and investment banking. From 1974 to 1998, Mr. Brock held various positions with Salomon Brothers Inc., including Chief Executive Officer of Salomon Brothers Asset Management, Chief Administrative Officer, and Director of Global Research. Mr. Brock received an MBA from Northwestern University Kellogg School of Management and a B.S. from Miami University. We believe Mr. Brock is an appropriate director based on his experience in investment management and financial analysis.

Ronald N. Weiser will be appointed to our board of directors in connection with this offering. Mr. Weiser served as Ambassador to the Slovak Republic from 2001 to 2005, and has been active in politics and public life since then. He founded McKinley Associates Inc., a national real estate investment firm, in 1968, and served as its Chief Executive Officer and Chairman until 2001. In 1984, Mr. Weiser and his wife founded the McKinley Foundation, a public community foundation. Mr. Weiser serves on a number of public non-profit boards, including the Detroit Institute of Arts, The Henry Ford, and the President Gerald R. Ford Foundation. Mr. Weiser holds a B.B.A. from the University of Michigan, where he also did graduate work in business and law. We believe Mr. Weiser is an appropriate director because of his extensive experience as an executive and investor in the real estate industry, and his broad public service in both government and non-profit spheres.

Executive Officers

David N. Miller is our Chief Executive Officer, President and a member of our board of directors. Mr. Miller has been a director and executive officer since August 2012. Beginning in 2011, Mr. Miller served as a Managing Director of Pine River Capital Management L.P. and Two Harbors Investment Corp., where he focused on strategy and new business development, including the formation and development of Silver Bay and the single-family property rental business. From 2008 to 2011, Mr. Miller served in various roles at the U.S. Department of Treasury, including as the Chief Investment Officer of the Troubled Asset Relief Program (TARP) where he was instrumental in building various investment programs and business units and overseeing the investment portfolio. From 2007 to 2008, Mr. Miller was a portfolio manager at HBK Capital Management focusing on equity investments. From 1998 through 2007, he held various positions at Goldman, Sachs & Co., including as a Vice President in the Special Situations Investing Group (2004-2007) where he focused on proprietary investments in debt and equity and as a financial analyst in the investment banking division (1998-2001) where he focused on corporate finance and mergers and acquisitions. Mr. Miller received an MBA from Harvard Business School and a B.A. in Economics from Dartmouth College. We believe Mr. Miller is an appropriate director because of his management role and knowledge of the operations of our Manager and our Manager's operating subsidiary as well as his general investment expertise.

Christine Battist is our Chief Financial Officer and Treasurer. Ms. Battist has been an executive officer since our incorporation in June 2012. Prior to this appointment, Ms. Battist served as Managing Director at Two Harbors Investment Corp. overseeing investor and media relations since 2011. From 2005 to 2011, Ms. Battist served in various financial roles at The Mosaic Company [NYSE: MOS], first as Director of Financial Compliance from 2005 to 2007, leading the company's inaugural global Sarbanes-Oxley design and implementation after its merger, then as Director Investor Relations from 2007 to 2011. Ms. Battist was instrumental in leading Mosaic's investor relations during its formative years and through the spin-off and secondary offering of shares held by Mosaic's largest and private shareholder in 2011. Prior to joining the Mosaic Company, Ms. Battist was Director of Internal Audit

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for Tuesday Morning Corporation [NASDAQ: TUES] from 2003 to 2005. Ms. Battist began her career with PricewaterhouseCoopers LLP, spending a decade in ever-increasing roles and responsibilities, overseeing financial audit engagements for public companies in the U.S. capital and debt markets, including leading acquisition and carve-out transactions. She received a B.B.A. from St. Norbert College and is licensed as a Certified Public Accountant (inactive) in the State of Texas.

Patrick Freydberg is our Chief Operating Officer. Mr. Freydberg has been an executive officer since August 2012. From 2003 to 2012 Mr. Freydberg served as President and Chief Operating Officer of Northbrook Partners, LLC a multifamily real estate management company with over $1.2 billion in assets under management for BlackRock and RREEF Real Estate. From 2001 to 2003 Mr. Freydberg was a Regional Manager for SSR Realty Advisors, the pension fund advisory division of MetLife, where he ran operations for SSR's multifamily real estate investments in the Northeast. Prior to that, Mr. Freydberg was a Director of Asset Management for Insignia/Douglas Elliman and was responsible for management of a portfolio of 5,000 distressed REO units for Citibank, the FDIC and other institutions. Mr. Freydberg received an MBA from the Johnson School of Management at Cornell University and a B.S. in Engineering from Cornell University. Mr. Freydberg is a licensed real estate broker in New York and Connecticut.

Timothy O'Brien is our General Counsel and Secretary. Mr. O'Brien has been an executive officer since our incorporation in June 2012. Mr. O'Brien is a Partner of Pine River and has served as General Counsel and Chief Compliance Officer of Pine River since 2007. Mr. O'Brien is also General Counsel of Two Harbors. From 2004 to 2006, Mr. O'Brien served as Vice President and General Counsel of NRG Energy, Inc., a publicly listed power generation company. Mr. O'Brien served as Deputy General Counsel of NRG Energy, Inc. from 2000 to 2004 and Assistant General Counsel from 1996 to 2000. Prior to joining NRG Energy, Inc., Mr. O'Brien was an associate at the law firm of Sheppard Mullin in Los Angeles and San Diego, California. He received a J.D. from the University of Minnesota Law School and a B.A. in History from Princeton University.

Director Independence

The rules of the NYSE require that a majority of a company's board of directors be composed of "independent directors," which is defined generally as a person other than an executive officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company's board of directors, would interfere with the director's exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these considerations, our board of directors has affirmatively determined that each of Ms. Dehne, Mr. Kasnet, Mr. Johnson, Mr. Brock and Mr. Weiser is an independent director.

Leadership Structure of the Board of Directors

Our board of directors will be led by a Chairman who is appointed by the directors and who will initially be Mr. Taylor. Both independent and non-independent directors are eligible for appointment as the Chairman. The Chairman presides at all meetings of the stockholders and of the board of directors as a whole. The Chairman performs such other duties, and exercises such powers, as from time to time shall be prescribed in our bylaws or by the board of directors. Our board of directors will adopt corporate governance guidelines effective upon completion of this offering. Our corporate governance guidelines will provide that the independent directors shall appoint one of their members to serve as the lead independent director. The lead independent director will be responsible for coordinating the activities of the other independent directors, including scheduling and conducting separate meetings of the independent directors and for such other duties as are assigned from time to time by the board of directors. Mr. Brock has been appointed as the lead independent director.

Our board of directors will consist of a majority of independent directors and exercise a strong, independent oversight function. All of the committees of the board of directors—audit, compensation, and nominating and corporate governance committees—will be comprised entirely of independent

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directors. A number of board of directors and committee processes and procedures, including regular executive sessions of non-management directors and a regular review of the performance of our Manager, will provide substantial independent oversight of our management's performance. Under our bylaws and corporate governance guidelines, our board of directors has the ability to change its structure if it determines that such a change is appropriate and in the best interest of the company. Our board of directors believes that these factors provide the appropriate balance between the authority of those who oversee the company and those who manage it on a day-to-day basis.

We currently separate the roles of Chairman and Chief Executive Officer. However, our Chairman and our Chief Executive Officer are both affiliated with our Manager and Pine River. Our board of directors believes that this affiliation benefits us because these individuals are knowledgeable about our business and because they are able to ensure that adequate resources are devoted to us by our Manager and Pine River. Because of this affiliation, our board of directors has designated Mr. Brock as lead independent director.

Board Committees

Our board of directors will has established an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition of each committee will comply with the listing requirements and other rules and regulations of the NYSE and the SEC, as amended or modified from time to time, and will be comprised exclusively of independent directors as defined by such rules and regulations. Additionally, the compensation committee will be composed exclusively of individuals intended to be, to the extent required by Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, non-employee directors and will, at such times as we are subject to Section 162(m) of the Code qualify as outside directors for purposes of Section 162(m) of the Code.

The following table summarizes the membership of each of our committees effective upon consummation of this offering:

Director

Tanuja M. Dehne		X	X
Stephen G. Kasnet	X	X
William W. Johnson	X		X
Thomas W. Brock	X	X
Ronald N. Weiser			X

Audit Committee

Our audit committee will consist of Messrs. Kasnet, Johnson and Brock, each of which is an independent director. Mr. Kasnet will be our audit committee chairperson. At least one member of the audit committee will qualify as an "audit committee financial expert" as that term is defined by the applicable SEC regulations and NYSE corporate governance requirements and at least one member will be determined to be "financially literate" as that term is defined by the NYSE corporate governance requirements. The audit committee will be responsible for:

•: engaging our independent certified public accountants;
•: preparing audit committee reports;
•: reviewing with the independent certified public accountants the plans and results of the audit engagement;
•: approving professional services provided by the independent certified public accountants;

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•: reviewing the independence of the independent certified public accountants; and
•: considering the range of audit and non-audit fees and reviewing the adequacy of our internal accounting controls.

Compensation Committee

Our compensation committee will consist of Mr. Brock, Ms. Dehne and Mr. Kasnet, each of which is an independent director. Mr. Brock will be our compensation committee chairperson. The compensation committee will be responsible for:

•: evaluating the performance of our officers;
•: reviewing any compensation payable to our directors and officers;
•: evaluating the performance of our Manager;
•: reviewing the compensation and fees payable to our Manager under the management agreement;
•: reviewing the compensation and fees payable to any affiliates of our Manager or any other related party;
•: preparing compensation committee reports; and
•: administering the issuance of any common stock or other equity awards issued to personnel of our Manager or its affiliates who provide services to us.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee will consist of Ms. Dehne, Mr. Johnson and Mr. Weiser, each of which is an independent director. Ms. Dehne will be our nominating and corporate governance committee chairperson. The nominating and corporate governance committee will be responsible for:

•: seeking, considering and recommending to our board of directors qualified candidates for election as directors;
•: approving and recommending to our board of directors the appointment of each of our executive officers;
•: periodically preparing and submitting to our board of directors for adoption the committee's selection criteria for director nominees;
•: reviewing and making recommendations on matters involving the general operation of our board of directors and our corporate governance; and annually facilitating the assessment of our board of directors' performance as a whole and of the individual directors and reporting thereon to our board of directors.

Our board of directors may from time to time establish certain other committees to facilitate the management of our company.

Compensation Committee Interlocks and Insider Participation

Upon completion of this offering and the Formation Transactions, we do not anticipate that any of our executive officers will serve as a member of a board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee.

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Code of Business Conduct and Ethics

Our board of directors will establish prior to the consummation of this offering a code of business conduct and ethics. Among other matters, the code of business conduct and ethics will be designed to deter wrongdoing and to promote:

•: honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
•: full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications;
•: compliance with applicable governmental laws, rules and regulations;
•: prompt internal reporting of violations of the code of business conduct and ethics to appropriate persons identified in such code; and
•: accountability for adherence to the code of business conduct and ethics.

Any waiver of the code of business conduct and ethics for our executive officers or directors may be made only by our board of directors or a committee thereof and will be promptly disclosed on the corporate governance section on our corporate website as required by law or stock exchange regulation.

Director Compensation

We have not paid any cash compensation or granted any equity awards to any of the members of our board of directors since our incorporation. We do not have, and we do not currently intend to adopt, any plans or programs for our directors that provide for pension benefits or the deferral of compensation.

Any member of our board of directors who is also an employee or partner of our Manager, our Manager's operating subsidiary, Pine River, Provident, or any of their respective affiliates will not receive any compensation from us for serving on our board of directors.

We will pay directors' fees only to those directors who are independent under the NYSE listing standards. We have not made any payments to our independent director nominees since our inception. Upon completion of this offering, each independent director will receive fees for their service as follows:

•: each independent director will receive an annual retainer fee of $100,000, payable half in cash and half in restricted shares of our common stock;
•: each committee chair will receive an additional cash fee of $15,000; and
•: the lead independent director will receive an additional cash fee of $10,000.

The annual retainer fees for board service will be payable half in cash and half in restricted shares of our common stock. The cash portion of the fees will be paid in four quarterly installments and will be prorated based on the date a director joins the board. The equity award for directors will be issued pursuant to a restricted stock award agreement under the 2012 Equity Incentive Plan with the number of shares subject to issuance based on (x) the dollar amount of the award divided by (y) the fair market value of our common stock on the date of grant. These shares will vest on the earlier of (i) the first anniversary of the date of grant and (ii) the date immediately preceding the date of our annual meeting of stockholders for the year following the year of the grant, so long as such director is serving as a member of the board of directors on the vesting date. Upon the completion of this offering, each independent director nominee identified above who will join our board on the completion of this offering will receive $50,000 cash, prorated based on the number of days between the closing of this offering and the date of our first annual meeting of stockholders, and a grant of restricted shares of $50,000 of our common stock, with the number of shares determined by the initial offering price. These shares will become fully vested on the first anniversary of the date of grant, so long as such director is

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serving as a member of the board of directors on the vesting date. Furthermore, the independent director nominees identified above will also receive $25,000 in cash, which will be paid on the date of our first annual meeting of stockholders, and $25,000 in restricted shares of our common stock, which will be granted upon completion of this offering and become fully vested on the first anniversary of the closing of this offering, so long as such director is serving as a member of our board of directors on the vesting date.

Executive Officer Compensation

We are externally managed by our Manager under the terms of the management agreement, pursuant to which our Manager provides us with all of the personnel required to manage our operations, including our executive officers. Since our formation, we have not paid any compensation to our executive officers and have not made any grants of plan-based awards, stock options or stock grants of any kind to them. Upon completion of this offering, Christine Battist, our Chief Financial Officer, and Patrick Freydberg, our Chief Operating Officer, will each receive a grant of approximately 11,842 shares of restricted stock (based on the midpoint of the price range set forth on the cover of this prospectus). These shares will vest ratably over a three-year service period provided they continue to provide services on behalf of us and/or our Manager. We do not provide any of our executive officers with pension benefits or nonqualified deferred compensation plans. We do not have any employment agreements with any persons and are not obligated to make any payments to any of our executive officers upon termination of employment or a change in control of the company.

We have not paid, and we do not currently intend to pay, any cash compensation to any of our officers, and we do not currently intend to adopt any policies with respect thereto. We have engaged our Manager pursuant to the terms of the management agreement. Under the management agreement, our Manager has agreed to provide us with our senior management team, including officers, along with appropriate support personnel. Our Manager has entered into a shared services and facilities agreement with Pine River, its majority owner, pursuant to which Pine River provides certain personnel, services and resources necessary for our Manager to perform its obligations and responsibilities under the management agreement. Our officers are partners or employees of Pine River and receive compensation from Pine River. Pine River makes all decisions relating to the compensation of such officers based on factors it deems appropriate. Except as specifically excluded from our reimbursement obligations under the management agreement, we directly or indirectly reimburse our Manager and Pine River for our allocable share of compensation paid to our officers. The advisory management fee that we pay our Manager under the management agreement provides an additional source of funds that our Manager or, through the distributions of income to its owners, Pine River may use to compensate our officers.

See "Our Manager and the Management Agreement" for a description of the terms of the management agreement, including the advisory management fees payable to our Manager thereunder and our reimbursement obligations to our Manager.

2012 Equity Incentive Plan

We will adopt prior to the completion of this offering, the 2012 Equity Incentive Plan, or 2012 Plan, to provide incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including certain personnel of Pine River, our Manager and their respective affiliates. Partners of Pine River and any personnel of our Manager whose compensation is not reimbursed by us are not eligible to receive grants under the 2012 Plan. The 2012 Plan permits the granting of stock options, restricted shares of common stock, restricted stock units, phantom shares, dividend equivalent rights, or DERs, and other equity-based awards.

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Administration

The 2012 Plan will be administered by the compensation committee appointed by our board of directors. The compensation committee, appointed by our board of directors, will have the full authority to administer and interpret the 2012 Plan; to authorize the granting of awards; to determine the eligibility of directors, officers, advisors, consultants and other personnel, including personnel of Pine River, our Manager and their respective affiliates, to receive an award; to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the 2012 Plan); to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the 2012 Plan); to prescribe the form of instruments evidencing awards; and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the 2012 Plan or the administration or interpretation thereof. In connection with this authority, the compensation committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse. The compensation committee administering the 2012 Plan will consist of three directors, each of whom is intended to be, to the extent required by Rule 16b-3 of the Exchange Act, a non-employee director and will, at such times as we are subject to Section 162(m) of the Code, qualify as an outside director for purposes of Section 162(m) of the Code. References below to the compensation committee include a reference to the board of directors for those periods in which the board of directors is acting as the administrator of the 2012 Plan.

Available Shares

The 2012 Plan provides for grants of restricted common stock, restricted stock units, phantom shares, dividend equivalent rights and other equity-based awards, subject to a ceiling of 921,053 shares available for issuance under the plan. The maximum number of shares that may underlie awards in any one year to any eligible person may not exceed 92,100. If an award granted under the 2012 Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. In addition, if any phantom shares or DERs are paid out in cash, the underlying shares may again be made the subject of grants under the 2012 Plan. Unless previously terminated by our board of directors, no new award may be granted under the 2012 Plan after the tenth anniversary of the date that such plan was initially approved by our board of directors. No award may be granted under the 2012 Plan to any person who, assuming payment of all awards held by such person, would own or be deemed to own more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock.

Awards under the Plan

Restricted Shares of Common Stock. A restricted share award is an award of shares of common stock that is subject to restrictions on transferability and such other restrictions, if any, that the compensation committee may impose at the date of grant. Grants of restricted shares of common stock may be subject to vesting schedules as determined by the compensation committee. The restrictions may lapse separately or in combination at such times and under such circumstances, including a specified period of employment or the satisfaction of pre-established criteria, in such installments or otherwise, as the compensation committee may determine. Except to the extent restricted under the award agreement relating to the restricted shares of common stock, a participant granted restricted shares of common stock has all of the rights of a stockholder, including the right to vote and the right to receive dividends on the restricted shares of common stock. Although dividends may be paid on restricted shares of common stock, whether or not vested, at the same rate and on the same date as on shares of our common stock, holders of restricted shares of common stock are prohibited from selling such shares until they vest.

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Restricted Stock Units. A restricted stock unit is an award of a specific number of shares of common stock to be provided in the future, subject to satisfaction of vesting requirements. At grant, each restricted stock unit is represented as a bookkeeping entry in an amount equal to the fair market value of one share of our common stock. The committee determines the terms and conditions of restricted stock units including the vesting criteria, which may include achievement of specified performance criteria or continued service, the form and timing of payment and whether the restricted stock units will be entitled to receive dividend equivalents. The committee, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. The committee determines in its sole discretion whether an award will be settled in stock, cash or a combination of both. The specific terms will be set forth in an agreement. Settlement will generally occur shortly after vesting, but may be deferred in compliance with Code Section 409A, as determined by the committee.

Phantom Shares. Phantom shares, when issued, will reduce the number of shares available for grant under the 2012 Plan and will vest as provided in the applicable award agreement. A phantom share represents a right to receive the fair value of a share of common stock, or, if provided by the compensation committee, the right to receive the fair value of a share of common stock in excess of a base value established by the compensation committee at the time of grant. Phantom shares may generally be settled in cash or by transfer of shares of common stock (as may be elected by the participant or the compensation committee, as may be provided by the compensation committee at the time of grant). The compensation committee may, in its discretion and under certain circumstances, permit a participant to receive as settlement of the phantom shares installments over a period not to exceed ten years. Unless otherwise determined by the compensation committee, the holders of awards of phantom shares will be entitled to receive dividend equivalents, which shall be payable at such time that dividends are paid on outstanding shares.

Stock Options. A stock option award is an award of the right to purchase a specific number of shares of common stock at a fixed exercise price determined on the date of grant. Stock option awards may either be incentive or non-qualified stock options; provided that incentive stock options may only granted to employees. The exercise price of such options must equal at least the fair market value of our common stock on the date of grant. An incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. The compensation committee will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the compensation committee. Subject to the provisions of the 2012 Plan, the compensation committee determines the remaining terms of the options (e.g., vesting). After the termination of service of an employee, director or consultant, the participant may exercise his or her option, to the extent vested as of such date of termination, for the period of time stated in his or her option agreement. If termination is due to death, the option, to the extent vested, will remain exercisable for 12 months. If the termination is due to retirement or disability, the option, to the extent vested, will remain exercisable for 24 months. In all other cases, the option will generally remain exercisable for three months following the termination of service. However, in no event may an option be exercised later than the expiration of its term. A participant shall have no rights as a stockholder until the participant exercises the option and the stock certificate is issued to the participant.

DERs. An award of DERs represents the right to receive (or have credited) the equivalent value (in cash, common stock or a combination of both, as determined by the compensation committee at the time of grant) of dividends paid on common stock. A participant holding DERs receives a credit for dividends declared on common stock on each dividend payment date during the period between (x) the date the award is granted to the participant and (y) the date the award is exercised, vests or expires, as determined by the compensation committee. The specific terms of a DER will be established by the compensation committee in its discretion.

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Other Share-Based Awards. The 2012 Plan authorizes the granting of other awards based upon shares of our common stock (including the grant of securities convertible into shares of common stock and share appreciation rights), subject to terms and conditions established at the time of grant.

Performance Awards. The compensation committee may, in its discretion, grant awards intended to qualify as performance-based compensation for purposes of Code Section 162(m). Such performance-based awards will result in a payment to a participant only if performance goals established by the compensation committee are achieved, as determined by the compensation committee, and any other applicable vesting provisions are satisfied. The compensation committee will establish performance goals in its discretion, in compliance with the requirements of Code Section 162(m), which, depending on the extent to which they are met, will determine the number and/or the value of shares of common stock to be paid out to participants. For purposes of such awards, the performance goals may be one or more of the following, as determined by the compensation committee: (i) pre-tax income, (ii) after-tax income, (iii) net income (meaning net income as reflected in our financial reports for the applicable period, on an aggregate, diluted and/or per share basis), (iv) operating income, (v) cash flow, (vi) earnings per share, (vii) return on equity, (viii) return on invested capital or assets, (ix) cash and/or funds available for distribution, (x) appreciation in the fair market value of our common stock, (xi) return on investment, (xii) total return to stockholders (meaning the aggregate our common stock price appreciation and dividends paid (assuming full reinvestment of dividends) during the applicable period), (xiii) net earnings growth, (xiv) stock appreciation (meaning an increase in the price or value of our common stock after the date of grant of an award and during the applicable period), (xv) related return ratios, (xvi) increase in revenues, (xvii) our published ranking against its peer group of real estate investment trusts based on total stockholder return, (xviii) net earnings, (xix) changes (or the absence of changes) in the per share or aggregate market price of our common stock, (xx) number of securities sold, (xxi) earnings before any one or more of the following items: interest, taxes, depreciation or amortization for the applicable period, as reflected in our financial reports for the applicable period and (xxii) total revenue growth (meaning the increase in total revenues after the date of grant of an award and during the applicable period, as reflected in our financial reports for the applicable period).

Change in Control

Under the 2012 Plan, a change in control is generally defined as the occurrence of any of the following events: (i) the acquisition of more than 50% of our voting shares by any person; (ii) the sale or disposition of all or substantially all of our assets; (iii) a merger, consolidation or statutory share exchange where our stockholders immediately prior to such event hold less than 50% of the voting power of the surviving or resulting entity; (iv) during any 12-calendar-month period, our directors, including subsequent directors recommended or approved by our directors, at the beginning of such period cease for any reason other than due to death to constitute a majority of our board of directors; or (v) stockholder approval of our liquidation or dissolution. Notwithstanding the foregoing, no event or condition described in clauses (i) through (v) above shall constitute a change in control if it results from a transaction between us and our Manager or an affiliate of our Manager.

Upon a change in control, the compensation committee may make such adjustments as it, in its discretion, determines are necessary or appropriate in light of the change in control, but only if the compensation committee determines that the adjustments do not have an adverse economic impact on the participants (as determined at the time of the adjustments). Unless otherwise provided in a grantee's award agreement, upon a change in control, all restrictions and conditions on each DER will automatically lapse and all grants under the 2012 Plan will be deemed fully vested in the grantee.

Amendments and Termination

Our board of directors may amend, alter or discontinue the 2012 Plan but cannot take any action that would impair the rights of a grantee with respect to grants previously made without such grantee's

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consent. To the extent necessary and desirable, our board of directors must obtain approval of our stockholders for any amendment that would:

•: other than through adjustment as provided in the 2012 Plan, increase the total number of shares of common stock reserved for issuance under the 2012 Plan;
•: change the class of officers, directors, employees, consultants and advisors eligible to participate in the 2012 Plan;
•: re-price any awards under the 2012 Plan; or
•: otherwise require such approval.

The compensation committee may amend the terms of any award granted under the 2012 Plan, prospectively or retroactively, but generally may not impair the rights of any participant without his or her consent.

Federal Income Tax Consequences

The following is a very general description of some of the basic tax principles that apply to awards under the 2012 Plan. The grant of an option will create no tax consequences for the participant or the company. A participant will have no taxable income upon exercise of an incentive stock option, except that the alternative minimum tax may apply. Upon exercise of a non-qualified option, a participant generally must recognize ordinary income equal to the fair market value of the shares acquired minus the exercise price. Upon a disposition of shares acquired by exercise of an incentive stock option before the end of the applicable incentive stock option holding periods, the participant generally must recognize ordinary income equal to the lesser of (1) the fair market value of the shares at the date of exercise minus the exercise price or (2) the amount realized upon the disposition of the option shares minus the exercise price. Otherwise, a participant's disposition of shares acquired upon the exercise of an option generally will result in capital gain or loss. Other awards under the 2012 Plan, including restricted stock, restricted stock units, phantom shares and DERs generally will result in ordinary income to the participant at the later of the time of delivery of cash or shares, or the time that either the risk of forfeiture or restriction on transferability lapses on previously delivered shares or other property. Except as discussed below, we generally will be entitled to a tax deduction equal to the amount recognized as ordinary income by the participant in connection with an award, but will be entitled to no tax deduction relating to amounts that represent a capital gain to a participant. Thus, we will not be entitled to any tax deduction with respect to an incentive stock option if the participant holds the shares for the incentive stock option holding periods.

Code Section 162(m) generally limits the tax deductibility of compensation paid to each of certain executive officers to $1 million per year, but allows deductions in excess of this amount for "performance-based compensation" as defined under Code Section 162(m). We intend that options granted under the 2012 Plan will qualify as performance-based compensation under Code Section 162(m). In addition, other awards under the 2012 Plan, such as restricted stock, restricted stock units, phantom shares, DERs and other stock-based awards, generally may not qualify, so that compensation paid to executive officers in connection with such awards may not be deductible.

Please note, the forgoing is general tax discussion and different tax rules may apply to specific participants and transactions under the 2012 Plan.

Limitation of Liability and Indemnification

Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by a final judgment as being material to the cause of

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action. Our charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law.

Our charter authorizes us to obligate ourselves and our bylaws obligate us, to the fullest extent permitted by Maryland law, to indemnify, and to pay or reimburse reasonable costs, fees and expenses (including attorneys' fees, costs and expenses) in advance of final disposition of a proceeding and without requiring a preliminary determination of ultimate entitlement to indemnification, to any present or former director or officer of the company or any individual who, while a director or officer of our company and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner, trustee, member or manager of such corporation, real estate investment trust, partnership, joint venture, trust, limited liability company, employee benefit plan or other enterprise, and who was or is made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of his or her service in that capacity. Our charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of ours in any of the capacities described above and to any personnel or agent of our company or a predecessor of our company.

The Maryland General Corporation Law, or the MGCL, requires us (unless our charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made or threatened to be made a party by reason of his service in that capacity. The MGCL permits us to indemnify our present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that: (i) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (A) was committed in bad faith or (B) was the result of active and deliberate dishonesty, (ii) the director or officer actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by us or in our right, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. In addition, the MGCL permits us to advance reasonable expenses to a director or officer upon our receipt of (i) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by us and (ii) a written undertaking by the director or officer or on the director's or officer's behalf to repay the amount paid or reimbursed by us if it is ultimately determined that the director or officer did not meet the standard of conduct.

Under the management agreement, our Manager maintains a contractual as opposed to a fiduciary relationship with us which limits our Manager's obligations to us to those specifically set forth in the management agreement. The ability of our Manager and its officers and employees to engage in other business activities may reduce the time our Manager spends managing us. In addition, unlike for directors, there is no statutory standard of conduct under the MGCL for officers of a Maryland corporation. Instead, officers of a Maryland corporation, including officers who are employees of our Manager, are subject only to general agency principles, including the exercise of reasonable care and skill in the performance of their responsibilities, as well as the duties of loyalty, good faith and candid disclosure.

We expect to enter into indemnification agreements with each of our directors and executive officers that provide for indemnification to the maximum extent permitted by Maryland law.

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OUR MANAGER AND THE MANAGEMENT AGREEMENT

General

We will be externally managed and advised by PRCM Real Estate Advisers LLC, or our Manager. Each of our officers is an employee or partner of Pine River, an affiliate of our Manager. The executive offices of our Manager are located at 601 Carlson Parkway, Suite 250, Minnetonka, MN 55305, and the telephone number of our Manager's executive offices is (952) 358-4400. See "Business and Properties—Our Manager" for a description of our Manager and our Manager's operating subsidiary.

Advisory Management Agreement

We will enter into an advisory management agreement with our Manager effective upon the closing of this offering. Pursuant to the management agreement, our Manager will design and implement our business strategy and administer our business activities and day-to-day operations, subject to oversight by our board of directors. Our Manager will be responsible for, among other duties: (1) performing and administering all our day-to-day operations, (2) determining investment criteria in cooperation with our board of directors, (3) sourcing, analyzing and executing asset acquisitions, sales and financings, (4) performing asset management duties and (5) performing certain financial, accounting and tax management services. Our Manager has agreed not to provide these services to anyone other than us, our subsidiaries and any future joint venture in which we are an investor prior to the third anniversary of this offering. In addition, our Manager and Pine River have agreed not to compete with us, our subsidiaries or any of our future joint ventures for three years following the closing of this offering.

Advisory Management Fee

Our Manager will receive an advisory management fee in cash, paid quarterly in arrears equal to 0.375% of the daily average of our fully diluted market capitalization for the preceding quarter (a 1.5% annual rate), less any base management fees received by our Manager's operating subsidiary or its affiliates under the property management and acquisition services agreement described below. We will not pay our Manager any incentive-based fees. In the event certain conditions are satisfied at the closing of this offering and we are obligated to make additional cash payments to the contributors in the Formation Transactions, the advisory management fee that we are required to pay to our Manager during the first year following the closing of this offering shall be reduced by a like amount.

For purposes of calculating the advisory management fee, our fully diluted market capitalization on a given day is calculated in accordance with following formula:

Fully Diluted Market Capitalization = FMV_Common × (Out_Common + Out_Common_Equiv) - AE_Common_Equiv

where:


		FMV_Common =		(1) if our common stock is then listed on a national stock exchange, the closing price per share for the last preceding day on which there was a sale of such shares, (2) if our common stock is not then listed on a national stock exchange but is traded on an over-the-counter market, the average of the closing bid and asked prices for our common stock in such over-the-counter market for the last preceding date on which there was a sale of such shares in such market or (3) if neither (1) nor (2) applies, such value as the compensation committee of our board of directors determines in good faith.
		Out_Common =		the number of shares of common stock issued and outstanding on such day
		Out_Common_Equiv =		the maximum number of shares of common stock issuable pursuant to outstanding rights, options or warrants to subscribe for, purchase or otherwise acquire our common stock or securities convertible into our common stock (including common units of the Operating Partnership) that are in the money and held by people other than us or one of our subsidiaries on such day
		AE_Common_Equiv =		the aggregate consideration payable to the company upon the redemption, exercise, conversion and/or exchange of any outstanding rights, options or warrants to subscribe for, purchase or otherwise acquire our common stock or securities convertible into our common stock (including common units of the Operating Partnership) that are in the money and held by people other than us or one of our subsidiaries on such day

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The value of the cumulative redeemable preferred stock that we plan to issue as part of the Formation Transactions and, if we issue additional preferred stock or securities convertible into or exchangeable for, or rights, options or warrants to subscribe for, purchase or otherwise acquire our preferred stock, the value of such securities will be determined as described in the management agreement and added to the calculation of fully diluted market capitalization. If the Operating Partnership issues any equity interest that is not otherwise captured by the formula above, or securities convertible, redeemable, exercisable or otherwise exchangeable for any equity interest in the Operating Partnership, the value of such equity interests will be determined as described in the management agreement and added to the calculation of fully diluted market capitalization.

Expense Reimbursement

We will also reimburse our Manager for all expenses incurred on our behalf and otherwise in the operation of its business, including (i) our allocable share of the compensation paid by Pine River or our Manager to their personnel serving as our principal financial officer, chief operating officer, chief technology officer and general counsel and personnel employed by Pine River or our Manager who provide in-house legal, tax, accounting, consulting, auditing, administrative, information technology, valuation, computer programming and development and back-office services or otherwise who provide services to us and (ii) any amounts for personnel of Pine River or its affiliates arising under a shared services and facilities agreement (other than for the CEO and personnel providing data analytics directly supporting the investment function). All of our named executive officers other than our general counsel and secretary are expected to devote 100% of their time to our business, and we expect to reimburse our Manager for all of their compensation. We expect our general counsel and secretary to devote his time to our business as his duties may require, which we expect to be less than 50% of his time in any given year. If our Manager provides services to a party other than us or one of our subsidiaries, a portion of the corresponding expenses incurred by our Manager in doing so will be allocated to and reimbursed by such other party in a fair and equitable manner as determined by our Manager in good faith.

Intellectual Property License

Under the management agreement, all intellectual property created in connection with the agreement will be the property of our Manager, and our Manager will grant us a non-exclusive, royalty-free license and right to use the intellectual property during the term of the management agreement.

Term and Termination

The initial term of the management agreement expires on the third anniversary of the closing of this offering and will be automatically renewed for a one-year term each anniversary thereafter unless terminated as described below. Our independent directors will review our Manager's performance annually and, following the initial term, the management agreement may be terminated by us upon the affirmative vote of at least two-thirds of our independent directors based upon unsatisfactory performance that is materially detrimental to us. We must provide notice of any such termination at least 180 days prior to the expiration of the then-current term and pay our Manager a termination fee as described below. We may also terminate the management agreement at any time, including during the initial term, without the payment of any termination fee, with at least 30 days' prior written notice to our Manager for cause, as described in the management agreement, in the absence of our Manager's timely cure. Except as stated above, we do not have the right to decline to renew the management agreement. Our Manager may terminate the agreement with at least 60 days' prior written notice for cause, as described in the management agreement, in the absence of our timely cure, in which case we would owe a termination fee. Our Manager also may decline to renew the management agreement by providing us with 180 days' prior notice, in which case we would not owe a termination fee.

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Termination Fee

Upon termination of the management agreement by us for reasons other than for cause or by our Manager for cause that we were unable or unwilling to timely cure, we will pay our Manager a termination fee equal to 4.5% of the daily average of our fully diluted market capitalization in the quarter preceding such termination.

Property Management and Acquisition Services Agreement

Upon closing of this offering, we will also enter into a property management and acquisition services agreement with our Manager's operating subsidiary. Under this agreement, our Manager's operating subsidiary will acquire additional single-family properties on our behalf and manage our properties. Our Manager's operating subsidiary has agreed not to provide these services to anyone other than us, our subsidiaries and any future joint venture in which we are an investor prior to the third anniversary of this offering.

Expense Reimbursement

We will reimburse our Manager's operating subsidiary for all expenses incurred on our behalf. Additionally, for so long as it provides services exclusively to us, we will reimburse our Manager's operating subsidiary for all costs and expenses incurred by it in the operation of its business, including the compensation of its employees. If our Manager's operating subsidiary provides services to a party other than us or one of our subsidiaries, a portion of these expenses will be allocated to and reimbursed by such other party as reasonably determined by our Manager's operating subsidiary in good faith.

Property Management Fee

Our Manager's operating subsidiary will receive a property management fee equal to 5% of certain costs and expenses incurred by it in the operation of its business that are reimbursed by us. The advisory management fee paid to our Manager is reduced by this property management fee paid to our Manager's operating subsidiary. We will not pay our Manager's operating subsidiary any incentive-based fees.

Term and Termination

The initial term of the property management and acquisition services agreement will expire on the first anniversary of the closing of this offering and will be automatically renewed for a one-year term each anniversary thereafter unless terminated as follows. We may terminate the property management and acquisition services agreement only upon termination of the management agreement or for cause, as described in the property management and acquisition services agreement, in the absence of our Manager's operating subsidiary's timely cure. Our Manager's operating subsidiary may terminate the property management and acquisition services agreement upon 90 days' notice during the initial term or any renewal term, provided our Manager or our Manager's operating subsidiary has obtained a substitute provider of acquisition and property management services for us. We are not obligated to pay any termination fees under the property management and acquisition services agreement.

Shared Services and Facilities Agreement

Our Manager will enter into a shared services and facilities agreement with Pine River, pursuant to which Pine River will provide our Manager with access to, among other things, office space, equipment, certain of Pine River's personnel and other resources necessary to enable our Manager to perform its obligations under the management agreement. The shared services and facilities agreement will provide us access to Pine River's assistance with corporate operations, legal and compliance functions. Our Manager will be required to reimburse Pine River for all out-of-pocket expenses incurred by Pine River and its personnel in the performance of services for our Manager under the shared services and

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facilities agreement and for the allocable share of the compensation paid by Pine River and its affiliates to their respective personnel serving as our principal financial officer, chief operating officer, chief technology officer and general counsel and personnel employed by Pine River and its affiliates providing in-house legal, tax, accounting, consulting, auditing, administrative, information technology, valuation, computer programming and development and back-office resources to us. The allocable share of such out-of-pocket costs is based upon commercially reasonable estimates of the percentage of time devoted by such personnel of Pine River and its affiliates to our affairs. Upon consummation of this offering and the entry into the management agreement, we will be required to reimburse our Manager for these personnel costs as well as a percentage of Pine River's personnel costs pursuant to the terms of the management agreement.

Grants of Equity Compensation to Our Manager, Its Personnel and Its Affiliates

Concurrently with the closing on this offering, we will issue, in aggregate, approximately 157,895 shares of restricted stock to certain of our executive officers and certain other personnel of our Manager and our Manager's operating subsidiary. Additionally, as a component of our Manager's compensation, we may in the future issue to our Manager stock-based compensation under the 2012 Plan. Following the offering, we intend to offer stock-based compensation to certain personnel and affiliates of our Manager and our Manager's operating subsidiary. Partners of Pine River and any personnel of our Manager whose compensation is not reimbursed by us are not eligible to receive grants under the 2012 Plan. See "Management—2012 Equity Incentive Plan" above.

Two Harbors and PRCM Advisers LLC

PRCM Advisers LLC, a wholly owned subsidiary of Pine River and an affiliate of our Manager, serves as the external manager of Two Harbors Investment Corp. [NYSE:TWO], or Two Harbors, a publicly traded REIT that commenced operations in 2009. Two Harbors is focused primarily on investing, financing and managing residential mortgage-backed securities but has also invested, to a limited extent, in other real estate related assets such as its investments in single-family properties beginning in 2012. Although we believe that the experience of our executive officers and our Manager in managing Two Harbors is relevant and will be helpful to our business, our investment strategy and structure are different than the primary focus of Two Harbors and we expect our financial performance and returns will differ from Two Harbors and that the differences may be significant. Additional information about Two Harbors can be found in the periodic reports that Two Harbors files with the SEC, which are available at no charge at the SEC's website at http://www.sec.gov. Such reports are not incorporated by reference herein.

Conflicts of Interest Relating to Pine River, Provident and Our Manager

We are subject to conflicts of interest relating to our Manager, Pine River and Provident because, among other things:

•: The management agreement was not negotiated at arm's length, and may not be on terms as favorable as we could have negotiated with a third party. Pursuant to the management agreement, our Manager will be obligated to supply us with substantially all of our senior management team. Subject to investment and other guidelines or policies adopted by our board of directors, our Manager has significant discretion regarding the implementation of our investment and operating policies and strategies. Neither our Manager nor Pine River or Provident will be obligated to dedicate any specific personnel exclusively to us, nor will they or their personnel be obligated to dedicate any specific portion of their time to the management of our business.
•: Each of our executive officers, as well as each of Brian C. Taylor, Thomas Siering and Irvin R. Kessler, non-independent director nominees, is also an employee or partner of Pine River or, in the case of Mr. Kessler, a member and manager of Provident. These individuals have interests in

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our relationships with our Manager, Pine River and Provident that are different than the interests of our stockholders. In particular, these individuals will have a direct interest in the financial success of our Manager, which may encourage these individuals to support strategies that impact us based upon these considerations. As a result of these relationships, these persons have a conflict of interest with respect to our agreements and arrangements with our Manager, Pine River, Provident and their respective affiliates, including our Manager's operating subsidiary, which were not negotiated at arm's length, and the terms of such agreements and arrangements may not be as favorable to us as if they had been negotiated with an unaffiliated third party.

•: Our executive officers who are partners or employees of Pine River are not required to devote a specific amount of time to our affairs.
•: Our Manager may enter into agreements with other parties, including its affiliates, for the purpose of engaging one or more parties for and on behalf, and at the sole cost and expense, of us to provide property management, asset management, leasing, development and/or other services to us (including portfolio management services with respect to our investments and monitoring services with respect to property management and acquisition activities provided by third parties) pursuant to agreement(s) with terms which are then customary for agreements regarding the provision of services to companies that have assets similar in type, quality and value to our assets; provided that (i) any such agreements entered into with affiliates of our Manager shall be (A) on terms no more favorable to such affiliate than would be obtained from a third party on an arm's-length basis and (B) to the extent the same do not fall within the provisions of our investment guidelines, approved by a majority of our independent directors, (ii) with respect to portfolio management services, our Manager shall remain liable for the performance of such portfolio management services and (iii) with respect to monitoring services, any such agreements shall be subject to our prior written approval.
•: Our Manager may retain, for and on behalf and at our sole cost and expense, such services of accountants, legal counsel, appraisers, insurers, brokers, transfer agents, registrars, developers, investment banks, valuation firms, financial advisors, due diligence firms, underwriting review firms, banks and other lenders and others as our Manager deems necessary or advisable in connection with our management and operations, and our Manager shall have the right to cause any such services to be rendered by its employees or affiliates. Except as otherwise provided in the management agreement, we shall pay or reimburse our Manager or its affiliates performing such services for the cost thereof; provided that such costs and reimbursements are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm's length basis.
•: Our Manager may subcontract and assign its responsibilities under the management agreement to any of its affiliates in accordance with the terms of the management agreement applicable to any such subcontract or assignment. In addition, our Manager may assign the management agreement to any of its affiliates without the approval of our independent directors.
•: Our Manager's liability is limited under the management agreement, and we have agreed to indemnify our Manager and their respective affiliates, including Pine River and our Manager's operating subsidiary, with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts or omissions of such indemnified parties not constituting reckless disregard of our Manager's duties under the management agreement which has a material adverse effect on us, bad faith, fraud, willful misconduct or gross negligence. As a result, we could experience poor performance or losses for which our Manager would not be liable.
•: Under the management agreement, we are required to pay our Manager an advisory management fee based on our market capitalization, regardless of the performance of our portfolio. Accordingly, increases in the price of our common stock will increase our expenses

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and reduce our profitability and distributable cash. In addition, our Manager might not have an adequate incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio, which could, in turn, adversely affect our financial results. Consequently, we may be required to pay our Manager significant advisory management fees despite experiencing a net loss or a decline in the value of our portfolio. Further, the advisory management fee structure gives our Manager an incentive to maximize market capitalization by the issuance of new common stock or the retention of existing equity, regardless of the effect of these actions on existing stockholders. In other words, the advisory management fee structure rewards our Manager primarily based on the size of the company and not on our returns to stockholders.

•: Our Manager, our Manager's operating subsidiary and members of their respective management teams will be free to manage single-family real estate properties owned by others after the expiration of the exclusivity periods which is the third anniversary of this offering. These properties may include single-family real estate properties owned by funds or other entities created or controlled by Pine River, its affiliates or unaffiliated third parties. If this occurs, our Manager, our Manager's operating subsidiary and/or members of their respective management teams may devote a disproportionate amount of time and other resources to acquire or manage properties owned by others. Pine River has also agreed not to compete with us for three years following the closing of this offering. It has no plans at this time to create other subsidiaries or joint ventures that compete directly with the company or our Manager, nor does Pine River have any plans at this time to manage other properties. Prior to the completion of this offering, our board of directors will institute policies and procedures to address any conflicts of interest that may arise if Pine River or our Manager or their respective affiliates were to engage in any competing businesses.
•: The liability of our Manager's operating subsidiary is limited under the property management and acquisition services agreement, and we have agreed to indemnify our Manager's operating subsidiary and its respective affiliates, with respect to all claims, liabilities, losses, damages, costs and expenses arising from the management of Silver Bay's properties and the performance of the duties of our Manager's operating subsidiary under the property management and acquisition services agreement, except to the extent arising as a result of: (a) any material breach by our Manager's operating subsidiary of such agreement or any of our leases; (b) the failure of our Manager's operating subsidiary or any of its employees to comply with specified legal requirements; (c) the gross negligence or intentional misconduct of our Manager's operating subsidiary or any of its employees in connection with the management and leasing of Silver Bay's properties; or (d) any liabilities incurred by or asserted by the employees or our Manager's operating subsidiary that are solely related to their employment by our Manager's operating subsidiary.
•: We will reimburse our Manager's operating subsidiary for all expenses incurred on our behalf, and for so long as it provides services exclusively to us, we will reimburse our Manager's operating subsidiary for all costs and expenses incurred by it in the operation of its business, including the compensation of its employees.

Resolution of Potential Conflicts of Interest

Following the third anniversary of this offering, our Manager may provide services to other clients similar to those being provided to us, provided that our Manager shall comply with all of its duties and obligations set forth in its agreements with us.

Our Manager has undertaken, if at any time it shall have reason to believe that there is a conflict between its duties and obligations to us and its duties and obligations to any other client, to notify us immediately. In the event of any such conflict of interest, our Manager undertakes to negotiate with us

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in good faith regarding the establishment of appropriate policies and procedures to ensure that conflicts of interest are resolved in a manner that is fair and equitable to all parties. Without limiting the foregoing, our Manager will put in effect appropriate procedures under the circumstances to ensure that our proprietary data is protected and is neither disclosed to any third party without our consent nor used to give any party an improper competitive advantage.

In allocating expenses between us and other clients, our Manager will allocate expenses that are specific to a given client to such client, and will allocate expenses that are determined by our Manager, acting in good faith, to be attributable to more than one client on a fair and equitable basis among the various clients for which such expenses were incurred.

Our Manager has undertaken to act in good faith to represent and treat all of its clients substantially equally, including us, in rendering services, and has undertaken, upon our reasonable request, to provide such data and reports on a confidential basis evidencing the allocation of expenses among different clients (whose identities may be withheld), including vacancy rates, turnover rates and average lease terms in each relevant market.

Our Manager may in the future adopt additional conflicts of interest resolution policies and procedures designed to support the equitable allocation and to prevent the preferential allocation of investment opportunities among entities with overlapping investment objectives.

Policies with Respect to Certain Transactions

Other than in connection with the Formation Transactions or as approved by a majority of the independent directors of our board of directors, we will not purchase portfolio assets from, or sell them to, our directors, officers or our Manager, or any of our or their affiliates, or engage in any transaction in which they have a direct or indirect pecuniary interest (other than the management and property management and acquisition services agreements) in any circumstances.

We do not have a policy that expressly prohibits our directors, officers, security holders or any of our affiliates from engaging for their own account in business activities of the types conducted by us.

See "Certain Relationships and Related Transactions—Related Party Transaction Policies; Conflicts of Interest."

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STRUCTURE AND FORMATION OF OUR COMPANY

Formation Transactions

Concurrently with the completion of this offering, we will acquire more than 3,100 single-family properties and certain other assets and liabilities from Two Harbors and the Provident Entities pursuant to the transactions described below, referred to as the Formation Transactions.

Our Existing Structure

Our Manager currently owns 100% of our outstanding common stock. We are a newly formed entity, formed specifically for the purpose of consummating this offering. We currently do not own any property.

We have formed Silver Bay Operating Partnership L.P., or the Operating Partnership, as a subsidiary through which we plan to own our properties and operate our business following the consummation of this offering. We will contribute the net proceeds from this offering to the Operating Partnership in exchange for common units. The common units represent limited partner interests in the Operating Partnership and are redeemable by all holders other than us for cash or shares of our common stock on a one-for-one basis (subject to applicable adjustments). Our interest in the Operating Partnership will generally entitle us to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to our percentage ownership. The sole general partner of the Operating Partnership, Silver Bay Management LLC, or the General Partner, our wholly owned subsidiary, will generally have the exclusive power under the Partnership Agreement to manage and conduct its business and affairs, subject to certain limited approval and voting rights of the limited partners, which are described more fully below in "The Operating Partnership and the Partnership Agreement."

The Operating Partnership will form a wholly owned subsidiary, or the Operating Partnership Sub, and has elected to treat the Operating Partnership Sub as a taxable REIT subsidiary, or TRS. The Operating Partnership Sub will undertake certain activities that we (and our pass-through subsidiaries) might otherwise be precluded from undertaking under the REIT rules.

Transactions to Acquire Properties

Two Harbors Transactions

As of September 30, 2012, Two Harbors owned a portfolio of approximately 1,660 single-family properties through its wholly owned subsidiary, Two Harbors Property Investment LLC, or Two Harbors Property. Two Harbors Property will continue to acquire additional properties until the completion of this offering and, as part of the Formation Transactions, Two Harbors will transfer and assign all of the membership interests of Two Harbors Property to the Operating Partnership in exchange for the consideration described below.

Provident Transactions

As of September 30, 2012, the following entities managed by Provident Real Estate Advisors LLC, or Provident, own a portfolio of approximately 880 single-family properties: Polar Cactus LLC, Polar Cactus II LLC, Cool Willow LLC, Provident Residential Real Estate Fund LLC and Resi II LLC, which we refer to collectively as the Provident Entities. The Provident Entities are currently owned by private investors, or the Prior Provident Investors. The Provident Entities are no longer raising additional funds or acquiring additional properties.

We will acquire the Provident Entities in two ways. The Prior Provident Investors who hold membership interests in Polar Cactus LLC, Polar Cactus II LLC and Cool Willow LLC, in exchange for the consideration described below, will transfer and assign all of their membership interests to the Operating Partnership. Provident Residential Real Estate Fund LLC and Resi II LLC will enter into

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merger agreements with wholly owned merger subsidiaries of the Operating Partnership, and these two Provident Entities will survive as wholly owned subsidiaries of the Operating Partnership.

Consideration Payable to Two Harbors and Prior Provident Investors

Two Harbors, the Prior Provident Investors, the Provident Entities and the company have agreed that, upon consummation of the Formation Transactions and this offering, Two Harbors and the Prior Provident Investors will collectively receive the following consideration in exchange for their membership interests in Two Harbors Property and the Provident Entities: 23,935,073 shares of our common stock; 1,000 shares of our cumulative redeemable preferred stock; 27,295 common units in the Operating Partnership and approximately $5.1 million in cash.

In determining this allocation, the parties first selected a fixed number of shares of common stock, representing the maximum number of shares of common stock that could be issued to Two Harbors and the Prior Provident Investors in the Formation Transactions, assuming Two Harbors received 100% of its consideration in the form of common stock and 100% of the Prior Provident Investors elected to receive shares of our common stock. The parties then allocated this fixed number to Two Harbors Property and each of the Prior Provident Investors based on the relative values of the properties to be contributed by each entity to the Initial Portfolio, as determined by the AVM described elsewhere in this prospectus for properties acquired through August 31, 2012 and based on the estimated capitalized acquisition and renovation costs for properties acquired thereafter, and the respective ownership percentage of the Prior Provident Investors. In calculating this allocation, $50 million was added to the value of the properties of Two Harbors Property to reflect an estimated amount of cash, or acquisition cash, to be used by Two Harbors Property to continue to acquire and renovate properties between the date of the allocation and the closing of this offering. Any acquisition cash that Two Harbors Property does not spend prior to the closing of the offering will remain in the entity following our acquisition of it. As part of its consideration, Two Harbors will receive 1,000 shares of our cumulative redeemable preferred stock, and the common stock it would have otherwise received will be reduced by the number of shares equal to the market value of such cumulative redeemable preferred stock divided by the initial public offering price per share of the common stock. The Prior Provident Investors were offered the option to receive their consideration in shares of common stock, common units in the Operating Partnership (which are redeemable for cash or exchangeable for shares of our common stock on a one-for-one basis) or cash (in an amount determined with reference to the price of our common stock in this offering). Therefore, although the allocation of the equity to be issued to the contributors was determined based on the AVM for properties acquired through August 31, 2012 and the estimated capitalized acquisition and renovation costs for properties acquired thereafter, the ultimate value of the consideration to be received by Two Harbors and the Prior Provident Investors in the Formation Transactions will be determined by the price of our common stock in this offering.

The consideration paid to Two Harbors or the Prior Provident Investors will be adjusted following the closing of the Formation Transactions to the extent of any positive or negative working capital (as such terms are defined in the applicable agreement pursuant to which such entity is acquired) in a particular entity as of the time of closing. If this amount is positive, it shall be paid by us in cash to Two Harbors or the Prior Provident Investors of the affected Provident Entity, as the case may be. If this amount is negative, it shall be paid to us by Two Harbors or the Prior Provident Investors of the affected Provident Entity, as the case may be. These amounts will be paid once determinable, which we expect to occur within 120 days of the closing of the Formation Transactions other than for the Prior Provident Investors, in which case any positive amounts shall be held by us until the first anniversary of the closing of this offering to offset certain claims under the acquisition agreements, if any. Provident has agreed to indemnify us for certain claims that exceed the positive working capital amount, if any, up to a maximum of $3 million. Similarly, Two Harbors has agreed to indemnify us for certain claims under the contribution agreement pursuant to which we will acquire Two Harbors Property, up to a maximum of 10% of the value of the consideration received by Two Harbors at the closing of the offering. In addition, if certain pricing conditions are not met in this offering, we will be required to

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make additional payments of cash for each quarter of the first year following the closing of this offering to Two Harbors and the Provident Prior Investors as additional consideration in the Formation Transactions in an amount equal to 0.1875% of the daily average Fully-Diluted Market Capitalization of the preceding quarter. We will make such payments on a quarterly basis with the final payment prorated based on the number of days between the first anniversary of the closing of this offering and the end of the immediately preceding calendar quarter. At the same time, if we are required make these payments of additional consideration, the advisory management fee owed to our Manager will be reduced by a like amount, thereby eliminating any net impact on our net cash payments.

Consequences of this Offering and the Formation Transactions

The completion of this offering and the Formation Transactions will have the following consequences:

•: We will own 99.9% of the partnership interests in the Operating Partnership (including the general partnership interest through the General Partner, our wholly owned subsidiary) and certain Prior Provident Investors will own the remaining 0.1%.
•: The Operating Partnership will own 100% of the membership interests of Two Harbors Property and the Provident Entities, which in turn will own the real properties in our portfolio.
•: Purchasers of our common stock in this offering will own 35.5% of our outstanding common stock. If the underwriters' over-allotment option is exercised in full, purchasers of our common stock in this offering will own 38.7% of our outstanding common stock.
•: Two Harbors will own 47.7% of our outstanding common stock. If the underwriters' over-allotment option is exercised in full, Two Harbors will own 45.3% of our outstanding common stock.
•: Prior Provident Investors will own 16.4% of our outstanding common stock. If the underwriters' over-allotment option is exercised in full, the Prior Provident Investors will own 15.6% of our outstanding common stock.

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Our Structure After Consummation of the Formation Transactions

The following diagram depicts our expected ownership structure upon completion of the offering and the Formation Transactions.

(1): We will also issue our cumulative redeemable preferred stock having an aggregate liquidation preference of $1 million (plus accrued and unpaid dividends) to Two Harbors in partial consideration for Two Harbors Property. Two Harbors will then immediately sell the cumulative redeemable preferred stock to an unaffiliated third-party investor. The Operating Partnership will issue 1,000 preferred units to us with the same aggregate liquidation preference and substantially the same terms as the cumulative redeemable preferred stock.
(2): Includes shares of restricted stock granted to our independent directors, certain of our executive officers and certain other personnel of our Manager and our Manager's operating subsidiary concurrently with the completion of this offering.
(3): Certain Prior Provident Investors will receive our common stock in exchange for their membership interests in the Provident Entities. Certain other Prior Provident Investors will receive common units in the Operating Partnership in exchange for their membership interests in the Provident Entities. The common units are redeemable for cash or shares of our common stock on a one-for-one basis (subject to applicable adjustments).
(4): Upon completion of the Formation Transactions, the Operating Partnership will own 100% of the equity interests in the Provident Entities and Two Harbors Property.

Determination of Offering Price

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by a negotiation among us and the representatives of the underwriters. In determining the initial public offering price of our common stock, the representatives of the underwriters will consider, among other things, the information presented in this prospectus, the history and prospects for the industry in which we will compete, the ability of our management, prospects for our future earnings, the present state of our development and current financial condition, the recent market prices of, and the demand for, publicly traded shares of generally comparable companies and the general condition of the securities markets at the time of this offering. The initial public offering price does not necessarily bear any relationship to the book value of the properties and assets to be acquired in the Formation Transactions, our financial condition or any other established

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criteria of value and may not be indicative of the market price for our common stock after this offering.

Disposition of Shares and Common Units Issued to Two Harbors and Prior Provident Investors

Two Harbors has agreed with the underwriters not to transfer the shares of our common stock it receives upon consummation of the Formation Transactions for at least 90 days following the completion of this offering. Two Harbors is restricted from disposing of the shares of our common stock until the expiration of a 90-day lock-up period following the completion of this offering, after which Two Harbors may, subject to the discretion and approval of its board of directors and in compliance with applicable securities laws, hold, sell or otherwise dispose of the shares, which may include a distribution of the shares by means of a special dividend to Two Harbors common stockholders.

Each Prior Provident Investor who receives our common stock as consideration in the Formation Transactions will also be subject to a 90-day lock-up period, after which they will be able to dispose of such shares. Any Prior Provident Investor who is a director or officer of Silver Bay will be subject to a 180-day lock-up period. Beginning on or after the one-year anniversary of this offering, each Prior Provident Investor (or its successor) who is a limited partner of the Operating Partnership will have the right to require the Operating Partnership to redeem all (but not less than all) of its common units for cash, based upon the value of an equivalent number of shares of our common stock at the time of the redemption. Instead of redeeming the common units for cash, the General Partner may elect, on behalf of the Operating Partnership, to cause us to issue shares of our common stock for such common units, subject to certain adjustments and the restrictions on ownership and transfer of our stock set forth in our charter and described under the section entitled "Description of Capital Stock—Restrictions on Ownership and Transfer." With each such redemption or exchange of common units, our percentage ownership interest in the Operating Partnership and our share of the Operating Partnership's cash distributions and profits and losses will increase. See "The Operating Partnership and the Partnership Agreement."

In addition, Irvin R. Kessler and any partner of Pine River who receives shares of our common stock in connection with this offering or the Formation Transactions will be subject to a one-year lock-up period with the company, subject to certain exceptions.

Benefits to Related Parties

In connection with this offering and the Formation Transactions, our Predecessor, the Prior Provident Investors and certain of our directors and executive officers will receive material benefits. All amounts are based on the midpoint of the range set forth on the cover page of this prospectus:

•: Two Harbors will receive shares of common stock and cumulative redeemable preferred stock with a value of approximately $339.5 million, as described above.
•: Assuming conversion of all common units received by the Prior Provident Investors into shares of our common stock, the Prior Provident Investors will receive shares of our common stock with a value of approximately $116.6 million and approximately $5.1 million in cash, as described above.
•: Irvin R. Kessler, as a Prior Provident Investor, will receive shares of our common stock and common units with a value of approximately $35.9 million. Mr. Kessler is also a director nominee and the managing member of Provident, which owns a one-third interest in our Manager and will receive one-third of the advisory management fee we pay to our Manager.
•: Our independent directors, certain of our executive officers and certain other personnel of our Manager and our Manager's operating subsidiary will be granted restricted stock with an aggregate value of $3 million.

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We also expect to enter into indemnification agreements with our directors and officers upon the closing of this offering, providing for indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against such officers and/or directors, in their capacities as such.

Investors who receive shares of our common stock or common units in the Operating Partnership as a result of the Formation Transactions will have the following rights:

•: 12 months after first becoming a holder of common units, to require the Operating Partnership to redeem all (but not less than all) of their common units for cash equal to the then-current value of an equal number of shares of our common stock (determined in accordance with and subject to adjustment under the Partnership Agreement), or, at the General Partner's election on behalf of the Operating Partnership, to exchange their common units for shares of our common stock on a one-for-one basis, subject to certain adjustments and the restrictions;
•: to register the resale of any shares of our common stock issued in the Formation Transactions; and
•: 12 months after the completion of this offering, to register for resale any shares of our common stock that are issued in exchange for common units.

We have not obtained third-party appraisals of the properties and other assets to be acquired by us in connection with this offering or the Formation Transactions; instead, the allocation of consideration to be issued in the Formation Transactions will be based on the method described above. Therefore, the value of the cash, common units, and shares of our common stock that we will pay or issue as consideration for the assets that we plan to acquire may exceed the fair market value of these properties and assets. See "Risk Factors—Risks Related to our Business—The price you pay for the common stock in this offering may exceed the fair market value of the underlying assets represented by your ownership stake."

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PRINCIPAL STOCKHOLDERS

Immediately prior to the completion of this offering, there will be 1,000 shares of common stock outstanding and one stockholder of record. At that time, we will have no other shares of capital stock outstanding. The following table sets forth certain information, prior to and after this offering, regarding the ownership of our common stock by:

•: each of our directors;
•: each of our executive officers;
•: each holder of 5% or more of our common stock; and
•: all of our directors and executive officers as a group.

In accordance with SEC rules, each listed person's beneficial ownership includes:

•: all shares the investor actually owns beneficially or of record;
•: all shares over which the investor has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund); and
•: all shares the investor has the right to acquire within 60 days.

Unless otherwise indicated, all shares are or will be owned directly, and the indicated person has or will have sole voting and investment power. Except as indicated in the footnotes to the table below, the business address of the stockholders listed below is the address of our principal executive office, 601 Carlson Parkway, Suite 250, Minnetonka, Minnesota.

	Percentage of Common Stock Outstanding

	Immediately Prior to this Offering and the Formation Transactions
						Immediately After this Offering and the Formation Transactions(1)
	Shares Owned
Name and Address	Shares Owned		Percentage			Shares Owned		Percentage
PRCM Real Estate Advisers LLC(2)		1,000		100	%		—		—
Two Harbors Operating Company LLC(3)		—		—			17,825,841		47.7	%
Brian C. Taylor		—		—			—		—
Irvin R. Kessler(4)		—		—			1,889,429		5.1	%
Thomas Siering		—		—			—		—
Tanuja M. Dehne(5)		—		—			2,632		*
Stephen G. Kasnet(5)		—		—			2,632		*
William W. Johnson(5)		—		—			2,632		*
Thomas W. Brock(5)		—		—			2,632		*
Ronald N. Weiser(5)		—		—			2,632		*
David N. Miller		—		—			—		—
Christine Battist(6)		—		—			11,842		*
Timothy O'Brien		—		—			—		—
Patrick Freydberg(6)		—		—			11,842		*
All directors, director nominees and executive officers as a group (12 persons)		—		—			1,926,273		5.2	%

* Represents less than 1% of the common shares outstanding upon the closing of this offering.

(1): Assumes the issuance of 13,250,000 shares offered hereby and 23,935,073 shares of common stock issued in the Formation Transactions. Does not include any shares of common stock that may be

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issued pursuant to the underwriters' over-allotment option or the conversion of common units into shares of our common stock.

(2): In connection with our formation, these shares were issued to our Manager for a total of $1,000 in cash and we will repurchase these shares at cost upon completion of this offering.
(3): Two Harbors Investment Corp. is the sole manager of Two Harbors Operating Company LLC. Thomas Siering, Chief Executive Officer of Two Harbors Investment Corp., may be deemed to have voting and investment power with respect to such shares beneficially held by Two Harbors Investment Corp. and held of record by Two Harbors Operating Company LLC. Mr. Siering disclaims beneficial ownership with respect to such shares except to the extent of his pecuniary interest therein, including those shares Mr. Siering may receive in any distribution of our shares as a stockholder of Two Harbors Investment Corp.
(4): Consists of (i) 1,294,065 shares held by Mr. Kessler through various ownership entities, (ii) 222,269 shares to be received by Provident as a member and Managing Member of the Provident Entities and (iii) 373,095 shares to be received by the Kessler Family Limited Partnership in connection with the Formation Transactions. Mr. Kessler has sole voting and dispositive power over the shares held by the Kessler Family Limited Partnership, but disclaims beneficial ownership with respect to such shares except to the extent of his pecuniary interest therein.
(5): Consists of 2,632 shares of restricted stock (assuming an offering price of $19.00 per share, the midpoint of the price range set forth on the cover of this prospectus) to be granted concurrently with the completion of this offering to each independent director nominee. These shares will vest on the first anniversary of the date of grant, subject to continued service to the company.
(6): Consists of 11,842 shares of restricted stock (assuming an offering price of $19.00 per share, the midpoint of the price range set forth on the cover of this prospectus) to be granted concurrently with the completion of this offering to our Chief Operating Officer and Chief Financial Officer. One-third of the shares will vest on each of the first, second and third anniversaries of the date of grant, subject to continued service to the company.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Formation Transactions

Each property that will be owned by us indirectly through the Operating Partnership upon the completion of this offering and the Formation Transactions is currently owned directly or indirectly by Two Harbors Property or the Provident Entities. In connection with this offering, we are entering into certain contribution and merger agreements pursuant to which the Operating Partnership will acquire full ownership of Two Harbors Property and the Provident Entities substantially concurrently with the completion of this offering. Two Harbors Operating Company LLC, a wholly owned subsidiary of Two Harbors, will receive shares of our common stock and the Prior Provident Investors will receive, at their election, shares of our common stock, common units representing limited partner interests in the Operating Partnership, or cash in exchange.

For further information regarding the terms of the Formation Transactions, including the benefits to related parties, see "Structure and Formation of Our Company—Formation Transactions."

Director Designation Agreement

In connection with the Formation Transactions, we will enter into a director designation agreement with Two Harbors that will allow the independent directors of Two Harbors to designate two individuals for nomination for election to our board of directors. The independent directors of Two Harbors have initially designated Stephen G. Kasnet and William W. Johnson. Pursuant to the director designation agreement, the designees must qualify as independent directors, as defined under the rules of the SEC and NYSE. Messrs. Kasnet and Johnson will join our board of directors in connection with this offering, and Two Harbors will thereafter have the right to re-designate them, or to designate other qualifying individuals in their stead, for nomination for election to our board of directors, to serve until the 2014 annual meeting of our stockholders.

Advisory Management Agreement and Property Management and Acquisition Services Agreement

Effective on the closing of this offering, we will enter into the advisory management agreement with our Manager, pursuant to which our Manager will provide the day-to-day management of our operations. The management agreement requires our Manager to manage our business affairs in conformity with the policies and the investment guidelines that are approved and monitored by our board of directors. Our Manager has agreed not to provide these services to anyone other than us, our subsidiaries and any future joint venture in which we are an investor prior to the third anniversary of this offering. The management agreement requires us to pay our Manager an advisory management fee and to reimburse it for various expenses. The management agreement has an initial three-year term and will be renewed for one-year terms thereafter unless terminated by either us or our Manager. Our Manager is entitled to receive a termination fee from us, under certain circumstances. See "Our Manager and the Management Agreement—Management Agreement."

Effective on the closing of this offering, we will also enter into a property management and acquisition services agreement with our Manager's operating subsidiary, which is a wholly owned subsidiary of our Manager. Under this agreement, our Manager's operating subsidiary will execute the investment strategy established by our Manager by finding and acquiring single-family properties on our behalf and performing renovation and property management services for our properties. Our Manager's operating subsidiary has agreed not to provide these services to anyone other than us, our subsidiaries and any future joint venture in which we are an investor prior to the third anniversary of this offering. The property management and acquisition services agreement requires us to pay our Manager's operating subsidiary a property management fee, the amount of which reduces the fee we pay to our Manager. We must also reimburse our Manager's operating subsidiary for certain expenses. The property management and acquisition services agreement has a one-year initial term. See "Our

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Manager and the Management Agreement—Property Management and Acquisition Services Agreement."

Our officers also are employees or partners of Pine River, an affiliate of our Manager. As a result, the management agreement between us and our Manager and the property management and acquisition services agreement between us and our Manager's operating subsidiary were negotiated between related parties, and their terms, including fees and other amounts payable, may not be as favorable to us as if they had been negotiated with unaffiliated third parties. See "Management—Conflicts of Interest" and "Risk Factors—Risks Related to Our Relationship with Our Manager—Our Manager and certain of its affiliates may have interests that diverge from the interests of our stockholders."

The management agreement is intended to provide us with access to our Manager's pipeline of assets and its personnel and its experience in real estate, capital markets, credit analysis, debt structuring and risk and asset management, as well as assistance with corporate operations, legal and compliance functions and governance.

Partnership Agreement

Effective on the closing of this offering, we will enter into a partnership agreement, or Partnership Agreement, with Silver Bay Management LLC, our wholly owned subsidiary, as the general partner, or the General Partner, and the Prior Provident Investors who elect to receive common units in respect of their interests in the Provident Entities. As a result, these persons will become limited partners of the Operating Partnership. See "The Operating Partnership and the Partnership Agreement." Upon completion of this offering and the Formation Transactions, the Prior Provident Investors will own common units representing 0.1% of the limited partner interests and we will own 99.9% of the limited partner interests and 100% of the general partner interest in the Operating Partnership.

Pursuant to the Partnership Agreement, limited partners of the Operating Partnership and assignees of limited partners (other than us) will have the right, beginning 12 months after first becoming a holder of common units, to require the Operating Partnership to redeem all (but not less than all) of their common units for cash equal to the then-current value of an equal number of shares of our common stock (determined in accordance with and subject to adjustment under the Partnership Agreement), or, at the General Partner's election on behalf of the Operating Partnership, to exchange their common units for shares of our common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of our stock set forth in our charter and described under the section entitled "Description of Capital Stock—Restrictions on Ownership and Transfer."

Registration Rights Agreement

We will enter into registration rights agreements with Two Harbors and the Prior Provident Investors in respect of shares of our common stock issued to them in the Formation Transactions, pursuant to which we will agree to register the resale of the shares Two Harbors expects to distribute to its stockholders and the Prior Provident Investors intend to resell. We will also enter into a registration rights agreement with the Prior Provident Investors in respect of the registration of the initial issuance or resale of shares of our common stock they receive in exchange for their common units. See "Shares Eligible for Future Sale—Registration Rights."

Related Party Transaction Policies; Conflicts of Interest

The management agreement places restrictions on our Manager when entering into transactions with its related parties. These limitations include prohibitions on entering into transactions with affiliates of our Manager that are not approved by a majority of our independent directors in certain

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circumstances. Prior to completion of this offering, we will also adopt a code of business conduct and ethics and other policies that are designed to reduce certain potential conflicts of interest between our officers, employees and directors on the one hand and us on the other hand. See "Management—Code of Business Conduct and Ethics" and "Our Manager and the Management Agreement—Conflicts of Interest Relating to Pine River, Provident and Our Manager."

Indemnification and Limitation of Directors' and Officers' Liability

Effective upon completion of this offering, our charter and bylaws will provide for certain indemnification rights for our directors and officers and we will enter into an indemnification agreement with each of our executive officers and directors, providing for procedures for indemnification and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from their service to us or, at our request, service to other entities, as officers or directors or otherwise, to the maximum extent permitted by Maryland law. See "Management—Limitation of Liability and Indemnification."

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DESCRIPTION OF CAPITAL STOCK

The following is a summary of the rights and preferences of our capital stock. We encourage you to read carefully this entire prospectus, our charter and bylaws and the other documents we refer to for a more complete understanding of our capital stock. Copies of our charter and bylaws are filed as exhibits to the registration statement of which this prospectus is a part. See "Where You Can Find More Information."

General

Our charter provides that we may issue up to 450,000,000 shares of common stock, $0.01 par value per share, and 50,000,000 shares of preferred stock, $0.01 par value per share. Our charter authorizes our board of directors to amend our charter to increase or decrease the aggregate number of authorized shares of stock or the number of shares of stock of any class or series without stockholder approval. After giving effect to this offering and the other transactions described in this prospectus, 37,370,263 shares of common stock will be issued and outstanding, assuming conversion of all common units issued in the Formation Transactions into shares of our common stock (39,357,763) shares if the underwriters' over-allotment option is exercised in full), and 1,000 shares of our cumulative redeemable preferred stock will be issued and outstanding. Under Maryland law, stockholders are not generally liable for our debts or obligations.

Shares of Common Stock

Subject to the preferential rights of any other class or series of shares of stock and to the provisions of our charter regarding the restrictions on ownership and transfer of shares of our stock, holders of shares of our common stock are entitled to receive dividends on such shares of common stock out of assets legally available therefor if, as and when authorized by our board of directors and declared by us, and the holders of our shares of common stock are entitled to share ratably in our assets legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up after payment of or adequate provision for all our known debts and liabilities.

Subject to the provisions of our charter regarding the restrictions on transfer and ownership of shares of our stock and except as may otherwise be specified in the terms of any class or series of shares of stock, each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors, and, except as provided with respect to any other class or series of shares of stock, the holders of such shares of common stock will possess the exclusive voting power. There is no cumulative voting in the election of our board of directors, which means that the holders of a majority of the outstanding shares of common stock can elect all of the directors then standing for election, and the holders of the remaining shares of common stock will not be able to elect any directors.

Holders of shares of common stock have no preference, conversion, exchange, sinking fund or redemption rights, have no preemptive rights to subscribe for any securities of our company and generally have no appraisal rights. Subject to the provisions of our charter regarding the restrictions on transfer and ownership of shares of our stock, shares of common stock will have equal dividend, liquidation and other rights.

Under the MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge with another entity, transfer all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business unless declared advisable by its board of directors and approved by the affirmative vote of stockholders holding at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the corporation's charter. Our charter provides that these matters (other than certain amendments to the provisions of our charter related to the removal of directors, the restrictions on ownership and transfer of shares of our stock and the

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requirement of a two-thirds vote for amendment to these provisions) may be approved by our stockholders by a majority of all of the votes entitled to be cast on the matter.

Power to Reclassify Our Unissued Shares of Stock

Our charter authorizes our board of directors to classify and reclassify any unissued shares of common or preferred stock into other classes or series of shares of stock. Prior to issuance of shares of each other class or series, our board of directors will be required by Maryland law and by our charter to set, subject to our charter restrictions on transfer and ownership of shares of our stock, the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Therefore, among other things, our board of directors could authorize the issuance of shares of common or preferred stock with terms and conditions that could have the effect of delaying, deferring or preventing a change in control or other transaction that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.

Cumulative Redeemable Preferred Stock

The articles supplementary designating the terms of our 10% Cumulative Redeemable Preferred Stock, which we refer to herein as the cumulative redeemable preferred stock, will initially authorize 1,000 shares of cumulative redeemable preferred stock, with an aggregate liquidation preference of $1,000,000. The cumulative redeemable preferred stock will rank, with respect to dividend rights and rights upon our liquidation, dissolution or winding up, senior to all classes or series of our common stock and junior to all other classes or series of our preferred stock that may be issued in the future (except as noted in the next sentence). We may issue other classes or series of capital stock in the future, including preferred stock, and expressly designate such classes or series as ranking junior to, on parity with or senior to the cumulative redeemable preferred stock. We may not, however, issue capital stock ranking as to dividends or rights upon our liquidation, dissolution or winding up, senior to the cumulative redeemable preferred stock, without the affirmative vote or consent of two-thirds of the issued and outstanding shares of cumulative redeemable preferred stock.

The holders of the cumulative redeemable preferred stock will be entitled to receive, when, as and if authorized and declared by us, cumulative cash dividends at the rate of 10% per annum of the $1,000 liquidation preference per share of the cumulative redeemable preferred stock, equivalent to $100 per annum per share. Such dividends will accrue on a daily basis and be cumulative from and including the initial issue date of the cumulative redeemable preferred stock. Upon our liquidation, dissolution or winding up, the holders of the cumulative redeemable preferred stock will be entitled to receive a liquidating preference of $1,000 per share, plus any accrued and unpaid dividends thereon, before we distribute any assets to holders of our common stock or any other shares of stock that rank junior to the cumulative redeemable preferred stock as to liquidation rights.

Beginning on the fifth anniversary of the initial issue date of the cumulative redeemable preferred stock, we may, at our option, redeem the cumulative redeemable preferred stock, in whole or in part, at any time or from time to time, by paying $1,000 per share, plus any accrued and unpaid dividends thereon. Beginning on the sixth anniversary of the initial issue date of the cumulative redeemable preferred stock, we will, at the request of any stockholder holding shares of cumulative redeemable preferred stock, repurchase the number of shares of cumulative redeemable preferred stock that such stockholder proposes to sell to us from time to time, at a price per share equal to the liquidation preference of $1,000 plus all accrued and unpaid dividends thereon.

Holders of cumulative redeemable preferred stock will have no preemptive or appraisal rights, nor will such holders have any voting rights (except in limited circumstances relating to any amendment, alteration or repeal of the terms of the cumulative redeemable preferred stock that would materially and adversely affect any right, preference, privilege or voting power of the cumulative redeemable preferred stock or the holders thereof or as a condition to the issuance of senior stock, as described

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above). The cumulative redeemable preferred stock is not convertible into or exchangeable for any of our other property or securities, and generally may not be sold, pledged, assigned or otherwise transferred without the prior approval of our board of directors.

In order to ensure that we continue to meet the requirements for qualification as a REIT, the cumulative redeemable preferred stock will be subject to the restrictions on ownership and transfer set forth in our charter, including the aggregate stock ownership limit. See "Description of Capital Stock—Restrictions on Ownership and Transfer."

Power to Increase or Decrease Authorized Shares of Common Stock and Issue Additional Shares of Common and Preferred Stock

We believe that the power of our board of directors to amend our charter to increase or decrease the number of authorized shares of stock, to issue additional authorized but unissued shares of common or preferred stock and to classify or reclassify unissued shares of common or preferred stock and thereafter to issue such classified or reclassified shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs that might arise. The additional classes or series, as well as the shares of common stock, will be available for issuance without further action by our stockholders, unless such action is required by applicable law or the terms of any issued and outstanding class or series, or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. As described above, the terms of the cumulative redeemable preferred stock require the affirmative vote or consent of the holders of two-thirds of such shares outstanding, before we can issue capital stock ranking senior to the cumulative redeemable preferred stock as to dividends or rights upon our liquidation, dissolution or winding up. Although our board of directors does not intend to do so, the board of directors could authorize us to issue a class or series that could, depending upon the terms of the particular class or series, delay, defer or prevent a change in control or other transaction that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.

Restrictions on Ownership and Transfer

In order for us to qualify as a REIT under the Code, our shares of stock must be owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).

Our charter contains restrictions on the ownership and transfer of our shares of common stock and other outstanding shares of stock. The relevant sections of our charter provide that, subject to the exceptions described below, no person or entity may own, or be deemed to own, by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock (the common share ownership limit), or 9.8% by value or number of shares, whichever is more restrictive, of our outstanding capital stock (the aggregate share ownership limit). We refer to the common share ownership limit and the aggregate share ownership limit collectively as the "ownership limits." A person or entity that becomes subject to the ownership limits by virtue of a violative transfer that results in a transfer to a trust, as set forth below, is referred to as a "purported beneficial transferee" if, had the violative transfer been effective, the person or entity would have been a record owner and beneficial owner or solely a beneficial owner of our shares of stock, or is referred to as a "purported record transferee" if, had the violative transfer been effective, the person or entity would have been solely a record owner of our shares of stock.

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The constructive ownership rules under the Code are complex and may cause shares of stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or 9.8% by value or number of shares, whichever is more restrictive, of our outstanding capital stock (or the acquisition of an interest in an entity that owns, actually or constructively, our shares of stock by an individual or entity), could, nevertheless, cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or 9.8% by value or number of shares, whichever is more restrictive, of our outstanding capital stock and thereby subject the shares of common stock or total shares of stock to the applicable ownership limits.

Our board of directors may, in its sole discretion, exempt a person from the above-referenced ownership limits. However, the board of directors may not exempt any person whose ownership of our outstanding stock would result in our being "closely held" within the meaning of Section 856(h) of the Code or otherwise would result in our failing to qualify as a REIT. In order to be considered by the board of directors for exemption, a person also must not own, directly or indirectly, as determined by our board of directors, an interest in one of our tenants (or a tenant of any entity which we own or control) that would cause us to own, directly or indirectly, more than a 9.9% interest in the tenant. The person seeking an exemption must represent to the satisfaction of our board of directors that it will not violate these two restrictions. The person also must agree that any violation or attempted violation of these restrictions will, or of any representations made to us in order to obtain an exemption from the ownership limits, result in the automatic transfer of the shares of stock to a trust. As a condition of its waiver, our board of directors may require an opinion of counsel or IRS ruling satisfactory to our board of directors with respect to our qualification as a REIT. Our board of directors has adopted a resolution providing for the exemption of Two Harbors and certain of its affiliates from the ownership limits in connection with the Formation Transactions, which will allow them to own up to 49% of our stock.

In connection with any waiver of the ownership limits or at any other time, our board of directors may from time to time increase or decrease the ownership limits for all other persons and entities; provided, however, that any decrease may be made only prospectively as to existing holders (other than a decrease as a result of a retroactive change in existing law, in which case the decrease will be effective immediately); and provided further that the ownership limits may not be increased if, after giving effect to such increase, five or fewer individuals could own or constructively own in the aggregate, more than 49.9% in value of the shares then outstanding. Prior to the modification of the ownership limits, our board of directors may require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine or ensure our qualification as a REIT. Reduced ownership limits will not apply to any person or entity whose percentage ownership in our shares of common stock or total shares of stock, as applicable, is in excess of such decreased ownership limits until such time as such person's or entity's percentage of our shares of common stock or total shares of stock, as applicable, equals or falls below the decreased ownership limits, but any further acquisition of our shares of common stock or total shares of stock, as applicable, in excess of such percentage ownership of our shares of common stock or total shares of stock will be in violation of the ownership limits.

Our charter provisions are further designed to prohibit:

•: any person from beneficially or constructively owning, applying certain attribution rules of the Code, our shares of stock that would result in our being "closely held" under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT; and
•: any person from transferring our shares of stock if such transfer would result in our shares of stock being owned by fewer than 100 persons (determined without reference to any rules of attribution).

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Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of our shares of stock that will or may violate any of the foregoing restrictions on transferability and ownership will be required to give at least 15 days prior written notice to us and provide us with such other information as we may request in order to determine the effect of such transfer on our qualification as a REIT. The foregoing restrictions on transferability and ownership will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.

Our charter provides that, if any transfer of our shares of stock would result in our shares of stock being owned by fewer than 100 persons, such transfer will be null and void and the intended transferee will acquire no rights in such shares. In addition, our charter provides that, if any purported transfer of our shares of stock or any other event would otherwise result in any person violating the ownership limits or such other limit established by our board of directors or in our being "closely held" under Section 856(h) of the Code or otherwise failing to qualify as a REIT, then that number of shares (rounded up to the nearest whole share) that would cause us to violate such restrictions will be automatically transferred to, and held by, a trust for the exclusive benefit of one or more charitable organizations selected by us and the intended transferee will acquire no rights in such shares. Our charter provides that the automatic transfer will be effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in a transfer to the trust. Any dividend or other distribution paid to the purported record transferee, prior to our discovery that the shares had been automatically transferred to a trust as described above, must be repaid to the trustee upon demand for distribution to the beneficiary by the trust. If the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the applicable ownership limits or our being "closely held" under Section 856(h) of the Code or otherwise failing to qualify as a REIT, then our charter provides that the transfer of the shares will be void.

Shares of stock transferred to the trustee are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price paid by the purported record transferee for the shares (or, if the event that resulted in the transfer to the trust did not involve a purchase of such shares of stock at market price, the last reported sales price reported on the NYSE (or other applicable exchange) on the day of the event which resulted in the transfer of such shares of stock to the trust) and (2) the market price on the date we, or our designee, accepts such offer. We have the right to accept such offer until the trustee has sold the shares of stock held in the trust pursuant to the clauses discussed below. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates, our charter provides that the trustee must distribute the net proceeds of the sale to the purported record transferee and any dividends or other distributions held by the trustee with respect to such shares of stock will be paid to the charitable beneficiary.

Our charter provides that, if we do not buy the shares, the trustee must, within 20 days of receiving notice from us of the transfer of shares to the trust, sell the shares to a person or entity designated by the trustee who could own the shares without violating the ownership limits or such other limit as established by our board of directors. After that, the trustee must distribute to the purported record transferee an amount equal to the lesser of (1) the price paid by the purported record transferee for the shares (or, if the event which resulted in the transfer to the trust did not involve a purchase of such shares at market price, the last reported sales price reported on the NYSE (or other applicable exchange) on the day of the event which resulted in the transfer of such shares of stock to the trust) and (2) the sales proceeds (net of commissions and other expenses of sale) received by the trust for the shares. Any net sales proceeds in excess of the amount payable to the purported record transferee will be immediately paid to the beneficiary, together with any dividends or other distributions thereon. In addition, if prior to discovery by us that shares of stock have been transferred to a trust, such shares of stock are sold by a purported record transferee, then our charter provides that such shares will be deemed to have been sold on behalf of the trust and to the extent that the purported record transferee received an amount for or in respect of such shares that exceeds the

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amount that such purported record transferee was entitled to receive, such excess amount will be paid to the trustee upon demand. Our charter provides that the purported beneficial transferee or purported record transferee has no rights in the shares held by the trustee.

The trustee will be designated by us and will be unaffiliated with us and with any purported record transferee or purported beneficial transferee. Prior to the sale of any shares by the trust, the trustee will receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to the shares held in trust and may also exercise all voting rights with respect to the shares held in trust. These rights will be exercised for the exclusive benefit of the charitable beneficiary. Any dividend or other distribution paid prior to our discovery that shares of stock have been transferred to the trust will be paid by the recipient to the trustee upon demand. Any dividend or other distribution authorized but unpaid will be paid when due to the trustee.

Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee will have the authority, at the trustee's sole discretion:

•: to rescind as void any vote cast by a purported record transferee prior to our discovery that the shares have been transferred to the trust; and
•: to recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary of the trust.

However, if we have already taken irreversible action, then the trustee may not rescind and recast the vote.

In addition, if our board of directors or other permitted designees determine in good faith that a proposed transfer would violate the restrictions on ownership and transfer of our shares of stock set forth in our charter, our board of directors or other permitted designees will take such action as it deems or they deem advisable to refuse to give effect to or to prevent such transfer, including, but not limited to, causing us to redeem the shares of stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer.

Every owner of more than 5% (or such lower percentage as required by the Code or the regulations, or Treasury regulations, promulgated thereunder) of our stock, within 30 days after the end of each taxable year, is required to give us written notice, stating his name and address, the number of shares of each class and series of our stock which he beneficially owns and a description of the manner in which the shares are held. Each such owner shall provide us with such additional information as we may request in order to determine the effect, if any, of his beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits. In addition, each stockholder shall upon demand be required to provide us with such information as we may request in good faith in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance.

These ownership limits could delay, defer or prevent a transaction or a change in control that might involve a premium price for the common stock or otherwise be in the best interest of the stockholders.

Listing

Our common stock will be listed on the New York Stock Exchange under the symbol "SBY."

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.

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SHARES ELIGIBLE FOR FUTURE SALE

General

Upon completion of this offering and the Formation Transactions, we will have outstanding 37,370,263 shares of our common stock (39,357,763 shares if the underwriters exercise their over-allotment option in full).

Of these shares, the 13,250,000 shares sold in this offering (15,237,500 shares if the underwriters exercise their over-allotment option in full) will be freely transferable without restriction or further registration under the Securities Act, subject to the limitations on ownership set forth in our charter, except for any shares held by our "affiliates," as that term is defined in Rule 144 under the Securities Act. Any shares received in the Formation Transactions and the shares of our common stock received upon exchange of common units will be "restricted shares" as defined in Rule 144. See "—Rule 144" below.

Our shares of common stock are newly issued securities for which there is no established trading market. No assurance can be given as to (1) the likelihood that an active market for our shares of common stock will develop, (2) the liquidity of any such market, (3) the ability of the stockholders to sell the shares or (4) the prices that stockholders may obtain for any of the shares. No prediction can be made as to the effect, if any, that future sales of shares or the availability of shares for future sale will have on the market price prevailing from time to time. Sales of substantial amounts of shares of common stock, or the perception that such sales could occur, may affect adversely prevailing market prices of the shares of common stock. See "Risk Factors—Risks Related to Our Common Stock."

For a description of certain restrictions on transfers of our shares of common stock held by certain of our stockholders, see "Description of Capital Stock—Restrictions on Ownership and Transfer."

Rule 144

Shares of common stock that are "restricted" securities under the meaning of Rule 144 under the Securities Act may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemption provided by Rule 144.

In general, under Rule 144 under the Securities Act, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the other provisions of Rule 144.

A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of our common stock or the average weekly trading volume of our common stock during the four calendar weeks preceding such sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us (which requires that we are current in our periodic reports under the Exchange Act).

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Redemption/Exchange Rights

In connection with the Formation Transactions, the Operating Partnership will issue an aggregate of 27,295 common units to the Prior Provident Investors. Beginning on the date that is 12 months after we complete this offering, the holders of these common units will have the right to require the Operating Partnership to redeem all (but not less than all) of their common units for cash, or, at the General Partner's election on behalf of the Operating Partnership, shares of our common stock in exchange for the common units. The price at which the Operating Partnership must redeem common units is based upon the fair market value of an equivalent number of shares of our common stock at the time of the redemption. If the General Partner elects to cause us to issue new shares of our common stock in exchange for the common units, the issuance would be subject to the ownership limits in our charter and described under the section entitled "Description of Securities—Restrictions on Ownership and Transfer." See "The Operating Partnership and the Partnership Agreement."

Registration Rights; Distribution

We will enter into registration rights agreements with the holders of our shares of common stock and common units issued as part of the Formation Transactions pursuant to which we will agree, among other things, to register the resale of any shares of our common stock that were issued in the Formation Transactions. These registration rights require us to seek to register all such shares effective as of a date which is 90 days following the completion of this offering. We have also agreed to file a registration statement to register the initial issuance or resale of any shares of our common stock that are issued in exchange for common units effective not later than 12 months following the completion of this offering. We may, at our option, satisfy our obligation to prepare and file a resale registration statement by filing a registration statement registering the issuance by us of shares of our common stock under the Securities Act to holders of common units upon redemption.

Two Harbors has informed us that it intends to distribute all the shares of our common stock that it receives in the Formation Transactions to its common stockholders, subject to compliance with REIT rules and a variety of other considerations. Two Harbors expects the distribution to take the form of a spin-off by means of a special dividend to Two Harbors common stockholders of all our common stock then owned by Two Harbors. Two Harbors has agreed with the underwriters that the distribution of our common stock will occur no earlier than 90 days following the consummation of this offering. Distributions of these shares are expected to be included in the registration statement that we have agreed to file.

Our Equity Incentive Plan

We will adopt prior to the completion of this offering the 2012 Plan, which will provide for the grant to directors, officers, advisors, consultants and other personnel of our company and its affiliates of equity and equity-based awards. A total of 921,053 shares of our common stock has been reserved for issuance under the 2012 Plan. Concurrently with the closing of this offering, we expect to issue, in aggregate, approximately 157,895 shares of our common stock to our independent directors, certain executive officers, and certain other personnel of our Manager and our Manager's operating subsidiary.

We anticipate that we will file a registration statement with respect to the shares of our common stock issuable under the 2012 Plan after we complete this offering. Shares of our common stock covered by this registration statement, including shares of our common stock issuable upon the exercise of options or restricted shares of our common stock, will be eligible for transfer or resale without restriction under the Securities Act unless held by affiliates.

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Lock-Up Agreements

Our directors and officers and certain other executives of our company and our affiliates have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of the representatives of the underwriters, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement. The shares to be issued in connection with the Formation Transactions will be subject to a 90-day lock-up period.

In addition, Irvin R. Kessler and any partner of Pine River who receives shares in connection with this offering or the Formation Transactions will be subject to a one-year lock-up period pursuant to an agreement with the company, subject to certain exceptions.

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CERTAIN PROVISIONS OF THE MARYLAND GENERAL
CORPORATION LAW AND OUR CHARTER AND BYLAWS

The following description of the terms of our stock and of material provisions of Maryland law is only a summary. For a complete description, we refer you to the MGCL, our charter and our bylaws, copies of which will be available before the closing of this offering from us upon request.

Our Board of Directors

Our charter and bylaws provide that the number of directors we have may be established only by our board of directors but may not be fewer than the minimum number required under the MGCL, which is one, and our bylaws provide that the number of our directors may not be more than 15. Upon completion of this offering we expect to have nine directors. Our charter also provides that, at such time as we become eligible to elect to become subject to certain elective provisions of the MGCL (which we expect will be upon completion of this offering) and except as may be provided by our board of directors in setting the terms of any class or series of stock, any vacancy on our board of directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum. Any director so elected to fill a vacancy will hold office for the remainder of the full term of the directorship in which the vacancy occurred and until his or her successor is duly elected and qualifies.

Each of our directors elected by our stockholders is elected to serve until the next annual meeting of stockholders and until his or her successor is duly elected and qualifies. Holders of shares of common stock will have no right to cumulative voting in the election of directors. Directors are elected by a plurality of the votes cast.

Removal of Directors

Our charter provides that, subject to the rights of holders of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be removed only for cause (as defined in our charter), and then only by the affirmative vote of the holders of shares entitled to cast at least two-thirds of all the votes of common stockholders entitled to be cast generally in the election of directors. This provision, when coupled with the exclusive power of our board of directors to fill vacancies on the board of directors, may preclude stockholders from (1) removing incumbent directors except for cause and upon a substantial affirmative vote and (2) filling the vacancies created by such removal with their own nominees.

Business Combinations

Under the MGCL, "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

•: any person who beneficially owns ten percent or more of the voting power of the corporation's outstanding voting stock; or
•: an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However,

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in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

•: 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
•: two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. As permitted by the MGCL, our board of directors has by resolution exempted business combinations (1) between us and any person, provided that the business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such persons) and (2) between us and Pine River, Provident, Two Harbors or any of their respective affiliates. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and any other person as described above, and as a result, any such person may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. However, our board of directors may repeal or modify this resolution at any time. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any such acquisition.

Control Share Acquisitions

The MGCL provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by employees who are directors of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

•: one-tenth or more but less than one-third,
•: one-third or more but less than a majority, or
•: a majority or more of all voting power.

Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting

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is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.

The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (2) to acquisitions approved or exempted by the charter or bylaws of the corporation.

Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. There can be no assurance that this provision will not be amended or eliminated at any time in the future.

Subtitle 8

Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Securities Exchange Act of 1934 (which we will be upon completion of this offering) and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in its charter or bylaws, to any or all of five provisions of the MGCL which provide, respectively, that:

•: the corporation's board of directors will be divided into three classes,
•: the affirmative vote of two-thirds of the votes entitled to be cast generally in the election of directors is required to remove a director,
•: the number of directors be fixed only by vote of the directors,
•: a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred, and
•: the request of stockholders entitled to cast at least a majority of all votes entitled to be cast at the meeting is required for the calling of a special meeting of stockholders.

Our charter provides that, at such time as we are able to make a Subtitle 8 election (which we expect to be upon the closing of this offering), vacancies on our board may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall serve for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in our charter and bylaws unrelated to Subtitle 8, we already (1) require the affirmative vote of stockholders entitled to cast not less than two-thirds of all of the votes entitled to be cast on the matter for the removal of any director from the board, which removal will be allowed only for cause, (2) vest in the board the exclusive power to fix the number of directorships and (3) require, unless called by our chairman of the board, our chief executive officer, our president or the board of directors, the written request of

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stockholders of not less than a majority of all votes entitled to be cast at such a meeting to call a special meeting.

Meetings of Stockholders

Pursuant to our bylaws, a meeting of our stockholders for the election of directors and the transaction of any business will be held annually on a date and at the time and place set by our board of directors beginning in 2013. The chairman of our board of directors, our chief executive officer, our president or our board of directors may call a special meeting of our stockholders. Subject to the provisions of our bylaws, a special meeting of our stockholders to act on any matter that may properly be brought before a meeting of our stockholders will also be called by our secretary upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast on such matter at the meeting containing the information required by our bylaws. Our secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and delivering the notice of meeting (including our proxy materials), and the requesting stockholder must pay such estimated cost before our secretary is required to prepare and deliver the notice of the special meeting.

Amendment to Our Charter and Bylaws

Except for amendments to the provisions of our charter relating to the removal of directors, the restrictions on ownership and transfer of our shares of stock and the vote required to amend these provisions (each of which must be advised by our board of directors and approved by the affirmative vote of stockholders entitled to cast not less than two-thirds of all the votes entitled to be cast on the matter), our charter generally may be amended only if advised by our board of directors and approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Our board of directors, with the approval of a majority of the entire board, and without any action by our stockholders, may also amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series we are authorized to issue.

Our board of directors has the exclusive power to adopt, alter or repeal any provision of our bylaws and to make new bylaws.

Extraordinary Transactions

Under the MGCL, a Maryland corporation generally cannot dissolve, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business unless declared advisable by its board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the corporation's charter. As permitted by the MGCL, our charter provides that any of these actions may be approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Many of our operating assets will be held by our subsidiaries, and these subsidiaries may be able to merger or sell all or substantially all of their assets without the approval of our stockholders.

Appraisal Rights

Our charter provides that our stockholders generally will not be entitled to exercise statutory appraisal rights.

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Dissolution of the Company

The dissolution of our company must be advised by a majority of our entire board of directors and approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.

Advance Notice of Director Nominations and New Business

Our bylaws provide that, with respect to an annual meeting of stockholders, nominations of individuals for election to our board of directors and the proposal of other business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our board of directors or (3) by a stockholder who was a stockholder of record both at the time of giving the notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting on such business or in the election of such nominee and has provided notice to us within the time period, and containing the information, specified by the advance notice provisions set forth in our bylaws.

With respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before the meeting. Nominations of individuals for election to our board of directors may be made only (1) by or at the direction of our board of directors or (2) provided that the meeting has been called for the purpose of electing directors, by a stockholder who is entitled to vote at the meeting in the election of such nominee and has provided notice to us within the time period, and containing the information, specified by the advance notice provisions set forth in our bylaws.

The purpose of requiring stockholders to give advance notice of nominations and other proposals is to afford our board of directors the opportunity to consider the qualifications of the proposed nominees or the advisability of the other proposals and, to the extent considered necessary by our board of directors, to inform stockholders and make recommendations regarding the nominations or other proposals. The advance notice procedures also permit a more orderly procedure for conducting our stockholder meetings. Although our bylaws do not give our board of directors the power to disapprove timely stockholder nominations and proposals, our bylaws may have the effect of precluding a contest for the election of directors or proposals for other action if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors to our board of directors or to approve its own proposal.

Anti-takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws

Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for shares of our common stock or otherwise be in the best interests of our stockholders, including

•: supermajority vote and cause requirements for removal of directors;
•: requirement that stockholders holding at least a majority of our outstanding common stock must act together to make a written request before our stockholders can require us to call a special meeting of stockholders;
•: provisions that vacancies on our board of directors may be filled only by the remaining directors for the full term of the directorship in which the vacancy occurred;
•: the power of our board to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock;
•: the power of our board of directors to cause us to issue additional shares of stock of any class or series and to fix the terms of one or more classes or series of stock without stockholder approval;

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•: business combination provisions;
•: restrictions on ownership and transfer of our stock; and
•: advance notice requirements for director nominations and stockholder proposals.

Likewise, if the provision in our bylaws opting out of the control share acquisition provisions of the MGCL is rescinded or if we opt in to provisions of Subtitle 8, these provisions of the MGCL could have similar anti-takeover effects.

Indemnification and Limitation of Directors' and Officers' Liability

The MGCL permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by a final judgment as being material to the cause of action. Our charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law.

The MGCL requires us (unless our charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made or threatened to be made a party by reason of his service in that capacity. The MGCL permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that:

•: the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty;
•: the director or officer actually received an improper personal benefit in money, property or services; or
•: in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by us or in our right, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses.

In addition, the MGCL permits a corporation to advance reasonable expenses to a director or officer upon the corporation's receipt of:

•: a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and
•: a written undertaking by the director or officer or on the director's or officer's behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct.

Our charter authorizes us to obligate ourselves and our bylaws obligate us, to the fullest extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a

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preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to:

•: any present or former director or officer who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity; or
•: any individual who, while a director or officer of our company and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, limited liability company, employee benefit plan or any other enterprise as a director, officer, partner, trustee, member or manager of such corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity.

Our charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of ours in any of the capacities described above and to any personnel or agent of our company or a predecessor of our company.

We expect to enter into indemnification agreements with each of our directors and executive officers that provide for indemnification to the maximum extent permitted by Maryland law.

Insofar as the foregoing provisions permit indemnification of directors, officers or persons controlling us for liability arising under the Securities Act, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

REIT Qualification

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without approval of our stockholders, if it determines that it is no longer in our best interests to continue to qualify as a REIT.

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THE OPERATING PARTNERSHIP AND THE PARTNERSHIP AGREEMENT

The following summary describes the material provisions of the Partnership Agreement and applicable provisions of the Delaware Revised Uniform Limited Partnership Act, or the DRULPA, a copy of which is available from us upon request. See "Where You Can Find More Information."

General

Upon completion of the Formation Transactions, substantially all of our assets will be held by, and substantially all of our operations will be conducted through, the Operating Partnership, either directly or through its subsidiaries. The General Partner is the sole general partner of the Operating Partnership and, upon completion of the offering, the Formation Transactions and the other transactions described in this prospectus, we and the General Partner will own 98.9% and 1%, respectively, of the outstanding common units. In the Formation Transactions, certain of the Prior Provident Investors will be admitted as limited partners of the Operating Partnership. The provisions of the Partnership Agreement described below and elsewhere in the prospectus will be in effect after the completion of the Formation Transactions and this offering. We do not intend to list any Operating Partnership units on any exchange or any national market system.

Purpose, Business and Management

The Operating Partnership is formed for the purpose of conducting any business, enterprise or activity permitted by or under the DRULPA, including (i) to conduct the business of acquisition, ownership, construction, reconstruction, development, redevelopment, alteration, improvement, maintenance, operation, sale, leasing, transfer, encumbrance, conveyance and exchange of its assets, (ii) to acquire and invest in any securities and/or loans relating to its assets, (iii) to enter into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the DRULPA, or to own interests in any entity, including any subsidiary, engaged in any business permitted by or under the DRULPA and (iv) to do anything necessary or incidental to the foregoing. However, the Operating Partnership may not, without our specific consent, which we may give or withhold in our sole and absolute discretion, take, or refrain from taking, any action that, in our judgment, in our sole and absolute discretion:

•: could adversely affect our ability to continue to qualify as a REIT;
•: could subject us to any taxes under Code Section 857 or Code Section 4981 or any other related or successor provision under the Code;
•: could violate any law or regulation of any governmental body or agency having jurisdiction over us, our securities or the Operating Partnership; or
•: could cause us to not be in compliance in all material respects with any covenants, conditions or restrictions placed on us pursuant to an agreement to which we are a party.

The General Partner will manage the business and affairs of the Operating Partnership, in its capacity as the sole general partner of the Operating Partnership. Except as otherwise expressly provided in the Partnership Agreement and subject to the rights of holders of any class or series of Operating Partnership interests, all management powers over the business and affairs of the Operating Partnership are exclusively vested in the General Partner, in its capacity as the sole general partner of the Operating Partnership. No limited partner, in its capacity as a limited partner, has any right to participate in or exercise control or management power over the Operating Partnership's business and affairs. The General Partner may not be removed as the general partner of the Operating Partnership, with or without cause, without its consent, which it may give or withhold in its sole and absolute discretion. In addition to the powers granted to the General Partner under applicable law or any provision of the Partnership Agreement, but subject to certain rights of holders of any class or series of Operating Partnership interests, the General Partner, in its capacity as the general partner of the

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Operating Partnership, has the full and exclusive power and authority to do or authorize all things that it deems necessary or desirable to conduct the business and affairs of the Operating Partnership, to exercise or direct the exercise of all of the powers of the Operating Partnership and the General Partner under the DRULPA and the Partnership Agreement and to effectuate the purposes of the Operating Partnership without the approval or consent of any limited partner. With limited exceptions, the General Partner may execute, deliver and perform agreements and transactions on behalf of the Operating Partnership without the approval or consent of any limited partner.

Restrictions on General Partner's Authority

Without the consent of a majority in interest of the limited partners (excluding us and any limited partner 50% or more of whose equity is owned, directly or indirectly, by us or the General Partner), the General Partner may not (i) take any action that would make it impossible to carry on the ordinary business of the Operating Partnership, (ii) perform any act that would subject a limited partner to liability as a general partner in any jurisdiction or any other liability except as provided under the Partnership Agreement or under the DRULPA or (iii) take any action in contravention of an express prohibition or limitation of the Partnership Agreement. The General Partner may not, without the prior consent of the partners of the Operating Partnership (including us), amend, modify or terminate the Partnership Agreement, except for certain amendments that the General Partner may approve without the approval or consent of any limited partner, described in "—Amendment of the Partnership Agreement," and certain amendments described below that require the approval of each affected partner.

Without the consent of each affected limited partner, the General Partner may not enter into any contract, mortgage, loan or other agreement that expressly prohibits or restricts the General Partner or the Operating Partnership from performing its specific obligations in connection with a redemption of common units or expressly prohibits or restricts a limited partner from exercising its redemption rights in full. In addition to any approval or consent required by any other provision of the Partnership Agreement, the General Partner may not, without the consent of each affected limited partner, amend the Partnership Agreement or take any other action that would:

•: convert a limited partner interest into a general partner interest;
•: modify the limited liability of a limited partner;
•: alter the rights of any partner to receive the distributions to which such partner is entitled, or alter the allocations specified in the Partnership Agreement, except to the extent permitted by the Partnership Agreement in connection with, among other things, the issuance of any partnership interests;
•: alter or modify the redemption rights of holders of common units or the related definitions specified in the Partnership Agreement; or
•: remove, alter or amend certain provisions of the Partnership Agreement relating to the requirements for us to qualify as a REIT or to taxes on us under Sections 857 or 4981 of the Code.

Additional Limited Partners

The General Partner may cause the Operating Partnership to issue additional units or other partnership interests and to admit additional limited partners to the Operating Partnership from time to time, on such terms and conditions and for such capital contributions as the General Partner may

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establish in its sole and absolute discretion, without the approval or consent of any limited partner, including:

•: upon the conversion, redemption or exchange of any debt, units or other securities issued by the Operating Partnership;
•: for less than fair market value;
•: in connection with any merger of any other entity with the Operating Partnership or a subsidiary of the Operating Partnership; or
•: in consideration for services rendered to or for the benefit of the Operating Partnership.

The Operating Partnership may issue common units and additional partnership interests in one or more additional classes, or one or more series of any of such classes, with such designations, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption (including terms that may be senior or otherwise entitled to preference over the common units) as the General Partner may determine, in its sole and absolute discretion, without the approval of any limited partner. Without limiting the generality of the foregoing, the General Partner may specify, as to any class or series of partnership interests:

•: the allocations of items of partnership income, gain, loss, deduction and credit to such class or series of partnership interest;
•: the right of such class or series of partnership interest to share, on a junior, preferred or pari passu basis, in distributions;
•: the rights of such class or series of partnership interest upon dissolution and liquidation of the Operating Partnership;
•: the voting rights, if any, of such class or series of partnership interests;
•: the conversion, redemption or exchange rights applicable to such class or series of partnership interests; and
•: any vesting conditions applicable to such class or series of partnership interests.

Ability to Engage in Other Businesses; Conflicts of Interest

Neither we nor the General Partner may conduct any business other than in connection with the ownership, acquisition and disposition of partnership interests, the management of the business and affairs of the Operating Partnership, our operation as a reporting company with a class (or classes) of securities registered under the Exchange Act, our operations as a REIT, the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests, financing or refinancing of any type related to us or the Operating Partnership and such activities as are incidental to those activities referred to above. In general, we must make any funds from sales of securities, or financings or refinancing available to the Operating Partnership whether as capital contributions, loans or otherwise, as appropriate.

Distributions

The Operating Partnership will make distributions at such times and in such amounts as the General Partner may, in its sole and absolute discretion, determine:

•: first, with respect to any class(es) of partnership interests that are entitled to any preference in distribution, in accordance with the rights of the holders of such class(es) of partnership

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interests, and, within each such class, among the holders of such class pro rata in proportion to their respective percentage interests of such class; and

•: second, with respect to any class(es) of partnership interests that are not entitled to any preference in distribution, including the common units, in accordance with the rights of the holders of such class(es) of partnership interests, and, within each such class, among the holders of each such class, pro rata in proportion to their respective percentage interests of such class.

Distributions payable with respect to any partnership interests that were not outstanding during the entire period in respect of which a distribution is made may, in the General Partner's discretion, be prorated based on the portion of the period that such partnership interests were outstanding.

Allocations

Net income or net loss of the Operating Partnership will generally be allocated to the General Partner, as the general partner, and to the limited partners (including us) in accordance with the General Partner's and the limited partners' entitlement to distributions under the Partnership Agreement. The allocations of taxable income and loss are subject to special rules and may differ from the allocation of net income or net loss. See "U.S. Federal Income Tax Considerations—Tax Aspects of the Operating Partnership and Other Partnerships—Tax Allocations with Respect to Partnership Properties."

Borrowing by the Operating Partnership

The General Partner may cause the Operating Partnership to borrow money and to issue and guarantee debt as the General Partner deems necessary or advisable for the conduct of the activities of the Operating Partnership. Such debt may be secured by, among other things, mortgages or deeds of trust on the properties of the Operating Partnership.

Reimbursements of Expenses; Transactions with General Partner and its Affiliates

The General Partner will not receive any compensation for its services as the general partner of the Operating Partnership. The General Partner has the same right to distributions as other holders of common units. In addition, the Operating Partnership must reimburse the General Partner, us and our subsidiaries for all amounts expended by the General Partner, us or our subsidiaries in connection with our, the General Partner's, our subsidiaries' and the Operating Partnership's organization, business and operations, including expenses relating to the ownership of interests in and management and operation of the Operating Partnership, us and our subsidiaries compensation of officers and employees, director fees and expenses, any expenses incurred by us in connection with the redemption or repurchase of shares and our costs and expenses of being a public company, including costs of filings with the SEC, reports and other distributions to our stockholders.

The General Partner and its affiliates (including us) may sell, transfer or convey property to, or purchase property from, the Operating Partnership on such terms and conditions as the General Partner may determine in its reasonable discretion.

Exculpation and Indemnification of the General Partner and Us

The Partnership Agreement provides that neither we nor the General Partner is liable to the Operating Partnership or any partner for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Operating Partnership or any limited partner as a result of errors in judgment or mistakes of fact or law or acts or failure to act, provided that we and the General Partner acted in good faith. The Partnership Agreement also provides that any obligation or liability of the General Partner or us that may arise at any time under the Partnership Agreement or any other instrument, transaction or undertaking contemplated by the Partnership Agreement will be satisfied, if

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at all, out of our assets or the assets of the General Partner or the Operating Partnership only, and no such obligation or liability will be personally binding upon us or any of the General Partner's or our directors, stockholders, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise, and none of our directors or officers will be liable or accountable in damages or otherwise to the partnership, any partner or any assignee of a partner for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission. Neither we nor the General Partner is responsible for any misconduct or negligence on the part of our employees or agents appointed in good faith. We and the General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisors, and any action that we or the General Partner take or omit to take in reliance upon the opinion of any such person as to matters which we or the General Partner reasonably believe to be within such person's professional or expert competence will be conclusively presumed to have been done or omitted in good faith.

In addition, the Partnership Agreement requires the Operating Partnership to indemnify the General Partner, us, our respective directors, officers and employees, the officers and employees of the Operating Partnership and any other person designated by the General Partner, in its sole and absolute discretion, against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including attorneys' fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, that relate to our operations or the operations of the Operating Partnership or the General Partner, unless (1) an act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) such person actually received an improper personal benefit in violation or breach of any provision of the Partnership Agreement or (3) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful. The Operating Partnership must also pay or reimburse the reasonable expenses of any such person upon its receipt of a written affirmation of the person's good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct for indemnification. The Operating Partnership will not indemnify or advance funds to any person with respect to any action initiated or brought voluntarily by the person seeking indemnification without the General Partner's approval (except for any proceeding brought to enforce such person's right to indemnification under the Partnership Agreement) or if the person is found to be liable to the Operating Partnership on any portion of any claim in the action.

Business Combinations of the Operating Partnership

Subject to the limitations on the transfer of the General Partner's interest in the Operating Partnership described in "—Transfers and Withdrawals—Restrictions on Transfers by the General Partner," the General Partner generally has the exclusive power to cause the Operating Partnership to merge, reorganize, consolidate, sell all or substantially all of its assets or otherwise combine its assets with another entity. In connection with the acquisition of properties from persons to whom the Operating Partnership issues units or other partnership interests as part of the purchase price, in order to preserve such persons' tax deferral, the Operating Partnership may contractually agree, in general, not to sell or otherwise transfer the properties for a specified period of time, or in some instances, not to sell or otherwise transfer the properties without compensating the sellers of the properties for their loss of the tax deferral.

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Redemption Rights of Qualifying Parties and the Operating Partnership

Beginning 12 months after first becoming a holder of common units, each limited partner and assignee of a limited partner will have the right, subject to the terms and conditions set forth in the Partnership Agreement (including the restriction that a notice of redemption may only be delivered at least 10 business days prior to the last business day of a calendar month), to require the Operating Partnership to redeem all (but not less than all) of the common units held by such limited partner or assignee in exchange for a cash amount per common unit equal to the value of one share of our common stock, determined in accordance with and subject to adjustment under the Partnership Agreement. The Operating Partnership's obligation to redeem common units does not arise and is not binding against the Operating Partnership until the fourth business day after we receive the holder's notice of redemption or, if earlier, the day the General Partner, on behalf of the Operating Partnership, notifies the holder seeking redemption that the Operating Partnership declines to cause us to acquire some or all of the common units tendered for redemption. If the General Partner, on behalf of the Operating Partnership, does not elect to cause us to acquire the common units tendered for redemption in exchange for shares of our common stock (as described below), the Operating Partnership must deliver the cash redemption amount on or before the last business day of the month in which the General Partner receives the holder's timely notice of redemption.

On or before the close of business on the third business day after a holder of common units gives notice of redemption to the General Partner, the Operating Partnership may, in the General Partner's sole and absolute discretion but subject to the restrictions on the ownership and transfer of our stock set forth in our charter, elect to cause us to acquire some or all of the common units tendered for redemption from the tendering party in exchange for shares of our common stock, based on an exchange ratio of one share of common stock for each common unit, subject to adjustment as provided in the Partnership Agreement. The holder of the common units tendered for redemption must provide certain information, certifications, representations, opinions and other instruments to ensure compliance with the restrictions on ownership and transfer of our stock set forth in our charter and the Securities Act. The Partnership Agreement does not require us to register, qualify or list any shares of common stock issued in exchange for common units with the SEC under the Securities Act or the Exchange Act, with any state securities commissioner, department or agency or with any stock exchange. Shares of our common stock issued in exchange for common units pursuant to the Partnership Agreement may contain legends regarding restrictions under the Securities Act and applicable state securities laws as we determine to be necessary or advisable.

The Operating Partnership has the right to redeem any or all of the common units (other than common units owned by us) on and after the date that less than 5% of the partnership interests in the Operating Partnership are held by limited partners other than us. The General Partner may exercise this right, in its sole and absolute discretion, by notification to a limited partner. In that event, a limited partner who is so notified shall be treated as if it had delivered a notice of redemption to the General Partner for purposes of the provisions described above.

Transfers and Withdrawals

Restrictions on Transfers by Limited Partners

Until the expiration of 12 months after the date on which a limited partner first acquires a partnership interest, the limited partner generally may not directly or indirectly transfer all or any portion of its partnership interest without the General Partner's consent, which the General Partner may give or withhold in its sole and absolute discretion, except for certain permitted transfers to certain affiliates, family members and charities, and certain pledges of partnership interests to lending institutions in connection with bona fide loans.

After the expiration of 12 months after the date on which a limited partner first acquires a partnership interest, the limited partner will have the right to transfer all or any portion of its

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partnership interest without the General Partner's consent to any person that is an "accredited investor," within meaning set forth in Rule 501 promulgated under the Securities Act, upon ten business days prior notice to the General Partner, subject to the satisfaction of conditions specified in the Partnership Agreement, including minimum transfer requirements and our right of first refusal. Unless waived by the General Partner in its sole and absolute discretion, a transferring limited partner must also deliver an opinion of counsel reasonably satisfactory to the General Partner that the proposed transfer may be effected without registration under the Securities Act, and will not otherwise violate any state securities laws or regulations applicable to the Operating Partnership or the partnership interest proposed to be transferred. We may exercise our right of first refusal in connection with a proposed transfer by a limited partner within ten business days of our receipt of notice of the proposed transfer, which must include the identity and address of the proposed transferee and the amount and type of consideration proposed to be paid for the partnership interest. We may deliver all or any portion of any cash consideration proposed to be paid for a partnership interest that we acquire pursuant to our right of first refusal in the form of a note payable to the transferring limited partner not more than 180 days after our purchase of such partnership interest.

Any transferee of a limited partner's partnership interest must assume by operation of law or express agreement all of the obligations of the transferring limited partner under the Partnership Agreement with respect to the transferred interest, and no transfer (other than a transfer pursuant to a statutory merger or consolidation in which the obligations and liabilities of the transferring limited partner are assumed by a successor corporation by operation of law) will relieve the transferring limited partner of its obligations under the Partnership Agreement without the General Partner's consent, which it may give or withhold in its sole and absolute discretion.

Admission of Substituted Limited Partners

No limited partner has the right to substitute a transferee as a limited partner in its place. A transferee of a partnership interest of a limited partner may be admitted as a substituted limited partner only with the General Partner's consent, which it may give or withhold in its sole and absolute discretion, and only if the transferee accepts all of the obligations of a limited partner under the partnership and executes such instruments as the General Partner may require to evidence such acceptance and to effect the assignee's admission as a limited partner. Any assignee of a partnership interest that is not admitted as a limited partner will be entitled to all the rights of an assignee of a limited partner interest under the Partnership Agreement and the DRULPA, including the right to receive distributions from the Operating Partnership and the share of net income, net losses and other items of income, gain, loss, deduction and credit of the Operating Partnership attributable to the partnership interest held by the assignee and the rights to transfer and redemption of the partnership interest provided in the Partnership Agreement, but will not be deemed to be a limited partner or holder of a partnership interest for any other purpose under the Partnership Agreement or the DRULPA, and will not be entitled to consent to or vote on any matter presented to the limited partners for approval. The right to consent or vote, to the extent provided in the Partnership Agreement or under the DRULPA, will remain with the transferring limited partner.

Restrictions on Transfers by the General Partner

Except as described below, any transfer of all or any portion of the General Partner's interest in the Operating Partnership, whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise and including a deemed transfer of our interest in the General Partner resulting from any merger, consolidation or other combination by us with and into another entity (other than a subsidiary of ours) or the sale of all or substantially all of our and our subsidiaries' assets, must be approved by the consent of a majority in interest of the limited partners (excluding us and any limited partner 50% or more of whose equity is owned, directly or indirectly, by us or the General Partner). Subject to the rights of our stockholders and the limited partners of the Operating Partnership to approve certain

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direct or indirect transfers of our interests in the Operating Partnership described below and the rights of holders of any class or series of partnership interests, we may transfer all (but not less than all) of our general partnership interest without the consent of the limited partners in connection with a merger, consolidation or other combination of our assets with another entity or a sale of all or substantially all of our assets if:

•: in connection with such event, all of the limited partners (other than us) will receive or have the right to elect to receive, for each common unit, the greatest amount of cash, securities or other property paid to a holder of one share of our common stock (subject to adjustment in accordance with the Partnership Agreement) in the transaction and, if a purchase, tender or exchange offer is made and accepted by holders of our common stock in connection with the event, each holder of common units receives, or has the right to elect to receive, the greatest amount of cash, securities or other property that the holder would have received if it had exercised its redemption right and received shares of our common stock in exchange for its common units immediately before the expiration of the purchase, tender or exchange offer and had accepted the purchase, tender or exchange offer; or
•: substantially all of the assets of the Operating Partnership will be owned by a surviving entity (which may be the Operating Partnership) in which the limited partners of the Operating Partnership holding common units immediately before the event will hold a percentage interest based on the relative fair market value of the net assets of the Operating Partnership and the other net assets of the surviving entity immediately before the event; the rights, preferences and privileges of such limited partners are at least as favorable as those in effect immediately before the event and as those applicable to any other limited partners or non-managing members of the surviving entity; and such rights will include a right to redeem interests in the surviving entity for the consideration described in the preceding bullet or cash on substantially equivalent terms as those in effect with respect to the common units immediately before the event, or, if common equity securities of the person controlling the surviving entity are publicly traded, such common equity securities, with the exchange ratio based on the determination of the relative fair market value of such securities and the common units.

We and the General Partner may also transfer our interests in the Operating Partnership to or among a group consisting of us and our affiliates without the consent of any limited partner, subject to the rights of holders of any class or series of partnership interest. In addition, any transferee of the General Partner's interest in the Operating Partnership will be admitted as the successor general partner of the Operating Partnership and will be liable for all of the General Partner's obligations, and be responsible for all of the General Partner's duties, as general partner under the Partnership Agreement. The successor general partner must accept all of the terms and conditions of the Partnership Agreement and execute such instruments as may be necessary to effectuate the transferee's admission as a general partner.

Restrictions on Transfers by Any Partner

Any transfer or purported transfer of a partnership interest other than in accordance with the Partnership Agreement will be void. Partnership interests may be transferred only on the first day of a fiscal quarter, and no partnership interest may be transferred to any lender (or party related to any lender) to the Operating Partnership whose loan constitutes a nonrecourse liability, in either case, unless the General Partner otherwise consents, which it may give or withhold in its sole and absolute discretion. No transfer of any partnership interest, including in connection with any redemption or acquisition of units by us or by the Operating Partnership, may be made:

•: to a person or entity that lacks the legal right, power or capacity to own the partnership interest;
•: in violation of applicable law;

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•: without the General Partner's consent, which it may give or withhold in its sole and absolute discretion, of any component portion of a partnership interest, such as a partner's capital account or rights to distributions, separate and apart from all other components of the partner's interest in the Operating Partnership;
•: if the proposed transfer could cause us or any of our affiliates to fail to comply with the requirements under the Code for qualifying as a REIT or as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2));
•: without the General Partner's consent, which it may give or withhold in its sole and absolute discretion, if the proposed transfer could, based on the advice of counsel to the Operating Partnership or the General Partner, cause a termination of the Operating Partnership for U.S. federal or state income tax purposes (other than as a result of the redemption or acquisition by us of all common units held by limited partners);
•: if the proposed transfer could, based on the advice of our legal counsel or legal counsel to the Operating Partnership or the General Partner, cause the Operating Partnership to cease to be classified as a partnership for U.S. federal income tax purposes;
•: if the proposed transfer would cause the Operating Partnership to become, with respect to any employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended, or ERISA, a "party-in-interest" for purposes of ERISA or a "disqualified person" as defined in Section 4975(c) of the Code;
•: if the proposed transfer could, based on the advice of counsel to the Operating Partnership, cause any portion of the assets of the Operating Partnership to constitute assets of any employee benefit plan pursuant to applicable regulations of the United States Department of Labor;
•: if the proposed transfer requires the registration of the partnership interest under any applicable federal or state securities laws;
•: without the General Partner's consent, which it may give or withhold in its sole and absolute discretion, if the proposed transfer (1) could be treated as effectuated through an "established securities market" or a "secondary market" (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code and the Treasury regulations, (2) could cause the Operating Partnership to become a "publicly traded partnership," as that term is defined in Sections 469(k)(2) or 7704(b) of the Code, (3) could cause the Operating Partnership to have more than 100 partners, including as partners certain persons who own their interests in the Operating Partnership indirectly or (4) could cause the Operating Partnership to fail one or more of the "safe harbors" within the meaning of Section 7704 of the Code and the Treasury regulations;
•: if the proposed transfer would cause the Operating Partnership (as opposed to the General Partner) to become a reporting company under the Exchange Act; or
•: if the proposed transfer could subject the Operating Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended.

Withdrawal of Partners

The General Partner may not voluntarily withdraw as the general partner of the Operating Partnership without the consent of a majority in interest of the limited partners (excluding us and any limited partner 50% or more of whose equity is owned, directly or indirectly, by us or the General Partner) other than in connection with certain permitted transfers of its entire interest in the Operating Partnership and the admission of a successor as a general partner of the Operating Partnership. A limited partner may withdraw from the Operating Partnership only as a result of a transfer of the

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limited partner's entire partnership interest in accordance with the Partnership Agreement and the admission of the limited partner's successor as a limited partner of the Operating Partnership or as a result of the redemption or acquisition by the Operating Partnership or us of the limited partner's entire partnership interest.

Amendment of the Partnership Agreement

Except as described below and amendments requiring the consent of each affected partner described in "—Restrictions on General Partner's Authority," amendments to the Partnership Agreement must be approved by the consent of the General Partner and a majority in interest of the limited partners (excluding us and any limited partner 50% or more of whose equity is owned, directly or indirectly, by us or the General Partner). Amendments to the Partnership Agreement may be proposed only by the General Partner or by limited partners holding 25% or more of the partnership interests held by limited partners (excluding partnership interests held by us). Following such a proposal, the General Partner must submit any proposed amendment that requires the consent, approval or vote of any partners to the partners entitled to vote on the amendment for approval and seek the consent of such partners to the amendment.

The General Partner may, without the approval or consent of any limited partner but subject to the rights of holders of any additional class or series of partnership interest, amend the Partnership Agreement as may be required to facilitate or implement any of the following purposes:

•: to add to its obligations as general partner or surrender any right or power granted to it or any of our affiliates for the benefit of the limited partners;
•: to reflect the admission, substitution or withdrawal of partners, the transfer of any partnership interest, or the termination of the Operating Partnership in accordance with the Partnership Agreement;
•: to reflect a change that is of an inconsequential nature or does not adversely affect the limited partners in any material respect, or to cure any ambiguity, correct or supplement any provision in the Partnership Agreement that is not inconsistent with law or with other provisions of the Partnership Agreement, or make other changes with respect to matters arising under the Partnership Agreement that will not be inconsistent with law or with the provisions of the Partnership Agreement;
•: to set forth or amend the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of the holders any additional partnership interests issued pursuant to the Partnership Agreement;
•: to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law;
•: to reflect such changes as are reasonably necessary for us to maintain our status as a REIT or satisfy the requirements for us to qualify as a REIT or to reflect the transfer of all or any part of a partnership interest among us and any entity that is disregarded with respect to us for U.S. federal income tax purposes;
•: to modify the manner in which items of net income or net loss or taxable items are allocated or the manner in which capital accounts are adjusted, computed, or maintained (but in each case only to the extent provided by the Partnership Agreement and permitted by applicable law);
•: to reflect the issuance of additional partnership interests; and
•: to reflect any other modification to the Partnership Agreement as is reasonably necessary for our business or operations or those of the Operating Partnership and that does not require the

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consent of each affected partner as described in "—Restrictions on General Partner's Authority."

Procedures for Actions and Consents of Partners

Meetings of partners may be called only by the General Partner to transact any business that it may determine. Notice of any meeting must be given to all partners entitled to act at the meeting not less than seven days nor more than 60 days before the date of the meeting. Unless approval by a different number or proportion of the partners is required by the Partnership Agreement, the affirmative vote of the partners holding a majority of the outstanding percentage interests held by partners entitled to act on any proposal is sufficient to approve the proposal at a meeting of the partners. Partners may vote in person or by proxy. Each meeting of partners will be conducted by the General Partner or any other person the General Partner appoints, pursuant to rules for the conduct of the meeting determined by the person conducting the meeting. Whenever the vote, approval or consent of partners is permitted or required under the Partnership Agreement, such vote, approval or consent may be given at a meeting of partners, and any action requiring the approval or consent of any partner or group of partners or that is otherwise required or permitted to be taken at a meeting of the partners may be taken without a meeting if a consent in writing or by electronic transmission setting forth the action so taken, approved or consented to is given by partners whose affirmative vote would be sufficient to approve such action or provide such approval or consent at a meeting of the partners.

Dissolution

The Operating Partnership will dissolve, and its affairs will be wound up, upon the first to occur of any of the following:

•: the withdrawal of the General Partner in violation of the Partnership Agreement or the bankruptcy of the general partner unless, within ninety days after any such withdrawal or bankruptcy, a majority in interest of the partners consent to continue the Operating Partnership and to the appointment, effective as of the date of such withdrawal or bankruptcy, of a successor general partner;
•: an election to dissolve the Operating Partnership by the General Partner, in its sole and absolute discretion, with or without the consent of the partners;
•: the entry of a decree of judicial dissolution of the Operating Partnership pursuant to the DRULPA;
•: the sale or other disposition of all or substantially all of the assets of the Operating Partnership not in the ordinary course of the Operating Partnership's business or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Operating Partnership not in the ordinary course of the Operating Partnership's business; or
•: the redemption or other acquisition by us or the Operating Partnership of all of the outstanding partnership interests other than partnership interests held by us or the General Partner.

Upon dissolution the General Partner or, if there is no remaining general partner, a liquidator will proceed to liquidate the assets of the Operating Partnership and apply the proceeds from such liquidation in the order of priority set forth in the Partnership Agreement.

Tax Matters

Pursuant to the Partnership Agreement, the General Partner is the tax matters partner of the Operating Partnership, and in such capacity, has the authority to handle tax audits on behalf of the Operating Partnership. In addition, the General Partner has the authority to arrange for the preparation and filing of the Operating Partnership's tax returns and to make tax elections under the Code on behalf of the Operating Partnership.

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U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material United States federal income tax consequences of an investment in common stock of Silver Bay Realty Trust Corp. For purposes of this section under the heading "U.S. Federal Income Tax Considerations," references to "Silver Bay Realty Trust Corp.," "we," "our" and "us" mean only Silver Bay Realty Trust Corp. and not its subsidiaries or other lower-tier entities, except as otherwise indicated. This summary is based upon the Code, Treasury regulations, rulings and other administrative pronouncements issued by the IRS, and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. We have not sought and will not seek an advance ruling from the IRS regarding any matter discussed in this prospectus. The summary is also based upon the assumption that we and our subsidiaries and affiliated entities, including the Operating Partnership, will operate in accordance with our and their respective organizational documents. This summary is for general information only and is not tax advice. It does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, such as:

•: financial institutions;
•: non-U.S. holders (as defined below), except to the extent discussed in "Taxation of Stockholders—Taxation of Non-U.S. Stockholders";
•: insurance companies;
•: persons who hold 10% of more (by vote or value) of our outstanding common stock, except to the extent discussed below;
•: broker-dealers;
•: regulated investment companies;
•: REITs;
•: partnerships and trusts;
•: S corporations;
•: persons who hold our stock on behalf of other persons as nominees;
•: persons who receive our stock through the exercise of employee stock options or otherwise as compensation;
•: persons subject to the alternative minimum tax provisions of the Code;
•: U.S. expatriates;
•: persons whose functional currency is not the U.S. dollar;
•: persons subject to the mark-to-market method of accounting for their securities;
•: persons holding our stock as part of a "straddle," "hedge," "conversion transaction," "synthetic security" or other integrated investment or transaction producing "dividend equivalent" income; and
•: except to the extent discussed below, tax-exempt organizations.

This summary assumes that stockholders will hold our common stock as a capital asset, which generally means as property held for investment.

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The federal income tax treatment of holders of our common stock depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. In addition, the tax consequences to any particular stockholder of holding our common stock will depend on the stockholder's particular tax circumstances. You are urged to consult your tax advisor regarding the federal, state, local, and foreign income and other tax consequences to you in light of your particular investment or tax circumstances of acquiring, holding, exchanging, or otherwise disposing of our common stock.

Taxation of Silver Bay Realty Trust Corp.

We intend to elect to be taxed as a REIT, commencing with our initial taxable year ending December 31, 2012, upon the filing of our federal income tax return for such year. We believe that we have been organized, and expect to operate in such a manner as to qualify for taxation as a REIT.

The law firm of Orrick, Herrington & Sutcliffe LLP has acted as our tax counsel in connection with the offering of our common stock. In connection with the offering, we expect to receive an opinion of Orrick, Herrington & Sutcliffe LLP to the effect that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT, commencing with our initial taxable year ending December 31, 2012. It must be emphasized that the opinion of Orrick, Herrington & Sutcliffe LLP will be based on various assumptions relating to our organization and operation, and will be conditioned upon factual representations made by our management regarding our organization, assets, income, the present and future conduct of our business operations and other matters pertinent to our ability to meet the various requirements for qualification as a REIT, and will assume that such representations are accurate and complete and that we will take no action inconsistent with our qualification as a REIT. While we intend to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given by Orrick, Herrington & Sutcliffe LLP or by us that we will qualify as a REIT for any particular year. The opinion will be expressed as of the date issued, and will not cover subsequent periods. Orrick, Herrington & Sutcliffe LLP will have no obligation to advise us or our stockholders of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in the applicable law. You should be aware that opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not challenge the conclusions set forth in such opinions.

Qualification and taxation as a REIT depends on our ability to meet on a continuing basis, through actual operating results, distribution levels, and diversity of stock and asset ownership, various qualification requirements imposed upon REITs by the Code, the compliance with which will not be reviewed by Orrick, Herrington & Sutcliffe LLP. In addition, our ability to qualify as a REIT may depend in part upon the operating results, organizational structure and entity classification for federal income tax purposes of certain entities in which we invest, which entities will not have been reviewed by Orrick, Herrington & Sutcliffe LLP. Our ability to qualify as a REIT also requires that we satisfy certain asset tests, some of which depend upon the fair market values of assets that we own directly or indirectly. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of our operations for any taxable year will satisfy such requirements for qualification and taxation as a REIT.

Taxation of REITs in General

As indicated above, our qualification and taxation as a REIT depends upon our ability to meet, on a continuing basis, various qualification requirements imposed upon REITs by the Code. The material qualification requirements are summarized below under "—Requirements for Qualification—General."

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While we intend to operate so that we qualify as a REIT, no assurance can be given that the IRS will not challenge our qualification, or that we will be able to operate in accordance with the REIT requirements in the future. See "—Failure to Qualify."

Provided that we qualify as a REIT, generally we will be entitled to a deduction for dividends that we pay and therefore will not be subject to federal corporate income tax on our taxable income that is currently distributed to our stockholders. This treatment substantially eliminates the "double taxation" at the corporate and stockholder levels that generally results from investment in a corporation. In general, the income that we generate is taxed only at the stockholder level upon a distribution of dividends to our stockholders.

For tax years through 2012, most U.S. stockholders that are individuals, trusts or estates are taxed on corporate dividends at a maximum rate of 15% (the same as long-term capital gains). With limited exceptions, however, dividends from us or from other entities that are taxed as REITs are generally not eligible for this tax rate and are taxed at rates applicable to ordinary income, which will be as high as 35% through 2012. See "Taxation of Stockholders—Taxation of Taxable Domestic Stockholders—Distributions."

Any of our net operating losses, foreign tax credits and other tax attributes generally do not pass through to our stockholders, subject to special rules for certain items such as the capital gains that we recognize. See "Taxation of Stockholders."

If we qualify as a REIT, we will nonetheless be subject to federal tax in the following circumstances:

•: We will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains.
•: We may be subject to the "alternative minimum tax" on our items of tax preference.
•: If we have net income from prohibited transactions, which are, in general, sales or other dispositions of inventory or property held primarily for sale to customers in the ordinary course of business, other than foreclosure property, such income will be subject to a 100% tax. See "—Prohibited Transactions", and "—Foreclosure Property" below.
•: If we elect to treat property that we acquire in connection with a foreclosure of a mortgage loan or certain leasehold terminations as "foreclosure property," we may thereby avoid the 100% tax on gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction), but the income from the sale or operation of the property may be subject to corporate income tax at the highest applicable rate (currently 35%).
•: If we fail to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but nonetheless maintain our qualification as a REIT because we satisfy other requirements, we will be subject to a 100% tax on an amount based on the magnitude of the failure, as adjusted to reflect the profit margin associated with our gross income.
•: If we violate the asset tests (other than certain de minimis violations) or other requirements applicable to REITs, as described below, and yet maintain our qualification as a REIT because there is reasonable cause for the failure and other applicable requirements are met, we may be subject to a penalty tax. In that case, the amount of the penalty tax will be at least $50,000 per failure, and, in the case of certain asset test failures, will be determined as the amount of net income generated by the assets in question multiplied by the highest corporate tax rate (currently 35%) if that amount exceeds $50,000 per failure.
•: If we fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year, and

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(c) any undistributed taxable income from prior periods, we will be subject to a non-deductible 4% excise tax on the excess of the required distribution over the sum of (i) the amounts that we actually distributed, and (ii) the amounts we retained and upon which we paid income tax at the corporate level.

•: We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record keeping requirements intended to monitor our compliance with rules relating to the composition of a REIT's stockholders, as described below in "—Requirements for Qualification—General."
•: A 100% tax may be imposed on transactions between us and a TRS (as defined below) that do not reflect arm's length terms.
•: If we acquire appreciated assets from a corporation that is not a REIT (i.e., a corporation taxable under subchapter C of the Code) in a transaction in which the adjusted tax basis of the assets in our hands is determined by reference to the adjusted tax basis of the assets in the hands of the subchapter C corporation, we may be subject to tax on such appreciation at the highest corporate income tax rate then applicable if we subsequently recognize gain on a disposition of any such assets during the ten-year period following their acquisition from the subchapter C corporation.
•: The earnings of any of our subsidiaries that are C corporations, including any TRSs (as defined below), are subject to federal corporate income tax.

In addition, we and our subsidiaries may be subject to a variety of taxes, including payroll taxes and state, local, and foreign income, property and other taxes on our assets and operations. We could also be subject to tax in situations and on transactions not presently contemplated.

Requirements for Qualification—General

The Code defines a REIT as a corporation, trust or association:

(1): that is managed by one or more trustees or directors;
(2): the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;
(3): that would be taxable as a domestic corporation but for the special Internal Revenue Code provisions applicable to REITs;
(4): that is neither a financial institution nor an insurance company subject to specific provisions of the Internal Revenue Code;
(5): the beneficial ownership of which is held by 100 or more persons;
(6): in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer "individuals" (as defined in the Internal Revenue Code to include specified tax-exempt entities); and
(7): which meets other tests described below, including with respect to the nature of its income and assets.

The Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year. Conditions (5) and (6) need not be met during a corporation's initial tax year as a REIT (which, in our case, will be 2012). Our charter provides restrictions regarding the ownership and transfers of our stock, which are intended to assist us in satisfying the stock ownership requirements described in conditions (5) and (6) above.

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To monitor compliance with the stock ownership requirements, we generally are required to maintain records regarding the actual ownership of our stock. To do so, we must demand written statements each year from the record holders of significant percentages of our stock pursuant to which the record holders must disclose the actual owners of the stock (i.e., the persons required to include our dividends in their gross income). We must maintain a list of those persons failing or refusing to comply with this demand as part of our records. We could be subject to monetary penalties if we fail to comply with these record keeping requirements. If a stockholder fails or refuses to comply with the demands, the stockholder will be required by Treasury regulations to submit a statement with its tax return disclosing the actual ownership of our stock and other information.

In addition, a corporation generally may not elect to become a REIT unless its taxable year is the calendar year. We intend to adopt December 31 as our year end, and thereby satisfy this requirement.

The Code provides relief from violations of the REIT gross income requirements, as described below under "—Income Tests," in cases where a violation is due to reasonable cause and not to willful neglect, and other requirements are met, including the payment of a penalty tax that is based upon the magnitude of the violation. In addition, certain provisions of the Code extend similar relief in the case of certain violations of the REIT asset requirements (see "—Asset Tests" below) and other REIT requirements, again provided that the violation is due to reasonable cause and not willful neglect, and other conditions are met, including the payment of a penalty tax. If we fail to satisfy any of the various REIT requirements, there can be no assurance that these relief provisions would be available to enable us to maintain our qualification as a REIT, and, if such relief provisions are available, the amount of any resultant penalty tax could be substantial.

Effect of Subsidiary Entities

Ownership of Partnership Interests. If we are a partner in an entity that is treated as a partnership for federal income tax purposes, including the Operating Partnership, Treasury regulations provide that we are deemed to own our proportionate share of the partnership's assets, and to earn our proportionate share of the partnership's income, for purposes of the asset and gross income tests applicable to REITs. Our proportionate share of a partnership's assets and income is based on our capital interest in the partnership (except that for purposes of the 10% asset test, as described below, our proportionate share of the partnership's assets is based on our proportionate interest in the equity and certain debt securities issued by the partnership). In addition, the assets and gross income of the partnership are deemed to retain the same character in our hands. Thus, our proportionate share of the assets and items of income of any of our subsidiary partnerships will be treated as our assets and items of income for purposes of applying the REIT requirements. Any investments we make in partnerships may entail certain special considerations (and attendant risks) for tax purposes, including assuring, to the extent possible, that the entity is not treated as a corporation for federal income tax purposes and that we are able to receive partnership distributions so as to enable us to satisfy the distribution requirements applicable to us a REIT.

Disregarded Subsidiaries. If we own a corporate subsidiary that is a "qualified REIT subsidiary," that subsidiary is generally disregarded for federal income tax purposes, and all of the subsidiary's assets, liabilities and items of income, deduction and credit are treated as our assets, liabilities and items of income, deduction and credit, including for purposes of the gross income and asset tests applicable to REITs. A qualified REIT subsidiary is any corporation, other than a TRS (as described below) that is directly or indirectly wholly owned by a REIT. Other entities that are wholly owned by us, including any single member limited liability companies that have not elected to be taxed as corporations for federal income tax purposes, are also generally disregarded as separate entities for federal income tax purposes, including for purposes of the REIT income and asset tests. Disregarded subsidiaries, along with any partnerships in which we hold an equity interest, are sometimes referred to herein as "pass-through subsidiaries."

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In the event that a disregarded subsidiary of ours ceases to be wholly owned—for example, if any equity interest in the subsidiary is acquired by a person other than us or another disregarded subsidiary of ours—the subsidiary's separate existence would no longer be disregarded for federal income tax purposes. Instead, the subsidiary would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the securities of another corporation. See "—Asset Tests" and "—Income Tests."

Taxable Subsidiaries. In general, we may jointly elect with a subsidiary corporation, whether or not wholly owned, to treat such subsidiary corporation as a taxable REIT subsidiary ("TRS"). We generally may not own more than 10% of the securities of a taxable corporation, as measured by voting power or value, unless we and such corporation elect to treat such corporation as a TRS. The separate existence of a TRS or other taxable corporation is not ignored for federal income tax purposes. Accordingly, a TRS or other taxable corporation generally would be subject to corporate income tax on its earnings, which may reduce the cash flow that we and our subsidiaries generate in the aggregate, and may reduce our ability to make distributions to our stockholders.

We are not treated as holding the assets of a TRS or other taxable subsidiary corporation or as receiving any income that the subsidiary earns. Rather, the stock issued by a taxable subsidiary to us is an asset in our hands, and we treat the dividends paid to us from such taxable subsidiary, if any, as income. This treatment can affect our income and asset test calculations, as described below. Because we do not include the assets and income of TRSs or other taxable subsidiary corporations in determining our compliance with the REIT requirements, we may use such entities to undertake indirectly activities that the REIT rules might otherwise preclude us from doing directly or through pass-through subsidiaries. For example, we may use TRSs or other taxable subsidiary corporations to conduct activities that give rise to certain categories of income or to undertake activities that, if undertaken by us directly, could be treated as prohibited transactions.

The TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. Accordingly, if we lend money to a TRS, the TRS may be unable to deduct all or a part of the interest paid on that loan, and the lack of an interest deduction could result in a material increase in the amount of tax paid by the TRS. Further, the rules impose a 100% excise tax on transactions between a TRS and its parent REIT or the REIT's tenants that are not conducted on an arm's-length basis. We intend that all of our transactions with our TRSs, if any, will be conducted on an arm's-length basis.

Income Tests

In order to qualify as a REIT, we must satisfy two gross income requirements on an annual basis. First, at least 75% of our gross income for each taxable year, excluding gross income from sales of inventory or dealer property in "prohibited transactions" and certain hedging transactions, generally must be derived from investments relating to real property or mortgages on real property, including interest income derived from mortgage loans secured by real property, "rents from real property," dividends received from other REITs, and gains from the sale of real estate assets (other than assets held for sale to customers), as well as specified income from temporary investments. Second, at least 95% of our gross income in each taxable year, excluding gross income from prohibited transactions and certain hedging transactions, must be derived from some combination of income that qualifies under the 75% gross income test described above, as well as other dividends, interest, and gain from the sale or disposition of stock or securities, which need not have any relation to real property. Income and gain from certain hedging transactions will be excluded from both the numerator and the denominator for purposes of both the 75% and 95% gross income tests.

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Rents received by us will qualify as "rents from real property" in satisfying the gross income requirements described above only if several conditions are met. If rent is partly attributable to personal property leased in connection with a lease of real property, the portion of the rent that is attributable to the personal property will not qualify as "rents from real property" unless it constitutes 15% or less of the total rent received under the lease. In addition, the amount of rent must not be based in whole or in part on the income or profits of any person. Amounts received as rent, however, generally will not be excluded from rents from real property solely by reason of being based on fixed percentages of gross receipts or sales. Moreover, for rents received to qualify as "rents from real property," we generally must not operate or manage the property or furnish or render services to the tenants of such property, other than through an "independent contractor" from which we derive no revenue. We are permitted, however, to perform services that are "usually or customarily rendered" in connection with the rental of space for occupancy only and which are not otherwise considered rendered to the occupant of the property. In addition, we may directly or indirectly provide non-customary services to tenants of our properties without disqualifying all of the rent from the property if the payments for such services do not exceed 1% of the total gross income from the property. For purposes of this test, we are deemed to have received income from such non-customary services in an amount at least 150% of the direct cost of providing the services. We are generally permitted to provide services to tenants or others through a TRS without disqualifying the rental income received from tenants for purposes of the income tests. Also, rental income will qualify as rents from real property only to the extent that we do not directly or constructively hold a 10% or greater interest, as measured by vote or value, in the lessee's equity. We anticipate that all or substantially all of our rental income will qualify as "rents from real property."

Interest income constitutes qualifying mortgage interest for purposes of the 75% gross income test (as described above) to the extent that the obligation upon which such interest is paid is secured by a mortgage on real property. If we receive interest income with respect to a mortgage loan that is secured by both real property and other property, and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property on the date that we acquired or originated the mortgage loan, the interest income will be apportioned between the real property and the other collateral, and our income from the arrangement will qualify for purposes of the 75% gross income test only to the extent that the interest is allocable to the real property. Even if a loan is not secured by real property, or is undersecured, the income that it generates may nonetheless qualify for purposes of the 95% gross income test.

To the extent that the terms of a loan provide for contingent interest that is based on the cash proceeds realized upon the sale of the property securing the loan (a "shared appreciation provision"), income attributable to the participation feature will be treated as gain from sale of the underlying property, which generally will be qualifying income for purposes of both the 75% and 95% gross income tests provided that the property is not held as inventory or dealer property. To the extent that we derive interest income from a mortgage loan, or income from the rental of real property where all or a portion of the amount of interest or rental income payable is contingent, such income generally will qualify for purposes of the gross income tests only if it is based upon the gross receipts or sales, and not the net income or profits, of the borrower or lessee.

We may directly or indirectly receive distributions from TRSs or other corporations that are not REITs or qualified REIT subsidiaries. These distributions generally are treated as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the 95% gross income test, but not for purposes of the 75% gross income test. Any dividends that we receive from a REIT, however, will be qualifying income for purposes of both the 95% and 75% gross income tests.

If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may still qualify as a REIT for such year if we are entitled to relief under applicable provisions of the

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Code. These relief provisions will be generally available if (1) our failure to meet these tests was due to reasonable cause and not due to willful neglect and (2) following our identification of the failure to meet the 75% or 95% gross income test for any taxable year, we file a schedule with the IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income test for such taxable year in accordance with Treasury regulations yet to be issued. It is not possible to state whether we would be entitled to the benefit of these relief provisions in all circumstances. If these relief provisions are inapplicable to a particular set of circumstances, we will not qualify as a REIT. As discussed above under "—Taxation of REITs in General," even where these relief provisions apply, the Code imposes a tax based upon the amount by which we fail to satisfy the particular gross income test. The Secretary of the Treasury has been given broad authority to determine whether particular items of gain or income qualify or not under the 75% and 95% gross income tests, or are to be excluded from the measure of gross income for such purposes.

Asset Tests

At the close of each calendar quarter, we must also satisfy four tests relating to the nature of our assets:

•: First, at least 75% of the value of our total assets must be represented by some combination of "real estate assets," cash, cash items, U.S. government securities, and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose, real estate assets include interests in real property, such as land, buildings, leasehold interests in real property, stock of other corporations that qualify as REITs, and some types of mortgage-backed securities and mortgage loans. Assets that do not qualify for purposes of the 75% asset test are subject to the additional asset tests described below.
•: Second, the value of any one issuer's securities that we own may not exceed 5% of the value of our total assets.
•: Third, we may not own more than 10% of any one issuer's outstanding securities, as measured by either voting power or value. The 5% and 10% asset tests do not apply to securities of TRSs and qualified REIT subsidiaries and the 10% asset test does not apply to certain securities described below. Solely for purposes of the 10% asset test, the determination of our interest in the assets of a partnership or limited liability company in which we own an interest will be based on our proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose certain securities described in the Code.
•: Fourth, the aggregate value of all securities of TRSs that we hold may not exceed 25% of the value of our total assets.

Notwithstanding the general rule, as noted above, that for purposes of the REIT income and asset tests, we are treated as owning our proportionate share of the underlying assets of a subsidiary partnership, if we hold indebtedness issued by a partnership, the indebtedness will be subject to, and may cause a violation of, the asset tests unless the indebtedness is a qualifying mortgage asset, or other conditions are met. Similarly, although stock of another REIT is a qualifying asset for purposes of the REIT asset tests, any non-mortgage debt that is issued by another REIT may not so qualify (such debt, however, will not be treated as a "security" for purposes of the 10% asset test, as explained below).

Certain securities will not cause a violation of the 10% asset test described above. Such securities include instruments that constitute "straight debt," as defined in the Code. A security does not qualify as "straight debt" where a REIT (or a controlled TRS of the REIT) owns other securities of the same issuer which do not qualify as straight debt, unless the value of those other securities constitute, in the aggregate, 1% or less of the total value of that issuer's outstanding securities. In addition to straight debt, the Code provides that certain other securities will not violate the 10% asset test. Such securities

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include (a) any loan made to an individual or an estate, (b) certain rental agreements pursuant to which one or more payments are to be made in subsequent years (other than agreements between a REIT and certain persons related to the REIT under attribution rules), (c) any obligation to pay rents from real property, (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of (or payments made by) a non-governmental entity, (e) any security (including debt securities) issued by another REIT, and (f) any debt instrument issued by a partnership if the partnership's income is of a nature that it would satisfy the 75% gross income test described above under "—Income Tests."

We do not expect to obtain independent appraisals to support our conclusions as to the value of our total assets, or the value of any particular security or securities. Moreover, values of some assets may not be susceptible to a precise determination, and values are subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT asset requirements. Accordingly, there can be no assurance that the IRS will not contend successfully that our interests in our subsidiaries or in the securities of other issuers will not cause a violation of the REIT asset tests.

Certain relief provisions are available to allow REITs to satisfy the asset requirements, or to maintain REIT qualification notwithstanding certain violations of the asset and other requirements. One such provision allows a REIT which fails one or more of the asset test requirements to nevertheless maintain its REIT qualification if (1) the REIT provides the IRS with a description of each asset causing the failure, (2) the failure is due to reasonable cause and not willful neglect, (3) the REIT pays a tax equal to the greater of (a) $50,000 per failure, and (b) the product of the net income generated by the assets that caused the failure multiplied by the highest applicable corporate tax rate (currently 35%), and (4) the REIT either disposes of the assets causing the failure within six months after the last day of the quarter in which it identifies the failure, or otherwise satisfies the relevant asset tests within that time frame. In the case of de minimis violations of the 10% and 5% asset tests, a REIT may maintain its qualification despite a violation of such requirements if (1) the value of the assets causing the violation does not exceed the lesser of 1% of the REIT's total assets, and $10,000,000, and (2) the REIT either disposes of the assets causing the failure within six months after the last day of the quarter in which it identifies the failure, or the relevant tests are otherwise satisfied within that time frame.

If we fail to satisfy the asset tests at the end of a calendar quarter, such a failure would not cause us to lose our REIT qualification if we (1) satisfied the asset tests at the close of the preceding calendar quarter and (2) the discrepancy between the value of our assets and the asset requirements was not wholly or partly caused by an acquisition of non-qualifying assets, but instead arose from changes in the market value of our assets. If the condition described in (2) were not satisfied, we still could avoid disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose or by making use of relief provisions described below.

Annual Distribution Requirements

In order to qualify as a REIT, we are required to distribute dividends, other than capital gain dividends, to our stockholders in an amount at least equal to:

(a)

the sum of

(1): 90% of our "REIT taxable income," computed without regard to our net capital gains and the deduction for dividends paid, and
(2): 90% of our net income, if any, (after tax) from foreclosure property (as described below), minus

(b)

the sum of specified items of non-cash income.

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We generally must make these distributions in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the year and if paid with or before the first regular dividend payment after such declaration. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be "preferential dividends." A dividend is not a preferential dividend if the distribution is (1) pro rata among all outstanding shares of stock within a particular class, and (2) in accordance with the preferences among different classes of stock as set forth in our organizational documents.

To the extent that we distribute at least 90%, but less than 100%, of our "REIT taxable income," as adjusted, we will be subject to tax at ordinary corporate tax rates on the retained portion. We may elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains. In this case, we could elect for our stockholders to include their proportionate shares of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax that we paid. Our stockholders would then increase their adjusted basis of their stock by the difference between (a) the amounts of capital gain dividends that we designated and that they include in their taxable income, minus (b) the tax that we paid on their behalf with respect to that income.

To the extent that in the future we may have available net operating losses carried forward from prior tax years, such losses may reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements. Such losses, however, will generally not affect the character, in the hands of our stockholders, of any distributions that are actually made as ordinary dividends or capital gains. See "—Taxation of Stockholders—Taxation of Taxable Domestic Stockholders—Distributions."

If we fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, we would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually distributed, and (y) the amounts of income we retained and on which we paid corporate income tax.

It is possible that, from time to time, we may not have sufficient cash to meet the distribution requirements due to timing differences between our actual receipt of cash, including receipt of distributions from our subsidiaries, and our inclusion of items in income for federal income tax purposes. In the event that such timing differences occur, in order to meet the distribution requirements, it might be necessary for us to arrange for short-term, or possibly long-term, borrowings, or to pay dividends in the form of taxable in-kind distributions of property. Alternatively, we may declare a taxable dividend payable in cash or stock at the election of each stockholder, where the aggregate amount of cash to be distributed in such dividend may be subject to substantial limitations. In such case, for federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock.

We may be able to rectify a failure to meet the distribution requirements for a year by paying "deficiency dividends" to stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. In this case, we may be able to avoid losing REIT qualification or being taxed on amounts distributed as deficiency dividends. We will be required to pay interest and a penalty based on the amount of any deduction taken for deficiency dividends.

It is intended that the Formation Transactions will be treated as taxable transactions, and not as Section 351 transactions, to the recipients of our common stock (and cash). Thus, we expect to establish our initial tax basis in the assets received in the Formation Transactions in part by reference to the trading price of our common stock. The IRS could assert that our initial tax basis is less than the amount determined by us (or is a carryover basis). If the IRS were successful in sustaining such an assertion, this would result in decreased depreciation deductions and increased gain on any asset

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dispositions, and thus increased taxable income, as compared to the amounts we had originally calculated and reported. This could result in our being required to distribute additional amounts in order to maintain our REIT status and avoid corporate taxes and also could result in our owing interest and penalties.

Prohibited Transactions

Net income that we derive from a prohibited transaction is subject to a 100% tax. The term "prohibited transaction" generally includes a sale or other disposition of property (other than foreclosure property, as discussed below) that is held primarily for sale to customers in the ordinary course of a trade or business ("Dealer Property") by us, or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us. Whether property is Dealer Property depends on the particular facts and circumstances. The Code provides a "safe harbor" under which certain sales of Dealer Property will not be treated as prohibited transactions (the "Safe Harbor"). The Safe Harbor applies to a sale of a "real estate asset" by a REIT which meets the following requirements: (i) the REIT has held the property for not less than two years for production of rental income; (ii) the aggregate expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of sale which are includible in the basis of the property do not exceed 30% of the net selling price of the property; and (iii) the REIT does not make more than seven sales of property during the taxable year or, if certain other requirements are satisfied, the aggregate adjusted bases of property sold during the taxable year does not exceed 10% of the aggregate adjusted bases of all of the assets of the REIT as of the beginning of the taxable year or the fair market value of property sold during the taxable year does not exceed 10% of the fair market value of all of the assets of the REIT as of the beginning of the taxable year. For purposes of the seven-sale rule referred to above, the Code provides that the sale of more than one property to one buyer as part of one transaction constitutes one sale. The Code also provides that in determining whether a sale constitutes a prohibited transaction, the fact that such sale does not meet the requirements of the Safe Harbor is not to be taken into account. No assurance can be given that any property that we sell will not be treated as Dealer Property, or that we can comply with the Safe Harbor in any particular year. The 100% tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to conduct our activities so as not to generate prohibited transaction income. However, the avoidance of this tax on prohibited transactions could cause us to undertake less substantial sales of property than we would otherwise undertake in order to maximize our profits. In addition, we may have to sell numerous properties to a single or a few purchasers, which could cause us to be less profitable than would be the case if we sold properties on a property-by-property basis.

Foreclosure Property

Foreclosure property is real property and any personal property incident to such real property (1) that we acquire as the result of having bid in the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement or process of law, after a default (or upon imminent default) on a lease of the property or a mortgage loan held by us and secured by the property, (2) for which we acquired the related loan or lease at a time when default was not imminent or anticipated, and (3) with respect to which we made a proper election to treat the property as foreclosure property. We generally will be subject to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that constitutes qualifying income for purposes of the 75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or dealer property. To the extent that we

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receive any income from foreclosure property that does not qualify for purposes of the 75% gross income test, we intend to make an election to treat the property as foreclosure property.

Failure to Qualify

If we fail to satisfy one or more requirements for REIT qualification other than the income or asset tests, we could avoid disqualification if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000 for each such failure. Relief provisions are available for failures of the income tests and asset tests, as described above in "—Income Tests" and "—Asset Tests."

If we fail to qualify for taxation as a REIT in any taxable year, and the relief provisions described above do not apply, we would be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We could not deduct distributions to stockholders in any year in which we are not a REIT, nor would we be required to make distributions in such a year. In this situation, to the extent of current and accumulated earnings and profits, distributions to domestic stockholders that are individuals, trusts and estates would generally be taxable at capital gains rates (through 2012). In addition, subject to the limitations of the Code, corporate distributees may be eligible for the dividends received deduction. Unless we are entitled to relief under specific statutory provisions, we would also be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year during which we lost qualification. It is not possible to state whether, in all circumstances, we would be entitled to this statutory relief. The rule against re-electing REIT status following a loss of such status would also apply to us if Two Harbors fails to qualify as a REIT, and we are treated as a successor to Two Harbors for federal income tax purposes.

Tax Aspects of the Operating Partnership and Other Partnerships

General

We will conduct our activities through the Operating Partnership, and the Operating Partnership may hold investments through entities that are classified as partnerships for federal income tax purposes. In general, partnerships are "pass-through" entities that are not subject to federal income tax. Rather, the partners are allocated their proportionate shares of the items of income, gain, loss, deduction and credit of a partnership, and are potentially subject to tax on these items, without regard to whether the partners receive a distribution from the partnership. We will include in our income our proportionate share of any partnership items arising from the Operating Partnership and any other partnerships in which we or the Operating Partnership holds an interest for purposes of the various REIT income tests and in computation of our REIT taxable income. Moreover, for purposes of the REIT asset tests, we will include in our calculations our proportionate share of any assets held by such partnerships. Our proportionate share of a partnership's assets and income is based on our capital interest in the partnership (except that for purposes of the 10% asset test, our proportionate share is based on our proportionate interest in the equity and certain debt securities issued by the partnership). See "Taxation of Silver Bay Realty Trust Corp.—Effect of Subsidiary Entities—Ownership of Partnership Interests."

Entity Classification

In order for a partnership or limited liability company to be classified for federal income tax purposes as a partnership (or to be disregarded for federal income tax purposes if the entity has only one owner or member), it must not be taxable as a corporation or an association taxable as a

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corporation for U.S. federal income tax purposes. An organization with at least two owners or members will be classified as a partnership, rather than as a corporation, for federal income tax purposes if it:

•: is treated as a partnership under the Treasury regulations relating to entity classification (the "check-the-box regulations"); and
•: is not a "publicly traded" partnership.

Under the check-the-box regulations, an unincorporated entity with at least two owners or members may elect to be classified either as an association taxable as a corporation or as a partnership. If such an entity does not make an election, it generally will be treated as a partnership for federal income tax purposes. We intend that the Operating Partnership and any other partnership or limited liability company in which we hold an interest and that has two or more partners or members for tax purposes will be classified as a partnership for federal income tax purposes.

A publicly traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable on a secondary market (or a substantial equivalent). A publicly traded partnership is generally treated as a corporation for federal income tax purposes, but will not be so treated for any taxable year for which at least 90% of the partnership's gross income consists of specified passive income, including real property rents, gains from the sale or other disposition of real property, interest, and dividends (the "90% passive income exception"). The Operating Partnership will be structured, operated and maintained so as not to be treated as a "publicly traded partnership." We have not requested, and do not intend to request, a ruling from the IRS that the Operating Partnership or any other partnership or limited liability company in which we hold an interest will be classified as a partnership that is not taxable as a corporation for federal income tax purposes. If for any reason the Operating Partnership or any other partnership or limited liability company in which we hold an interest were taxable as a corporation, rather than as a partnership, for U.S. federal income tax purposes, we might not qualify as a REIT. Further, items of income and deduction of such partnership would not pass through to the partners of the affected entity, and its partners would be treated as stockholders for tax purposes. Consequently, such partnership would be required to pay income tax at corporate rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing such partnership's taxable income. In addition, any change in the status of a partnership for tax purposes might be treated as a taxable event, in which case we could have taxable income that is subject to the REIT distribution requirements without receiving any cash.

Tax Allocations with Respect to Partnership Properties

Under the Code and the Treasury regulations, income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated for tax purposes so that the contributing partner is charged with, or benefits from, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution, and the adjusted tax basis of such property at the time of contribution (a "book-tax difference"). In addition, when additional interests in a partnership are issued, similar rules apply to cause the existing partners to be charged with, or benefit from, any unrealized gain or unrealized loss at the time the additional interests are issued. Such allocations are solely for federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners.

To the extent that the Operating Partnership (or other partnerships in which we indirectly own an interest) acquires appreciated (or depreciated) properties by way of capital contributions from its partners, allocations would need to be made in a manner consistent with these requirements. Also, such allocations would need to be made in the case of a contribution that we make to the Operating Partnership of cash proceeds received in offerings of our stock. As a result, the partners of the

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Operating Partnership, including us, could be allocated greater or lesser amounts of depreciation and taxable income in respect of a partnership's properties than would otherwise be the case. Under certain circumstances, this could cause us to recognize, over a period of time, taxable income in excess of cash flow from the Operating Partnership, which might adversely affect our ability to comply with the REIT distribution requirements discussed above.

Taxation of Stockholders

Taxation of Taxable Domestic Stockholders

Distributions. So long as we qualify as a REIT, the distributions that we make to our taxable domestic stockholders out of current or accumulated earnings and profits that we do not designate as capital gain dividends will generally be taken into account by the stockholders as ordinary income and will not be eligible for the dividends received deduction for corporations. With limited exceptions, our dividends will not be eligible for taxation at the preferential income tax rates (i.e., the 15% maximum federal rate through 2012) for qualified dividends received by domestic stockholders that are individuals, trusts and estates from taxable C corporations. Such stockholders, however, will be taxed at the preferential rates on dividends designated by and received from us to the extent that the dividends are attributable to

•: income retained by the us in the prior taxable year on which we were subject to corporate level income tax (less the amount of tax),
•: dividends received by us from TRSs or other taxable C corporations, or
•: income in the prior taxable year from any sales of any "built-in gain" property acquired by us from C corporations in carryover basis transactions (less the amount of corporate tax on such income).

Distributions that we designate as capital gain dividends will generally be taxed to our stockholders as long-term capital gains, to the extent that such distributions do not exceed our actual net capital gain for the taxable year, without regard to the period for which the stockholder that receives such distribution has held its stock. We may elect to retain and pay taxes on some or all of our net long term capital gains, in which case provisions of the Code will treat our stockholders as having received, solely for tax purposes, our undistributed capital gains, and the stockholders will receive a corresponding credit for taxes that we paid on such undistributed capital gains. See "Taxation of Silver Bay Realty Trust Corp.—Annual Distribution Requirements." Corporate stockholders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at maximum federal rates of 15% (through 2012) in the case of stockholders that are individuals, trusts and estates, and 35% in the case of stockholders that are corporations. Capital gains attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum federal income tax rate for taxpayers who are taxed as individuals, to the extent of previously claimed depreciation deductions.

Distributions in excess of our current and accumulated earnings and profits will generally represent a return of capital and will not be taxable to a stockholder to the extent that the amount of such distributions does not exceed the adjusted basis of the stockholder's shares in respect of which the distributions were made. Rather, the distribution will reduce the adjusted basis of the stockholder's shares. To the extent that such distributions exceed the adjusted basis of a stockholder's shares, the stockholder generally must include such distributions in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend that we declare in October, November or December of any year and that is payable to a stockholder of record on a specified date in any such month will be treated as both paid by us and received by the stockholder on

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December 31 of such year, provided that we actually pay the dividend before the end of January of the following calendar year.

To the extent that we have available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements. See "Taxation of Silver Bay Realty Trust Corp.—Annual Distribution Requirements." Such losses, however, are not passed through to stockholders and do not offset income of stockholders from other sources, nor would such losses affect the character of any distributions that we make, which are generally subject to tax in the hands of stockholders to the extent that we have current or accumulated earnings and profits.

Dispositions of Our Stock. In general, capital gains recognized by individuals, trusts and estates upon the sale or disposition of our stock will be subject to a maximum federal income tax rate of 15% (through 2012) if the stock is held for more than one year, and will be taxed at ordinary income rates (of up to 35% through 2012) if the stock is held for one year or less. Gains recognized by stockholders that are corporations are subject to federal income tax at a maximum rate of 35%, whether or not such gains are classified as long-term capital gains. Capital losses recognized by a stockholder upon the disposition of our stock that was held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the stockholder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or exchange of shares of our stock by a stockholder who has held the shares for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions that we make that are required to be treated by the stockholder as long-term capital gain.

If an investor recognizes a loss upon a subsequent disposition of our stock or other securities in an amount that exceeds a prescribed threshold, it is possible that the provisions of Treasury regulations involving "reportable transactions" could apply, with a resulting requirement to separately disclose the loss-generating transaction to the IRS. These regulations, though directed towards "tax shelters," are broadly written, and apply to transactions that would not typically be considered tax shelters. The Code imposes significant penalties for failure to comply with these requirements. Each stockholder should consult its tax advisors concerning any possible disclosure obligation with respect to the receipt or disposition of our stock or securities, or transactions that we might undertake directly or indirectly. Moreover, investors should be aware that we and other participants in the transactions in which we are involved (including their advisors) might be subject to disclosure or other requirements pursuant to these regulations.

Taxation of Non-U.S. Stockholders

The following is a summary of certain U.S. federal income and estate tax consequences of the ownership and disposition of our stock applicable to non-U.S. holders. A "non-U.S. holder" is any person other than:

•: a citizen or resident of the United States,
•: a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the district of Columbia,
•: an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source, or
•: a trust if a United States court is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of the trust.

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If a partnership, including for this purpose any entity that is treated as a partnership for U.S. federal income tax purposes, holds our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock.

The following discussion is based on current law, and is for general information only. It addresses only selected, and not all, aspects of U.S. federal income and estate taxation.

Ordinary Dividends. The portion of dividends received by non-U.S. holders that is (1) payable out of our earnings and profits, (2) not attributable to our capital gains and (3) not effectively connected with a U.S. trade or business of the non-U.S. holder, will be subject to U.S. withholding tax at the rate of 30%, unless reduced or eliminated by treaty.

In general, except as described below under "—Capital Gain Dividends," non-U.S. holders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of our stock. In cases where the dividend income from a non-U.S. holder's investment in our stock is, or is treated as, effectively connected with the non-U.S. holder's conduct of a U.S. trade or business, the non-U.S. holder generally will be subject to U.S. federal income tax at graduated rates, in the same manner as domestic stockholders are taxed with respect to such dividends. Such income must generally be reported on a U.S. income tax return filed by or on behalf of the non-U.S. holder. The income may also be subject to the 30% branch profits tax in the case of a non-U.S. holder that is a corporation.

Non-Dividend Distributions. Unless (i) our stock constitutes a U.S. real property interest (a "USRPI") or (ii) either the non-U.S. holder's investment in our stock is effectively connected with a U.S. trade or business conducted by such non-U.S. holder (in which case the U.S. holder will be subject to the same treatment as domestic stockholders with respect to any gain) or the non-U.S. holder is a nonresident alien individual who is present in the U.S. for 183 days or more during the taxable year and satisfies certain other conditions (in which case the non-U.S. holder will be subject to a 30% tax on his or her net capital gain for the year), distributions that we make which are not dividends out of our earnings and profits will not be subject to U.S. income tax. If we cannot determine at the time a distribution is made whether or not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. A non-U.S. holder may seek a refund from the IRS of any amounts withheld if it subsequently is determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits. If our stock constitutes a USRPI, distributions that we make in excess of the sum of (a) the stockholder's proportionate share of our earnings and profits, and (b) the stockholder's basis in its stock, will be taxed under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") at the rate of tax, including any applicable capital gains rates, that would apply to a domestic stockholder of the same type (e.g., an individual or a corporation, as the case may be), and the collection of the tax will be enforced by a refundable withholding tax at a rate of 10% of the amount by which the distribution exceeds the stockholder's share of our earnings and profits. We expect that our stock will not constitute a USRPI as discussed below under "—Dispositions of Our Stock."

Capital Gain Dividends. Under FIRPTA, a distribution that we make to a non-U.S. holder, to the extent attributable to gains from dispositions of USRPIs that we held directly or through pass-through subsidiaries, or ("USRPI capital gains"), will, except as described below, be considered effectively connected with a U.S. trade or business of the non-U.S. holder and will be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, without regard to whether we designate the distribution as a capital gain dividend. See above under "—Taxation of Non-U.S. Stockholders—Ordinary Dividends," for a discussion of the consequences of income that is effectively connected with a U.S. trade or business. In addition, we will be required to withhold tax equal to 35% of the maximum

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amount that could have been designated as USRPI capital gains dividends. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. A distribution is not a USRPI capital gain if we held an interest in the underlying asset solely as a creditor. Capital gain dividends received by a non-U.S. holder that are attributable to dispositions of our assets other than USRPIs are not subject to U.S. federal income or withholding tax, unless (1) the gain is effectively connected with the non-U.S. holder's U.S. trade or business, in which case the non-U.S. holder would be subject to the same treatment as U.S. holders with respect to such gain, or (2) the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and satisfies certain other conditions, in which case the non-U.S. holder will incur a 30% tax on his or her net capital gains.

Notwithstanding the foregoing, a capital gain dividend that would otherwise have been treated as a USRPI capital gain will not be so treated or be subject to FIRPTA, and generally will not be treated as income that is effectively connected with a U.S. trade or business, and instead will be treated in the same manner as an ordinary dividend (see "—Taxation of Non-U.S. Stockholders—Ordinary Dividends"), if (1) the capital gain dividend is received with respect to a class of stock that is regularly traded on an established securities market located in the United States, and (2) the recipient non-U.S. holder does not own more than 5% of that class of stock at any time during the year ending on the date on which the capital gain dividend is received. We anticipate that our common stock will be "regularly traded" on an established securities exchange following this offering.

Dispositions of Our Stock. We expect that we will be a "United States real property holding corporation" ("USRPHC") under FIRPTA because at least 50% of our assets throughout a prescribed testing period will consist of interests in real property located within the United States, excluding, for this purpose, interests in real property solely in a capacity as a creditor. An interest in a USRPHC is generally treated as a USRPI, the disposition of which is subject to United States federal income tax.

However, our stock will not constitute a USRPI if we are a "domestically controlled qualified investment entity." A domestically controlled qualified investment entity includes a REIT, less than 50% of value of which is held directly or indirectly by non-U.S. holders at all times during a specified testing period. We expect that we will be a domestically controlled qualified investment entity, and that a sale of our stock should not be subject to taxation under FIRPTA for this reason. However, no assurance can be given that we will be a domestically controlled qualified investment entity at all times.

In the event that we are not a domestically controlled qualified investment entity, but our stock is "regularly traded," as defined by applicable Treasury regulations, on an established securities market, a non-U.S. holder's sale of our common stock nonetheless would not be subject to tax under FIRPTA as a sale of a USRPI, provided that the selling non-U.S. holder held 5% or less of our outstanding common stock at all times during the five-year period ending on the date of the sale. As stated above, we expect that our common stock will be regularly traded on an established securities market following this offering.

If gain on the sale of our stock were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal income tax return and would be subject to the same treatment as a U.S. stockholder with respect to such gain, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals, and the purchaser of the stock could be required to withhold 10% of the purchase price and remit such amount to the IRS.

Gain from the sale of our stock that would not otherwise be subject to tax under FIRPTA will nonetheless be taxable in the United States to a non-U.S. holder in two cases: (1) if the non-U.S. holder's investment in our stock is effectively connected with a U.S. trade or business conducted by such non-U.S. holder, the non-U.S. holder will be subject to the same treatment as a U.S. stockholder with respect to such gain, or (2) if the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and certain other conditions

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are satisfied, the nonresident alien individual will be subject to a 30% tax on the individual's net capital gain. In addition, even if we are a domestically controlled qualified investment entity, upon disposition of our stock (subject to the 5% exception applicable to "regularly traded" stock described above), a non-U.S. holder may be treated as having gain from the sale or exchange of a USRPI if the non-U.S. holder (1) disposes of our common stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, other shares of our common stock within 30 days after such ex-dividend date.

Estate Tax. If our stock is owned or treated as owned by an individual who is not a citizen or resident (as specially defined for U.S. federal estate tax purposes) of the United States at the time of such individual's death, the stock will be includable in the individual's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and may therefore be subject to U.S. federal estate tax.

Taxation of Tax-Exempt Stockholders

Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from federal income taxation. Such entities, however, may be subject to taxation on their unrelated business taxable income ("UBTI"). While some investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity generally do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt stockholder has not held our stock as "debt financed property" within the meaning of the Code (i.e., where the acquisition or holding of the property is financed through a borrowing by the tax-exempt stockholder), and (2) our stock is not otherwise used in an unrelated trade or business, distributions that we make and income from the sale of our stock generally should not give rise to UBTI to a tax-exempt stockholder.

Tax-exempt stockholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from federal income taxation under sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code are subject to different UBTI rules, which generally require such stockholders to characterize distributions that we make as UBTI.

In certain circumstances, a pension trust that owns more than 10% of our stock could be required to treat a percentage of the dividends as UBTI, if we are a "pension-held REIT." We will not be a pension-held REIT unless (1) we are required to "look through" one or more of our pension trust stockholders in order to satisfy the REIT closely held test and (2) either (i) one pension trust owns more than 25% of the value of our stock, or (ii) one or more pension trusts, each individually holding more than 10% of the value of our stock, collectively owns more than 50% of the value of our stock. Certain restrictions on ownership and transfer of our stock generally should prevent a tax-exempt entity from owning more than 10% of the value of our stock, and generally should prevent us from becoming a pension-held REIT.

Tax-exempt stockholders are urged to consult their tax advisors regarding the federal, state, local and foreign income and other tax consequences of owning our common stock.

Other Tax Considerations

Withholding Tax Relating to Foreign Accounts

Withholding taxes may be imposed on certain U.S. source payments made after December 31, 2013 to "foreign financial institutions" and certain other non-U.S. entities and on certain non-U.S. "passthru" payments made, and disposition proceeds of U.S. securities realized after, December 31,

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2016. Under this legislation, the failure to comply with additional certification, information reporting and other specified requirements could result in withholding tax being imposed on payments of dividends and sales proceeds to U.S. stockholders who own shares of our common stock through foreign accounts or foreign intermediaries and certain non-U.S. stockholders. The legislation imposes a 30% withholding tax on dividends on, and gross proceeds from the sale or other disposition of, our common stock paid to a foreign financial institution or to a foreign entity other than a financial institution, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign entity that is not a financial institution either certifies it does not have any substantial United States owners or furnishes identifying information regarding each substantial United States owner. Except to the extent otherwise provided in an applicable intergovernmental agreement between the United States and the relevant foreign government, if the payee is a foreign financial institution, it must enter into an agreement with the United States Treasury requiring, among other things, that it undertake to identify accounts held by certain United States persons or United States-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. Prospective investors should consult their tax advisors regarding this legislation.

Legislative or Other Actions Affecting REITs

The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time. The REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department which may result in statutory changes as well as revisions to regulations and interpretations. Changes to the federal tax laws and interpretations thereof could adversely affect an investment in our stock.

State and Local Taxes

We and our subsidiaries may be subject to state or local taxes, including income, property and transfer taxes, in various jurisdictions, including those in which we or they transact business or own property. Our stockholders will generally be subject to income taxes in the jurisdictions in which they reside. We may own properties located in numerous jurisdictions, and may be required to file tax returns in some or all of those jurisdictions. Our state or local tax treatment and that of our stockholders may not conform to the federal income tax treatment discussed above. Any taxes that we incur do not pass through to stockholders as a credit against their U.S. federal income tax liability. Prospective investors should consult their tax advisors regarding the application and effect of state or local income and other tax laws on an investment in our stock.

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ERISA CONSIDERATIONS

General

The following is a summary of certain considerations arising under ERISA and the prohibited transaction provisions of Section 4975 of the Code that may be relevant to a prospective purchaser that is or invests the assets of an employee benefit plan subject to Title I of ERISA, including entities such as collective investment funds and separate accounts whose underlying assets include assets of such plans. The following summary may also be relevant to a prospective purchaser that is not an employee benefit plan subject to Title I of ERISA, but is a tax-qualified retirement plan or an individual retirement account, individual retirement annuity, medical savings account or education individual retirement account, which we refer to collectively as an "IRA." This discussion does not address all aspects of ERISA or Section 4975 of the Code or, to the extent not preempted, state law that may be relevant to particular employee benefit plan stockholders in light of their particular circumstances, including plans subject to Title I of ERISA, other employee benefit plans and IRAs subject to the prohibited transaction provisions of Section 4975 of the Code, and governmental, church, non-U.S. and other plans that are exempt from ERISA and Section 4975 of the Code but that may be subject to other federal, state, local or non-U.S. law requirements.

A fiduciary making the decision to invest in shares of our common stock on behalf of a prospective purchaser which is an ERISA plan, a tax qualified retirement plan, an IRA or other employee benefit plan (collectively, a "Plan") is advised to consult its legal advisor regarding the specific considerations arising under ERISA, Section 4975 of the Code, and, to the extent not preempted, state law with respect to the purchase, ownership or sale of shares of our common stock by the Plan.

Plans should also consider the entire discussion under the heading "Federal Income Tax Considerations," as material contained in that section is relevant to any decision by a Plan to purchase our common stock.

Employee Benefit Plans, Tax-Qualified Retirement Plans and IRAs

Each fiduciary of an "ERISA plan," which is an employee benefit plan subject to Title I of ERISA, should carefully consider whether an investment in shares of our common stock is consistent with its fiduciary responsibilities under ERISA. In particular, the fiduciary requirements of Part 4 of Title I of ERISA require that:

•: an ERISA plan make investments that are prudent and in the best interests of the ERISA plan, its participants and beneficiaries;
•: an ERISA plan make investments that are diversified in order to reduce the risk of large losses, unless it is clearly prudent for the ERISA plan not to do so;
•: an ERISA plan's investments are authorized under ERISA and the terms of the governing documents of the ERISA plan; and
•: the fiduciary not cause the ERISA plan to enter into transactions prohibited under Section 406 of ERISA (and certain corresponding provisions of the Code).

In determining whether an investment in shares of our common stock is prudent for ERISA purposes, the appropriate fiduciary of an ERISA plan should consider all of the facts and circumstances, including whether the investment is reasonably designed, as a part of the ERISA plan's portfolio for which the fiduciary has investment responsibility, to meet the objectives of the ERISA plan, taking into consideration the risk of loss and opportunity for gain or other return from the investment, the diversification, cash flow and funding requirements of the ERISA plan, and the liquidity and current return of the ERISA plan's portfolio. A fiduciary should also take into account the nature of our business, the length of our operating history and other matters described in the

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section entitled "Risk Factors." Specifically, before investing in shares of our common stock, any fiduciary should, after considering the ERISA plan's particular circumstances, determine whether the investment is appropriate under the fiduciary standards of ERISA or other applicable law including standards with respect to prudence, diversification and delegation of control and the prohibited transaction provisions of ERISA and Section 4975 of the Code.

The Plan Assets Regulation and Exceptions

In some circumstances where an ERISA plan holds an interest in an entity, the assets of the entity are deemed to be ERISA plan assets. This is known as the "look-through rule." Under those circumstances, the obligations and other responsibilities of plan sponsors, plan fiduciaries and plan administrators, and of parties in interest and disqualified persons, under Parts 1 and 4 of Subtitle B of Title I of ERISA and Section 4975 of the Code, as applicable, may be expanded, and there may be an increase in their liability under these and other provisions of ERISA and the Code (except to the extent (if any) that a favorable statutory or administrative exemption or exception applies). For example, a prohibited transaction may occur if our assets are deemed to be assets of investing ERISA plans and persons who have certain specified relationships to an ERISA plan ("parties in interest" within the meaning of ERISA, and "disqualified persons" within the meaning of Section 4975 of the Code) deal with these assets. Further, if our assets are deemed to be assets of investing ERISA plans, any person that exercises authority or control with respect to the management or disposition of the assets is an ERISA plan fiduciary.

ERISA plan assets are not defined in ERISA or the Code, but the U.S. Department of Labor has issued regulations (as modified by Section 3(42) of ERISA, the "Plan Asset Regulation") that outline the circumstances under which an ERISA plan's interest in an entity will be subject to the look-through rule. The Plan Asset Regulation applies to the purchase by an ERISA plan of an "equity interest" in an entity, such as stock of a REIT. However, the Plan Asset Regulation provides an exception to the look-through rule for equity interests that are "publicly offered securities."

Under the Plan Asset Regulation, a "publicly offered security" is a security that is:

•: freely transferable;
•: part of a class of securities that is widely held; and
•: either part of a class of securities that is registered under section 12(b) or 12(g) of the Exchange Act or sold to an ERISA plan as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act, and the class of securities of which this security is a part is registered under the Exchange Act within 120 days, or longer if allowed by the SEC, after the end of the fiscal year of the issuer during which this offering of these securities to the public occurred.

Whether a security is considered "freely transferable" depends on the facts and circumstances of each case. Under the Plan Asset Regulation, if the security is part of an offering in which the minimum investment is $10,000 or less, then any restriction on or prohibition against any transfer or assignment of the security for the purposes of preventing a termination or reclassification of the entity for federal or state tax purposes will not ordinarily prevent the security from being considered freely transferable. Additionally, limitations or restrictions on the transfer or assignment of a security which are created or imposed by persons other than the issuer of the security or persons acting for or on behalf of the issuer will ordinarily not prevent the security from being considered freely transferable. The foregoing is not an exhaustive list of factors that ordinarily will not, alone or in combination, affect a finding that such securities are freely transferrable.

A class of securities is considered "widely held" if it is a class of securities that is owned by 100 or more investors independent of the issuer and of one another. A security will not fail to be "widely

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held" because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer's control.

Our Status Under ERISA

The shares of our common stock offered in this prospectus may meet the criteria of the publicly offered securities exception to the look-through rule. First, the common stock could be considered to be freely transferable, as the minimum investment will be less than $10,000 and the only restrictions upon its transfer are those generally permitted under the Department of Labor regulations, those required under federal tax laws to maintain our status as a REIT, resale restrictions under applicable federal securities laws with respect to securities not purchased pursuant to this prospectus and those owned by our officers, directors and other affiliates, and voluntary restrictions agreed to by the selling stockholder regarding volume limitations.

Second, we expect (although we cannot confirm) that our common stock will be held by 100 or more investors, and we expect that at least 100 or more of these investors will be independent of us and of one another.

Third, the shares of our common stock will be part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act and the common stock is registered under the Exchange Act.

In addition, the Plan Asset Regulation provide exceptions to the look-through rule for equity interests in some types of entities, including any entity which qualifies as either a "real estate operating company" or a "venture capital operating company."

Under the Plan Asset Regulation, a "real estate operating company" is defined as an entity which on testing dates has at least 50% of its assets, other than short-term investments pending long-term commitment or distribution to investors, valued at cost:

•: invested in real estate which is managed or developed and with respect to which the entity has the right to substantially participate directly in the management or development activities; and
•: which, in the ordinary course of its business, is engaged directly in real estate management or development activities.

According to those same regulations, a "venture capital operating company" is defined as an entity which on testing dates has at least 50% of its assets, other than short-term investments pending long-term commitment or distribution to investors, valued at cost:

•: invested in one or more operating companies with respect to which the entity has management rights; and
•: which, in the ordinary course of its business, actually exercises its management rights with respect to one or more of the operating companies in which it invests.

We have not endeavored to determine whether we will satisfy the "real estate operating company" or "venture capital operating company" exception and no assurances are provided in this regard.

If for any reason our assets are deemed to constitute "plan assets" under ERISA, certain of the transactions in which we might normally engage could constitute a non-exempt prohibited transaction under ERISA or Section 4975 of the Code. In such circumstances, we, in our sole discretion, may void or undo such prohibited transaction. In addition, if our assets are deemed to be "plan assets" for purposes of ERISA, our management may be considered to be fiduciaries under ERISA.

Prior to making an investment in the shares offered in this prospectus, prospective employee benefit plan investors (whether or not subject to Title I of ERISA or Section 4975 of the Code) should consult with their legal and other advisors concerning the impact of ERISA and the Code (and, particularly in the case of non-ERISA plans and arrangements, any additional state, local and non-U.S. law considerations), as applicable, and the potential consequences in their specific circumstances of an investment in such shares.

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement dated , we have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P Morgan Securities LLC are acting as representatives, the following respective numbers of shares of common stock:

Underwriter		Number of Shares

Credit Suisse Securities (USA) LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
J.P. Morgan Securities LLC
Keefe, Bruyette & Woods, Inc
RBC Capital Markets, LLC
JMP Securities LLC
Zelman Partners LLC

Total		13,250,000

The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to 1,987,500 additional shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering the representatives may change the public offering price and concession and discount to broker/dealers.

The following table summarizes the compensation and estimated expenses we will pay:

	Per Share		Total

	Without Over-allotment	With Over-allotment	Without Over-allotment	With Over-allotment
Underwriting Discounts and Commissions paid by us	$	$	$	$
Expenses payable by us	$	$	$	$

The underwriters have informed us that they do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the shares of common stock being offered.

We and our Manager have each agreed that we will not offer, sell, issue, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, issuance, pledge, disposition or filing, without the prior written consent of the representatives, for a period of 180 days after the date of this prospectus; however, we may issue up to 10% of our shares of common stock to be outstanding after this offering

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during such period as consideration to acquire additional properties (such shares will be subject to the remainder of the 180-day lock-up period).

Two Harbors, the Prior Provident Investors and our Manager have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of the representatives, for a period of 90 days after the date of this prospectus. All of our officers and directors and certain other executives of our company and our affiliates will be subject to a similar lock-up for a period of 180 days.

We and our Manager have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.

We have applied to list the shares of common stock on the NYSE under the symbol "SBY."

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by a negotiation among us and the representatives and will not necessarily reflect the market price of our common stock following the offering. The principal factors that will be considered in determining the public offering price included:

•: the information presented in this prospectus;
•: the history of and prospects for the industry in which we will compete;
•: the ability of our management;
•: the prospects for our future earnings;
•: the present state of our development and current financial condition;
•: the recent market prices of, and the demand for, publicly traded shares of generally comparable companies; and
•: the general condition of the securities markets at the time of this offering.

The underwriters have reserved for sale at the initial public offering price up to 662,500 shares of the common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.

In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.

•: Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
•: Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number

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of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.

•: Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
•: Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NYSE or otherwise and, if commenced, may be discontinued at any time.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory, lending and commercial and investment banking services for us and our affiliates, for which they received or will receive customary fees and expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments issued by us. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations.

European Selling Restrictions

European Economic Area

In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), an offer to the public of shares of our common

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stock which are the subject of the offering described in this prospectus may not be made in that relevant member state, except that an offer to the public in that relevant member state of shares of our common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that relevant member state:

•: to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; or
•: to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
•: to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or
•: in any other circumstances that do not require the publication of a prospectus pursuant to Article 3(2) of the Prospectus Directive;

provided, that no such offer of shares of our common stock shall result in a requirement for the publication by the company or any representative of a prospectus pursuant to Article 3 of the Prospectus Directive.

Each purchaser of shares of our common stock described in this prospectus located in a relevant member state who receives any communication in respect of, or who acquires any shares of our common stock under, the offer contemplated in this prospectus will be deemed to have represented, warranted and agreed to with each underwriter and the company that (a) it is a "qualified investor" within the meaning of Article 2(1)(e) of the Prospectus Directive and (b) in the case of any common stock acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the shares of our common stock acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any relevant member state, other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the representatives has been given to the offer or resale; or (ii) where shares of our common stock have been acquired by it on behalf of persons in any relevant member state other than qualified investors, the offer of such shares of our common stock to it is not treated under the Prospectus Directive as having been made to such persons.

For the purposes of this provision, the expression an "offer to the public" in relation to any shares of our common stock in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our common stock to be offered so as to enable an investor to decide to purchase or subscribe for shares of our common stock, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state.

United Kingdom

This prospectus is only being distributed to, and is only directed at, (a) persons who are outside the United Kingdom or (b) persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (Qualified Investors) that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other

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persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus or any of its contents.

Switzerland

We have not and will not register with the Swiss Financial Market Supervisory Authority ("FINMA") as a foreign collective investment scheme pursuant to Article 119 of the Federal Act on Collective Investment Scheme of 23 June 2006, as amended ("CISA"), and accordingly the securities being offered pursuant to this prospectus have not and will not be approved, and may not be licensable, with FINMA. Therefore, the securities have not been authorized for distribution by FINMA as a foreign collective investment scheme pursuant to Article 119 CISA and the securities offered hereby may not be offered to the public (as this term is defined in Article 3 CISA) in or from Switzerland. The securities may solely be offered to "qualified investors," as this term is defined in Article 10 CISA, and in the circumstances set out in Article 3 of the Ordinance on Collective Investment Scheme of 22 November 2006, as amended ("CISO"), such that there is no public offer. Investors, however, do not benefit from protection under CISA or CISO or supervision by FINMA. This prospectus and any other materials relating to the securities are strictly personal and confidential to each offeree and do not constitute an offer to any other person. This prospectus may only be used by those qualified investors to whom it has been handed out in connection with the offer described herein and may neither directly or indirectly be distributed or made available to any person or entity other than its recipients. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in Switzerland or from Switzerland. This prospectus does not constitute an issue prospectus as that term is understood pursuant to Article 652a and/or 1156 of the Swiss Federal Code of Obligations. We have not applied for a listing of the securities on the SIX Swiss Exchange or any other regulated securities market in Switzerland, and consequently, the information presented in this prospectus does not necessarily comply with the information standards set out in the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange.

Notice to Prospective Investors in Hong Kong

The common stock may not be offered or sold by means of any document other than (i) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571 of Hong Kong) and any rules made thereunder, or (ii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32 of Hong Kong); and no advertisement, invitation or document relating to the common stock may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to the common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance and any rules made thereunder.

WARNING

The contents of this prospectus has not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice.

Notice to Prospective Investors in Japan

The shares of common stock to be offered in this offering have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (the "Financial Instruments and Exchange Act"), and each underwriter has agreed that it will not offer or sell any of the shares of common stock

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to be offered in this offering, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan.

Notice to Prospective Investors in Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares of common stock may not be circulated or distributed, nor may the shares of common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares of common stock are subscribed or purchased under Section 275 by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)), the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments, and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferable within 6 months after that corporation or that trust has acquired the shares of common stock pursuant to an offer made under Section 275 except: (1) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (2) where no consideration is or will be given for the transfer; (3) where the transfer is by operation of law; or (4) as specified in Section 276(7) of the SFA.

Notice to Prospective Investors in the Dubai International Financial Centre

This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority ("DFSA"). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

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NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the shares of common stock in Canada is being made only in the provinces of Ontario and Quebec on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of shares are made. Any resale of the shares in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the shares.

Representations of Purchasers

By purchasing shares in Canada and accepting delivery of a purchase confirmation, a purchaser is representing to us and the dealer from whom the purchase confirmation is received that:

•: the purchaser is resident in either the Province of Ontario or Quebec, and is not acquiring the securities for the account or benefit of any individual or entity that is resident in any province or territory of Canada other than the Province of Ontario or Quebec;
•: the purchaser is entitled under applicable provincial securities laws to purchase the shares without the benefit of a prospectus qualified under those securities laws;
•: where required by law, that the purchaser is purchasing as principal and not as agent;
•: the purchaser has reviewed the text above under Resale Restrictions; and
•: the purchaser acknowledges and consents to the provision of specified information concerning the purchase of the shares to the regulatory authority that by law is entitled to collect the information, including certain personal information. For purchasers in Ontario, questions about such indirect collection of personal information should be directed to Administrative Support Clerk, Ontario Securities Commission, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8 or on (416) 593-3684.

Rights of Action—Ontario Purchasers

Under Ontario securities legislation, certain purchasers who purchase a security offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the shares, for rescission against us in the event that this prospectus contains a misrepresentation without regard to whether the purchaser relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the shares. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the shares. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In no case will the amount recoverable in any action exceed the price at which the shares were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the shares as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.

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Enforcement of Legal Rights

All of our directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.

Taxation and Eligibility for Investment

Canadian purchasers of the shares should consult their own legal and tax advisors with respect to the tax consequences of an investment in the shares in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation.

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LEGAL MATTERS

Certain legal matters relating to this offering will be passed upon for us by Orrick, Herrington & Sutcliffe LLP, San Francisco, California. In addition, the description of the U.S. federal income tax consequences contained in the section of the prospectus entitled "U.S. Federal Income Tax Considerations" is based upon the opinion of Orrick, Herrington & Sutcliffe LLP. Certain legal matters relating to this offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. As to certain matters of Maryland law, Orrick, Herrington & Sutcliffe LLP may rely on the opinion of Ballard Spahr LLP, Baltimore, Maryland.

EXPERTS

The balance sheet of Silver Bay Realty Trust Corp. as of August 31, 2012, the consolidated financial statements of Two Harbors Property Investment LLC as of September 30, 2012 and for the nine months then ended and the combined statements of revenues and certain operating expenses of the Provident Entities for the years ended December 31, 2011 and 2010 appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, an independent registered public accounting firm, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a Registration Statement on Form S-11, including exhibits, schedules and amendments filed with the registration statement, of which this prospectus is a part, under the Securities Act with respect to the shares of common stock we propose to sell in this offering. This prospectus does not contain all of the information set forth in the registration statement and exhibits and schedules to the registration statement. For further information with respect to our company and the shares of common stock to be sold in this offering, reference is made to the registration statement, including the exhibits and schedules thereto. Statements contained in this prospectus as to the contents of any contract or other document referred to in this prospectus are not necessarily complete and, where that contract or other document has been filed as an exhibit to the registration statement, each statement in this prospectus is qualified in all respects by the exhibit to which the reference relates. Copies of the registration statement, including the exhibits and schedules to the registration statement, may be examined without charge at the public reference room of the SEC, 100 F Street, N.E., Washington, DC 20549. Information about the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0300. Copies of all or a portion of the registration statement can be obtained from the public reference room of the SEC upon payment of prescribed fees. Our SEC filings, including our registration statement, are also available to you, free of charge, on the SEC's website at http://www.sec.gov.

As a result of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act, and will file periodic reports and other information with the SEC. These periodic reports and other information will be available for inspection and copying at the SEC's public reference facilities and the website of the SEC referred to above.

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GLOSSARY

Unless the context otherwise requires, the following capitalized terms shall have the meanings set forth below for the purposes of this prospectus:

"Code" means the Internal Revenue Code of 1986, as amended.

"Company" means Silver Bay Realty Trust Corp., also referred to herein as "Silver Bay."

"ERISA" means the Employment Retirement Income Security Act of 1974, as amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"FHA" means the Fair Housing Act, as amended.

"FIRPTA" means the Foreign Investment in Real Property Tax Act, as amended.

"Formation Transactions" means the merger and contribution transactions through which Silver Bay expects to acquire, concurrently with this offering, its initial portfolio of single-family properties and certain other assets and liabilities from Two Harbors and the Prior Provident Investors, as described in "Structure and Formation of Our Company—Formation Transactions."

"GAAP" means generally accepted accounting principles in the United States of America.

"General Partner" means Silver Bay Management LLC, a wholly owned subsidiary of Silver Bay.

"GSE" means a government-sponsored enterprise.

"HUD" means the U.S. Department of Housing and Urban Development.

"IRA" means collectively, a tax-qualified retirement plan or an individual retirement account, individual retirement annuity, medical savings account or education individual retirement account.

"IRS" means the Internal Revenue Service.

"Manager" means PRCM Real Estate Advisers LLC, our external manager.

"Manager's operating subsidiary" means Silver Bay Property Corp., a wholly owned subsidiary of our Manager.

"MGCL" means the Maryland General Corporation Law.

"MLS" means multiple listing service.

"MSA" means Metropolitan Statistical Areas, which is generally defined as one or more adjacent counties or county equivalents that have at least one urban core area of at least a 50,000-person population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties.

"Operating Partnership" means Silver Bay Operating Partnership L.P., a subsidiary of Silver Bay.

"Partnership Agreement" means the Agreement of Limited Partnership of Silver Bay Operating Partnership L.P.

"Pine River" means Pine River Capital Management L.P., a private capital management firm, whose affiliate, Pine River Domestic Management, L.P., owns two-thirds of the equity interests in our Manager.

"Predecessor" means Two Harbors Property.

"Prior Provident Investors" means the owners of the membership interests of the Provident Entities prior to the Formation Transactions described elsewhere in this prospectus.

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"Provident" means Provident Real Estate Advisors LLC, a private capital management firm that owns one-third of the equity interests in our Manager.

"Provident Entities" means Provident Residential Real Estate Fund LLC, Resi II LLC, Polar Cactus LLC, Polar Cactus II LLC and Cool Willow LLC, for which Provident serves as managing member.

"REIT" means real estate investment trust as defined in the Code.

"REO" means real estate owned and refers to real estate owned by banks, other financial institutions and GSEs that is typically acquired by such entities by foreclosure on outstanding liens.

"RMBS" means residential mortgage-backed securities.

"SEC" means the U.S. Securities and Exchange Commission.

"Silver Bay" means Silver Bay Realty Trust Corp., also referred to herein as the "Company."

"Special Limited Partner" means, with respect to the Operating Partnership, Silver Bay.

"Two Harbors" means Two Harbors Investment Corp., a publicly traded REIT [NYSE: TWO], which is externally managed by PRCM Advisers LLC, a wholly owned subsidiary of a Pine River affiliate.

"Two Harbors Property" means Two Harbors Property Investment LLC, an indirect wholly owned subsidiary of Two Harbors, and its subsidiaries.

"TRS" means taxable REIT subsidiary.

"UBTI" means unrelated business taxable income.

"USRPI" means U.S. real property interest.

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INDEX TO FINANCIAL STATEMENTS


Silver Bay Realty Trust Corp.:
Pro Forma Condensed Consolidated Financial Information (unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2012		F-3
Pro Forma Condensed Consolidated Statements of Operations for the nine months ended September 30, 2012 and the year ended December 31, 2011		F-4
Notes to Pro Forma Condensed Consolidated Financial Statements		F-6
Historical Financial Information:
Report of Independent Registered Public Accounting Firm		F-16
Balance Sheet at August 31, 2012		F-17
Notes to Balance Sheet		F-18
Two Harbors Property Investment LLC (Predecessor):
Report of Independent Registered Public Accounting Firm		F-21
Consolidated Balance Sheet at September 30, 2012		F-22
Consolidated Statement of Operations for the nine months ended September 30, 2012		F-23
Consolidated Statement of Changes Members' Equity for the nine months ended September 30, 2012		F-24
Consolidated Statement of Cash Flows for the nine months ended September 30, 2012		F-25
Notes to Consolidated Financial Statements		F-26
Schedule III—Real Estate and Accumulated Depreciation		F-30
Provident Entities:
Report of Independent Auditors		F-32
Combined Statements of Revenues and Certain Operating Expenses for the nine months ended September 30, 2012 and 2011 (unaudited) and for the years ended December 31, 2011 and 2010		F-33
Notes to Combined Statements of Revenues and Certain Operating Expenses		F-34

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SILVER BAY REALTY TRUST CORP.

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We have presented unaudited pro forma condensed consolidated financial information that reflects the historical consolidated operations of Two Harbors Property Investment LLC and its subsidiaries, which we refer to collectively as our Predecessor, and the combined historical operations of the Provident Entities, as adjusted to give pro forma effect to the offering and the Formation Transactions, including purchase accounting adjustments and the application of net proceeds therefrom. We have not presented historical information for Silver Bay Realty Trust Corp. because we have not had any significant corporate activity since our formation.

The unaudited pro forma condensed consolidated financial information has been derived from and should be read in conjunction with financial statements and related notes of our Predecessor and Provident Entities, which are included elsewhere in this prospectus. This information should also read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

The unaudited pro forma condensed consolidated balance sheet data at September 30, 2012 reflects the historical information of our Predecessor as of such date, as adjusted to give pro forma effect to the Formation Transactions, this offering and the application of the net proceeds therefrom as if they had occurred on September 30, 2012. The historical balances of our Predecessor have been reflected at carryover basis because for accounting purposes, the transfer and assignment of our Predecessor's ownership interest in exchange for shares of our cumulative redeemable preferred stock and common stock and this offering are not deemed a business combination and do not result in a change of control. The value our Predecessor's interest holders will receive for their contributions relates to their Predecessor ownership interests only and does not include any value associated with the settlement of any other relationship with our Predecessor. The assets and liabilities of the Provident Entities, however, have been recorded at fair value due to our purchase of a controlling interest. The purchase price allocations have not been finalized and are subject to change based upon recording of actual transaction costs, finalization of working capital adjustments and completion of our analysis of the fair value of tangible and intangible assets of the Provident Entities.

The unaudited pro forma condensed consolidated statements of operations data for the nine months ended September 30, 2012 and the year ended December 31, 2011 reflect the historical information of our Predecessor and the Provident Entities adjusted to give pro forma effect to the Formation Transactions, this offering and the application of the net proceeds therefrom as if they had occurred on January 1, 2011.

The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. The unaudited pro forma condensed consolidated statements of operations data and the unaudited pro forma condensed consolidated balance sheet data do not purport to represent the results of operations that would have occurred had such transactions been consummated on the dates indicated or the financial position for any future date or period.

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SILVER BAY REALTY TRUST CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2012

(amounts in thousands except share amounts)

(unaudited)

	Predecessor			Provident Entities			Pro Forma Adjustments for the Formation Transactions			Pro Forma Before Offering Adjustments			Pro Forma Adjustments for the Offering			Silver Bay Realty Trust Corp. Pro Forma

	(A)			(B)			(C)						(D)
Assets:
Investments in real estate:
Land	$	39,377		$	25,061		$	—		$	64,438		$	—		$	64,438
Building and improvements		151,988			93,944			—			245,932			—			245,932

		191,365			119,005			—			310,370			—			310,370
Accumulated depreciation		(458	)		—			—			(458	)		—			(458	)

Investments in real estate, net		190,907			119,005			—			309,912			—			309,912
Cash and cash equivalents		2,785			(5,092	)		—			(2,307	)		234,204	(3)		231,897
Escrow deposits		33,960			—			96,862	(1)		130,822			—			130,822
Deferred lease costs, net		—			2,690			—			2,690			—			2,690
Other assets		625			500			—			1,125			—			1,125

Total assets	$	228,277		$	117,103		$	96,862		$	442,242		$	234,204		$	676,446

Liabilities and Equity:
Liabilities:
Accrued property expenses	$	2,526		$	—		$	—		$	2,526		$	—		$	2,526
Other liabilities		1,866			500			—			2,366			—			2,366

Total liabilities		4,392			500			—			4,892			—			4,892
10% Cumulative Redeemable Preferred Stock		—			—			1,000	(2)		1,000			—			1,000
Equity:
Predecessor equity		223,885			—			96,862	(1)		—			—			—
								(320,747	)(2)
Common Stock		—			116,090			319,747	(2)		435,837			234,204	(3)		670,069
														28	(4)
Non-controlling interests—Common Units		—			513			—			513			(28	)(4)		485

Total equity		223,885			116,603			95,862			436,350			234,204			670,554

Total liabilities and equity	$	228,277		$	117,103		$	96,862		$	442,242		$	234,204		$	676,446

The accompanying notes are an integral part of these pro forma financial statements.

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SILVER BAY REALTY TRUST CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(amounts in thousands except per share data)

(unaudited)

	Predecessor			Provident Entities		Pro Forma Adjustments			Silver Bay Realty Trust Corp. Pro Forma

	(A)			(B)		(C)
Revenue:
Rental income	$	827		$	7,351	$	—		$	8,178
Other income		—			191		—			191

Total revenue		827			7,542					8,369
Expenses:
Property operating and maintenance		776			1,440		—			2,216
Real estate taxes		526			1,274		—			1,800
Home owner's association fees		162			921		—			1,083
Property management fees		64			531		5,176	(1)		5,771
Depreciation and amortization		475			—		2,563	(2)		3,038
Advisory management fees		804			—		6,921	(1)		7,725
General and administrative		296			—		2,946	(3)		3,242

Total expenses		3,103			4,166					24,875

Net income (loss)	$	(2,276	)	$	3,376					(16,506	)

Net loss attributable to non-controlling interests—Common Units								(4)		12

Net loss attributable to controlling interest										(16,494	)
Preferred distributions								(5)		(75	)

Net loss available to common stockholders									$	(16,569	)

Earnings (loss) per share—basic and diluted:
Net loss attributable to common shares								(6)	$	(0.44	)

Weighted average common shares outstanding								(6)		37,344

The accompanying notes are an integral part of these pro forma financial statements.

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SILVER BAY REALTY TRUST CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011

(amounts in thousands except per share data)

(unaudited)

	Predecessor		Provident Entities		Pro Forma Adjustments			Silver Bay Realty Trust Corp. Pro Forma

	(A)		(B)		(C)
Revenue
Rental income	$	—	$	5,095	$	—		$	5,095
Other income		—		187		—			187

Total revenue		—		5,282		—			5,282
Expenses
Property operating and maintenance		—		1,767		—			1,767
Real estate taxes		—		883		—			883
Home owner's association fees		—		790		—			790
Property management fees		—		354		7,338	(1)		7,692
Depreciation and amortization		—		—		6,106	(2)		6,106
Advisory management fees		—		—		10,300	(1)		10,300
General and administrative		—		—		3,928	(3)		3,928

Total expenses		—		3,794					31,466

Net income (loss)	$	—	$	1,488					(26,184	)

Net loss attributable to non-controlling interests—Common Units							(4)		19

Net loss attributable to controlling interest									(26,165	)
Preferred distributions							(5)		(100	)

Net loss available to common stockholders								$	(26,265	)

Earnings (loss) per share—basic and diluted:
Net loss attributable to common shares							(6)	$	(0.70	)

Weighted average common shares outstanding							(6)		37,344

The accompanying notes are an integral part of these pro forma financial statements.

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SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except per share data)

(unaudited)

Note 1. Notes to Pro Forma Condensed Consolidated Balance Sheet

(A) Reflects the historical consolidated balance sheet of our Predecessor as of September 30, 2012, which is included elsewhere in this registration statement.

(B) Reflects the completion of the Formation Transactions to acquire the Provident Entities at the close of this offering as if it had occurred on September 30, 2012:


Cash and cash equivalents(i)	$	5,092
Other assets(ii)		500
Accrued property expenses(ii)		500
Common Stock(i)		116,090
Common Units(i),(iii)		513

Total consideration paid(iv)	$	121,695

(i): As outlined in the "Structure and Formation of Our Company" section, under the caption "Consideration Payable to Two Harbors and Prior Provident Investors," included elsewhere in this prospectus, our Predecessor and the Prior Provident Investors have an agreement on the allocation of the consideration they will each receive in exchange for the contribution of their membership interests in our Predecessor and the Provident Entities. The Prior Provident Investors will receive a total of $121,695 for their ownership interest in the Provident Entities in the form of $5,092 in cash, shares of our common stock totaling $116,090 (6,110 common shares), and common units of our operating partnership totaling $513 (27 common units), based on the common stock and common units valued at the midpoint of the price range set forth on the cover page of this prospectus.
(ii): As outlined in the "Structure and Formation of Our Company" section, under the caption "Consideration Payable to Two Harbors and Prior Provident Investors," included elsewhere in this prospectus, at the time of the closing of the Formation Transactions we will have working capital adjustments with the Prior Provident Investors related to the Provident Properties. These amounts can be determined and settled up to 120 days after the completion of closing of the Formation Transactions. Any net unsettled amounts due to or from the Prior Provident Investors will be treated as change in basis to the Provident Properties and considered a purchase price adjustment. As of September 30, 2012, we have estimated that the Prior Provident investors will provide sufficient funding ($500 recorded as accounts receivable and included in other assets) to satisfy all assumed liabilities ($500, primarily of accrued real estate taxes) included in the Formation Transactions and there will be no net unsettled balance.
(iii): Common unit holders will be reflected as non-controlling interests and will have a 0.1% ownership interest in our operating partnership after the completion of the Formation

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SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 1. Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)

Transactions and this offering. Common units are convertible into shares of our common stock on a one-for-one basis.

(iv): As outlined in the "Structure and Formation of Our Company" section, under the caption "Transactions to Acquire Properties," included elsewhere in this prospectus, if certain pricing conditions are not met in this offering, we will be required to make additional payments of cash to the Prior Provident Investors as additional consideration in the Formation Transactions. If we are required to make these payments of additional consideration, the advisory management fee owed to our Manager will be reduced by a like amount, thereby eliminating any net impact on our net cash payments. We have determined that the recognition of the payments to the Prior Provident Investors would be recorded as a contingent purchase price adjustment, with an estimated liability recorded as part of the Formation Transactions and trued up as the quarterly payments were made. See Note (C)(1) to the pro forma condensed consolidated statements of operations for a further description of the advisory management fee.

The table below reflects the estimated allocation of the purchase price based upon the fair value of the Provident Properties to be purchased as part of the Formation Transactions:


Land(i)	$	25,061
Building and improvements(i)	$	93,944
Deferred lease costs(i)	$	2,690
Cash and cash equivalents	$	(5,092	)
Other assets	$	500
Accrued property expenses	$	500
Common Stock	$	116,090
Non-controlling interest—Common Units	$	513

(i): The purchase price allocations have been made in accordance with our allocation policies, which are consistent with our Predecessor's. See the footnotes to the consolidated financial statements of our Predecessor for additional information. The fair value of the properties in total is equal to the consideration paid to the Prior Provident Investors. The fair value allocated to the individual properties was determined utilizing our internally developed Automated Valuation Model outlined under the caption "Technology" in the "Business and Properties" section included elsewhere in this prospectus. There has been no allocation of fair value for above or below market in-place leases based on the short term nature of the leases and stated rates approximating current rental rates. There are no additional assets or liabilities being fair valued as part of the Formation Transactions.

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SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 1. Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)

(C) Reflects the following adjustments to present certain amounts pursuant to the Formation Transactions as if they occurred as of September 30, 2012:

(1) To adjust for the contribution of acquisition cash by our Predecessor to fund certain acquisitions and the settlement of working capital due to/from our Predecessor as of September 30, 2012:


Escrow deposits(i)	$	96,862
Predecessor equity(i)	$	96,862

(i): As outlined in the "Structure and Formation of Our Company" section, under the caption "Consideration Payable to Two Harbors and Prior Provident Investors," included elsewhere in this prospectus, our Predecessor will provide acquisition cash to fund property acquisitions and renovations around the time of our Formation Transactions and provide sufficient working capital. During the period from October 1, 2012 through the date the allocation of consideration to be paid to our Predecessor and the Prior Provident Investors was calculated, our Predecessor continued to provide capital funding to support its acquisition, renovations and other operations summarized in the table below. As of the date the allocation of consideration to be paid to our Predecessor and the Prior Provident Investors was calculated, our Predecessor made an estimate of the additional funding requirements to meet the minimum level of acquisition cash funding of $50,000 and other working capital requirements. Based upon these estimates our Predecessor made additional contributions in November 2012 summarized in the table below.


Actual capital contributions from October 1, 2012 through the allocation date	$	70,000
Actual capital contributions to meet acquisition cash ($50,000 minimum) and working capital funding requirements		26,862

Total adjustment	$	96,862

The acquisition cash and working capital funding requirements have been recorded as additional escrow deposits and as additional Predecessor equity. Any acquisition cash and working capital funding that our Predecessor does not spend prior to the closing of the offering will remain in the entity.

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SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 1. Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)

(2) Reclassification of our Predecessor's equity into preferred stock and common stock issued to our Predecessor in exchange for their contribution:


Predecessor Equity	$	(320,747	)
10% Cumulative Redeemable Preferred Stock(i),(ii)	$	1,000
Common Stock(i),(iii)	$	319,747

(i): As outlined in the "Structure and Formation of Our Company" section, under the caption "Consideration Payable to Two Harbors and Prior Provident Investors," included elsewhere in this prospectus, our Predecessor and the Prior Provident Investors have an agreement on the allocation of the consideration they will each receive in exchange for the contribution of their membership interests in our Predecessor and the Provident Entities. Our Predecessor will receive 1,000 shares of our 10% Cumulative Redeemable Preferred Stock and 17,826 shares of our common stock.
(ii): As outlined in the "Description of Capital Stock" section, under the caption "Cumulative Redeemable Preferred Stock," included elsewhere in this prospectus, our 10% Cumulative Redeemable Preferred Stock has a liquidation value of $1,000 and certain redemption features that requires these shares to be reported outside the equity section in the pro forma balance sheet.
(iii): As outlined in the "Structure and Formation of Our Company" section, under the caption "Transactions to Acquire Properties," included elsewhere in this prospectus, if certain pricing conditions are not met in this offering, we will be required to make additional payments of cash to Two Harbors as additional consideration in the Formation Transactions. If we are required to make these payments of additional consideration, the advisory management fee owed to our Manager will be reduced by a like amount, thereby eliminating any net impact on our net cash payments. We have determined that the recognition of the payments to our Predecessor would be recorded as part of the advisory management fees expense since these payments are not subject to a purchase price adjustment. See Note (C)(1) to the pro forma condensed consolidated statements of operations for a further description of the advisory management agreement fees.

(D) Reflects the following adjustments to present certain amounts pursuant to the offering as if it occurred as of September 30, 2012:

(3) To adjust for offering proceeds from the issuance of 13,250 shares of common stock at an assumed offering price of $19 per share (the midpoint of the range set forth on the cover page of this prospectus), net of transaction costs related to this offering (underwriting discount of $13,846 and other offering expenses of $3,700):


Cash and cash equivalents	$	234,204
Common Stock	$	234,204

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SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 1. Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)

(4) Adjustment to reflect the Common Unit holders' proportional ownership interest in our operating partnership of 0.1% after the completion of this offering:


Common Stock	$	28
Non-controlling interests—Common Units	$	(28	)

Note 2. Notes to Pro Forma Condensed Consolidated Statements of Operations

(A) Our Predecessor began formal operations and acquired its first property in 2012, therefore, there are no operations for our Predecessor for the year ended December 31, 2011. The consolidated statement of operations of our Predecessor for the nine months ended September 30, 2012 is included elsewhere in this registration statement.

(B) Reflects the combined results of operations of the Provident Entities for the nine months ended September 30, 2012 and for the year ended December 31, 2011, which are included elsewhere in this registration statement.

(C) Reflects the following adjustments to present certain amounts pursuant to the Formation Transactions and the offering:

(1) To adjust property management fee expense for our Predecessor and the Provident Entities operations to reflect the terms of the new property management agreement and the advisory management fee expense for our Predecessor based upon the new advisory management agreement:

	Nine months ended September 30, 2012		Year ended December 31, 2011

Property management fee expense(i)	$	5,176	$	7,338
Advisory management fee expense(ii)	$	6,921	$	10,300

(i): As outlined in the "Our Manager and the Management Agreement" section, under the caption "Property Management and Acquisition Services Agreement," included elsewhere in this prospectus, we will enter into a new property management agreement whereby we will pay costs incurred by our Manager's operating subsidiary. We are currently estimating the annual costs to be passed through to us to be $7,692. This estimate is based on the actual costs incurred by our Manager's operating subsidiary during the month ended September 30, 2012, which were then annualized. We believe the costs incurred in September 2012 are representative of the costs that will be passed onto us on a go forward basis under the new agreement, although these costs may increase as we increase the number of target markets in which we acquire, renovate and manage residential properties.

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Table of Contents

SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 2. Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)

The following table represents the estimated annual property management fee pass through costs to be incurred by department:


Acquisitions(1),(2)	$	3,183
Property management(1)		2,001
Back-office services(1)		2,142

Total pass through costs		7,326
5% property management fee mark up(3)		366

Estimated annual property management fee pass through costs(4)	$	7,692

(1): Represents costs directly incurred by our Manager's operating subsidiary. Departmental expenses primarily consist of allocated compensation expense related to performing these functions. Back-office services include compensation expense, administrative, information technology, insurance, accounting, tax and legal fees and other back-office services.
(2): A portion of future acquisition department costs will be capitalized related to the successful acquisition of properties not subject an existing lease based on actual time and costs incurred in that effort.
(3): Represents the 5% management mark-up fee on certain costs and expenses incurred in the operation of our Manager's operating subsidiary's business that are to be reimbursed by us. This mark-up fee is a reduction of our Manager's advisory management fee described in adjustment (ii) below.

In certain of our target markets, our Manager's operating subsidiary has engaged local third-party management companies to provide acquisition, leasing and property management services. The fees for these services vary by market but are based upon successful acquisition and leasing services per property and, in some cases, 6% to 9% of gross rental income for property management services. Our Manager's operating subsidiary plans to pass these costs on to us with no additional mark-up.
(4): This amount reflects what the total property management fee expense that would have been incurred under the new agreement based upon the estimated annual property management fees pass through costs. The adjustments reflected above represents the difference between the estimated annual property management fee pass through costs and the historical property management fees incurred.

(ii): As outlined in the "Our Manager and the Management Agreement" section, under the caption "Advisory Management Fee," included elsewhere in this prospectus, we will enter into a new advisory management agreement with our Manager based upon an annual fee of 1.5% of our fully diluted market capitalization, less the 5% property management fee mark-up. This adjustment reflects the total advisory management fee expense that would have been incurred under the new agreement. We have used the liquidation value as our estimate of the current value of our 10%

F-11

Table of Contents

SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 2. Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)

cumulative redeemable preferred stock, and estimated the current fair value of our common stock based upon the midpoint of the price range set forth on the cover page of this prospectus. We have assumed that the shares sold in this offering, the shares issued to our Predecessor and the Prior Provident Investors and the common units issued to the Prior Provident Investors (converted on a one-for-one basis into our common stock) issued in connection with the Formation Transactions, totaling 37,371 shares, were outstanding to calculate our fully diluted market capitalization.

The following table represents the estimated annual advisory management fee to be incurred:


Estimated annual advisory management fee	$	10,666
Less: 5% property management fee mark-up (described in (i) above)		(366	)

Estimated annual advisory management fee expense	$	10,300

We will also reimburse our Manager for all expenses incurred on our behalf and otherwise in the operation of our business, including our allocable share of compensation expenses and back-office charges. As estimate of these reimbursement expenses have been reflected in Note 3 to the pro forma condensed consolidated statements of operations on page F-13.

As outlined in the "Structure and Formation of Our Company" section, under the caption "Transactions to Acquire Properties," included elsewhere in this prospectus, if certain pricing conditions are not met in this offering, we will be required to make additional payments of cash to Two Harbors and the Provident Prior Investors as additional consideration in the Formation Transactions. If we are required to make these payments of additional consideration, the advisory management fee owed to our Manager will be reduced by a like amount, thereby eliminating any net impact on our net cash payments. However, we have determined that the full recognition of advisory management fees expense would still need to be recorded. As noted in Note (B)(iv) to the pro forma condensed consolidated balance sheet on pages F-6 and F-7, the portion of the payments that would be made to the Prior Provident Investors should be recorded as a contingent purchase price adjustment. Since these payments would be funded by our Manager through the forgiveness of their advisory management fees, we have determined the recognition of this portion of the advisory management fee would be recorded through the recognition of additional stockholders' equity. As noted in Note (C)(2) to the pro forma condensed consolidated balance sheet on page F-9, the portion of the payments that would be made to our Predecessor should be included as part of the advisory management fee expenses.

F-12

Table of Contents

SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 2. Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)

(2) To adjust depreciation and amortization expense related to the acquisition of the Provident Entities.

	Nine Months Ended September 30, 2012		Year Ended December 31, 2011

Building and improvements(i)	$	2,563	$	3,416
Deferred lease costs(i)		—		2,690

Depreciation and amortization expense	$	2,563	$	6,106

(i): Depreciation and amortization expense was determined in accordance with our estimated useful lives, which are consistent with our Predecessor. See the footnotes to the consolidated financial statements of our Predecessor for additional information. Deferred leasing costs are amortized over the lease life, which is generally 12 months. The average remaining lease life on leased properties owned by the Provident Entities is less than 12 months, therefore the allocated deferred lease costs have been assumed to have been fully amortized in the year ended December 31, 2011.

(3) To adjust for additional general & administrative expenses to be incurred operating as a public company:

	Nine Months Ended September 30, 2012		Year Ended December 31, 2011

Advisory fee expense reimbursement(i)	$	1,843	$	2,457
Board of director fees(ii)		416		555
Restricted stock compensation(iii)		687		916

General and administrative expense	$	2,946	$	3,928

(i): As outlined in the "Our Manager and the Management Agreement" section included elsewhere in this prospectus, we will also reimburse our Manager for all expenses incurred on our behalf and otherwise in the operation of its business, including our allocable share of the compensation expense and back-office services. We are currently estimating the annual expenses to be passed through to us to be $2,457. This estimate is based on the actual costs incurred by our Manager and Pine River during the month ended September 30, 2012, which were then annualized. We believe the costs incurred in September 2012 are representative of the expenses that will be passed onto us on a go forward basis under the new agreement, although these costs may increase as we increase the number of target markets in which we acquire, renovate and manage residential

F-13

Table of Contents

SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 2. Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)

properties. The following table represents a summary of the estimated annual advisory management expense reimbursement to be incurred:


Compensation of our named executive officers (excluding CEO) and other personnel employed by Pine River or our Manager	$	2,320
Back-office charges(1)		137

Estimated annual advisory fee expense reimbursement	$	2,457

(1): Back-office charges represent certain allocated costs from Pine River and our Manager and include office rent, information technology, computer programming and other similar charges.
(ii): As outlined in the "Management" section, under the caption "Director Compensation," of this prospectus, we will incur additional fees for the independent directors on our board of directors. This adjustment represents the effect for the estimated annual costs of these fees totaling $555, which includes the issuance of 13 shares of restricted stock. We have assumed the restricted stock portion of the fees will vest ratably within the annual period.

We expect to incur other costs as a public company which could include, but not limited to, directors and officers insurance, accounting, tax and legal fees. We currently estimate that the additional annual expense to be recognized for these costs to be $3,683, which have not been included in this pro forma adjustment.
(iii): As outlined in the "Management" section, under the caption "2012 Equity Incentive Plan," included elsewhere in this prospectus, we will adopt prior to the completion of this offering the 2012 Equity Incentive Plan to provide incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including certain personnel of Pine River, our Manager and their respective affiliates. The terms and conditions of awards issued under 2012 Equity Incentive Plan will be administered by the compensation committee appointed by our board of directors.

Upon completion of this offering, we expect to grant certain of our executive officers and certain personnel of our Manager and our Manager's operating subsidiary a total of 144 shares of restricted stock, which have a total value of $2,750. These shares will vest ratably over a three-year service period, provided they continue to provide services on behalf of the Company and/or our Manager and our Manager's operating subsidiary. The amounts reflected in this adjustment assumed the restricted shares issued are valued at the midpoint of the price range set forth on the cover page of this prospectus and have an annual time vesting over the three-year service period.

F-14

Table of Contents

SILVER BAY REALTY TRUST CORP.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands except per share data)

(unaudited)

Note 2. Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)

(4) To allocate net loss attributable to non-controlling interests Common Units based upon their proportional ownership interest in our operating partnership of 0.1% after the completion of this offering:

		Nine Months Ended September 30, 2012			Year Ended December 31, 2011

Net loss attributable to non-controlling interests—Common Units		$	12		$	19

(5) To adjust for annual dividends paid on our 10% Cumulative Redeemable Preferred Stock:


Preferred distributions		$	75		$	100

(6) Represents net loss available to common stockholders divided by the commons shares outstanding after the completion of the offering of 37,344 shares (assumes that the 158 shares of restricted stock to be issued to our independent board of directors, certain of our executive officers and certain personnel of our Manager and our Manager's operating subsidiary are fully vested and outstanding as of January 1, 2011). The only potential dilutive securities are the Common Units of our operating partnership issued to certain Prior Provident Investors in connection with the Formation Transactions. Since these units are convertible on a one-for-one basis and the losses for the periods were allocated based upon the relative ownership interest of the common unit holders within the overall entity, the assumed conversion of these units are not dilutive.

F-15

Table of Contents

Report of Independent Registered Public Accounting Firm

The Management of Pine River Capital Management L.P.:

We have audited the accompanying balance sheet of Silver Bay Realty Trust Corp. (the Company), as of August 31, 2012. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Silver Bay Realty Trust Corp. at August 31, 2012, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP
Minneapolis, Minnesota

September 10, 2012

F-16

Table of Contents

SILVER BAY REALTY TRUST CORP.

BALANCE SHEET

AUGUST 31, 2012

(amounts in thousands, except share data)


Assets:
Cash	$	1

Total assets	$	1

Stockholder's Equity:
Common stock, $0.01 par value, 1,000 shares authorized, issued and outstanding	$	—
Additional paid in capital		1

Total stockholder's equity	$	1

The accompanying notes are an integral part of these financial statements.

F-17

Table of Contents

SILVER BAY REALTY TRUST CORP.

NOTES TO THE BALANCE SHEET

Note 1. Organization and Operations

Silver Bay Realty Trust Corp., or the Company, is a newly formed Maryland corporation that intends to focus primarily on the acquisition, renovation, leasing and management of single-family residential properties for investment and to generate rental income. The Company was organized in Maryland on June 29, 2012. Under its Articles of Incorporation, the Company is authorized to issue up to 1,000 shares of common stock. The Company was initially capitalized by issuing 1,000 shares of common stock to PRCM Real Estate Advisers LLC, the Company's external manager, for a par value of $0.01 per share on August 27, 2012. The Company has had no other operations since its formation.

The Company is in the process of preparing for an initial public offering, or the Offering, pursuant to which it proposes to issue common stock to the public. The Company intends to file a Registration Statement on Form S-11 with the Securities and Exchange Commission with respect to a proposed initial public offering of common stock. Concurrently with this offering, the Company will complete formation transactions pursuant to which the Company will acquire through Silver Bay Operating Partnership L.P., or the Operating Partnership, a Delaware limited partnership of which the Company's wholly owned subsidiary will be the sole general partner, certain residential real estate assets in exchange for shares of the Company's common stock, common units in the Operating Partnership and/or cash.

Following the completion of the offering and formation transactions, substantially all of the Company's assets will be held by, and operations will be conducted through the Operating Partnership. The Company will be externally managed by PRCM Real Estate Advisers LLC.

The Company intends to elect and qualify to be taxed as a REIT for U.S. income tax purposes, commencing with the Company's taxable year ending December 31, 2012. The Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent that it annually distributes all of its net taxable income to stockholders and maintains its intended qualification as a REIT. Accordingly the financial statements do not reflect any provisions for income taxes.

Note 2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying balance sheet has been prepared in accordance with U.S. generally accepted accounting principles, or GAAP.

Use of Estimates

The preparation of the balance sheet in conformity with GAAP requires management to make estimates and assumptions that may affect the amounts reported in the balance sheet and related notes. Actual results could differ from these estimates.

Summary of Significant Accounting Policies

Investment in Real Estate

F-18

Table of Contents

SILVER BAY REALTY TRUST CORP.

NOTES TO THE BALANCE SHEET (Continued)

Note 2. Basis of Presentation and Significant Accounting Policies (Continued)

date of acquisition, with acquisition costs expensed as incurred. Fair value is determined under the guidance of ASC 820, Fair Value Measurements and Disclosures, primarily based on unobservable market data inputs, which are categorized as Level 3 valuations. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes its own market knowledge and published market data. The Company is currently utilizing information obtained from county tax assessment records to develop regional averages to allocate the fair value of land and building. The estimated fair value of acquired in-place leases are the costs the Company would have incurred to lease the property at the date of acquisition, based upon the Company's current leasing activity. Building depreciation is computed on the straight-line basis over the estimated useful lives of the assets. The Company will generally use a 27.5-year estimated life with no salvage value. The Company will consider the value of acquired in-place leases in the allocation of purchase price and the amortization period reflects the average remaining term of each respective in-place acquired lease.

The lease periods will generally be short term in nature (one or two years) and reflect market rental rates. Any difference between fair value and cost will be recorded in the income statement.

The Company will incur costs to prepare its acquired properties to be rented. These costs will be capitalized and allocated to building costs. Costs incurred by the Company to lease the properties will be capitalized and amortized over the life of the lease.

The Company will evaluate its long-lived assets for impairment periodically or whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If an impairment indicator exists, the Company will compare the expected future undiscounted cash flows against the carrying amount of an asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, the Company will record an impairment loss for the difference between the estimated fair value and the carrying amount of the asset.

Expenditures for ordinary maintenance and repairs will be expensed to operations as incurred and expenditures for significant renovations that improve the asset and extend the useful life of the asset will be capitalized and depreciated over their estimated useful life.

Cash and Cash Equivalents

The Company considers all demand deposits, money market accounts and investments in certificates of deposit purchased with a maturity of three months or less at the date of purchase to be cash equivalents.

Revenue Recognition

Rental income attributable to residential leases will be recorded on a straight-line basis, which is not materially different than if it were recorded when due from residents and recognized monthly as it was earned. Leases entered into between tenants and the Company for the rental of property units will generally be year-to-year, renewable upon consent of both parties on an annual or monthly basis.

Note 3. Related Party Transactions

The Company will be externally managed by PRCM Real Estate Advisers LLC, or the Manager. Upon closing of the offering, the Company will enter into a Management Agreement with the Manager, pursuant to which the Manager will be responsible for providing all of the management and

F-19

Table of Contents

SILVER BAY REALTY TRUST CORP.

NOTES TO THE BALANCE SHEET (Continued)

Note 3. Related Party Transactions (Continued)

operational services required to conduct the Company's business affairs. The Manager will remain at all times subject to the supervision of the Company's board of directors. The Company has no officers or employees, but rather will depend on the Manager and Silver Bay Property Corp., the Manager's subsidiary, to provide all personnel necessary to conduct the Company's affairs. Under the Management Agreement, the Company will be required to pay the Manager an advisory management fee based on the Company's fully diluted market capitalization, as defined by the agreement.

Note 4. Offering Costs

In connection with the Offering, affiliates of the Company have or will incur legal, accounting, and related costs, which will be reimbursed by the Operating Partnership upon the consummation of the Offering. Such costs will be deducted from the proceeds of this offering.

Note 5. Subsequent Events

Events subsequent to August 31, 2012 were evaluated through the date these financial statements were issued and no additional events were identified requiring further disclosure in these financial statements.

F-20

Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Member of Two Harbors Property Investment LLC:

We have audited the accompanying consolidated balance sheet of Two Harbors Property Investment LLC, (the Company) as of September 30, 2012, and the related consolidated statements of operations, change in member's equity and cash flows for the nine months then ended. Our audit also included the financial statement schedule listed in the accompanying index to the financial statements. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Two Harbors Property Investment LLC at September 30, 2012 and the consolidated results of its operations and its cash flows for the nine months then ended in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Ernst & Young LLP
Minneapolis, Minnesota

November 9, 2012

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Table of Contents

TWO HARBORS PROPERTY INVESTMENT LLC

CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 2012

(amounts in thousands)



ASSETS
Investments in real estate
Land	$	39,377
Buildings and improvements		151,988

		191,365
Accumulated depreciation		(458	)

Net investment in real estate		190,907
Cash and cash equivalents		2,785
Escrow deposits		33,960
Other assets		625

Total Assets	$	228,277

LIABILITIES AND MEMBER'S EQUITY
Liabilities
Accrued property expenses	$	2,526
Tenant prepaid rent and security deposits		584
Amounts due to Parent		1,282

Total liabilities		4,392
Member's Equity
Member's interest		226,250
Cumulative deficit		(2,365	)

Total member's equity		223,885

Total Liabilities and Member's Equity	$	228,277

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

TWO HARBORS PROPERTY INVESTMENT LLC

CONSOLIDATED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2012

(amounts in thousands)



Revenue:
Rental income	$	827

Total revenue		827
Expenses:
Direct property expenses
Property operating and maintenance		776
Real estate taxes		526
Home owner's association fees		162
Property management fees		64
Depreciation and amortization		475
Allocated expenses from Parent:
Advisory management fee		804
General and administrative		296

Total expenses		3,103

Net loss	$	(2,276	)

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

TWO HARBORS PROPERTY INVESTMENT LLC

CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2012

(amounts in thousands)

	Total Equity

Balance, December 31, 2011	$	161
Capital contributions from Parent		226,000
Net loss		(2,276	)

Balance, September 30, 2012	$	223,885

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

TWO HARBORS PROPERTY INVESTMENT LLC

CONSOLIDATED STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2012

(amounts in thousands)


Cash Flows From Operating Activities:
Net loss	$	(2,276	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		475
Net change in assets and liabilities:
Increase in other assets		(642	)
Increase in accrued property expenses		2,526
Increase in tenant prepaid rent and security deposits		584
Increase in due to Parent		1,193

Net cash provided by operating activities		1,860

Cash Flows From Investing Activities:
Purchase of investments in real estate		(178,775	)
Costs for initial property renovation		(12,590	)
Increase in escrow deposits		(33,960	)

Cash used in investing activities		(225,325	)

Cash Flows From Financing Activities:
Proceeds from capital contributions from Parent		226,000

Cash provided by financing activities		226,000

Net increase in cash and cash equivalents		2,535
Cash and cash equivalents at beginning of period		250

Cash and cash equivalents at end of period	$	2,785

The accompanying notes are an integral part of these consolidated financial statements.

F-25

Table of Contents

TWO HARBORS PROPERTY INVESTMENT LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Note 1. Organization and Operations

Two Harbors Property Investment LLC, or the Company, is a Delaware limited liability company formed on September 23, 2011 focused on acquiring residential real properties, consisting of single-family homes, in certain metropolitan areas across the United States. The Company intends to hold the properties for investment and rent them for income. The Company is a wholly owned subsidiary of Two Harbors Operating Company LLC which is a wholly owned subsidiary of Two Harbors Investment Corp., or Two Harbors or Parent.

Two Harbors Investment Corp. has elected to be treated as a real estate investment trust, or REIT, for U.S. federal income tax purposes. As long as Two Harbors continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, it generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its stockholders on an annual basis and does not engage in prohibited transactions. Accordingly the financial statements do not reflect any provision for income taxes. Two Harbors is externally managed and advised by PRCM Advisers LLC, a subsidiary of Pine River Capital Management L.P., or PRCM, an affiliated global multi-strategy asset management firm.

The Company received an initial capital contribution of $250 and incurred organizational costs of $89 in 2011. The Company began formal operations in 2012 by acquiring residential real properties in Arizona, California, Florida, Georgia and Nevada and converting them to rental properties. As of September 30, 2012, the Company has acquired 1,667 properties which have all been financed through capital contributions. The properties have been purchased primarily through foreclosure auctions. Prior to acquisition, the properties were generally owned by their primary residents and were not rental properties.

Note 2. Basis of Presentation and Significant Accounting Policies

Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of all subsidiaries; intercompany accounts and transactions have been eliminated. The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles, or GAAP.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. The Company's estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.

Summary of Significant Accounting Policies

Investment in Real Estate

Property acquired not subject to an existing lease is recorded at purchase price, including acquisition costs, allocated between land and building based upon their fair values at the date of acquisition. Property acquired with an existing lease is recorded at fair value (approximated by the purchase price), allocated to land, building and the existing lease based upon their fair values at the

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Table of Contents

TWO HARBORS PROPERTY INVESTMENT LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands)

Note 2. Basis of Presentation and Significant Accounting Policies (Continued)

date of acquisition, with acquisition costs expensed as incurred. Fair value is determined under the guidance of ASC 820, Fair Value Measurements and Disclosures, primarily based on unobservable market data inputs, which are categorized as Level 3 valuations. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes its own market knowledge and published market data. The Company is currently utilizing information obtained from county tax assessment records to develop regional averages to assist in the determination of the fair value of land and building. The estimated fair value of acquired in-place leases are the costs we would have incurred to lease the property at the date of acquisition, based upon our current leasing activity. Building depreciation is computed on the straight-line basis over the estimated useful lives of the assets. The Company generally uses a 27.5-year estimated life with no salvage value. The Company considers the value of acquired in-place leases in the allocation of purchase price and the amortization period reflects the average remaining term of each respective in-place acquired lease. The lease periods are generally short term in nature (one or two years) and reflect market rental rates. Any difference between fair value and cost is recorded in the income statement.

The Company incurs costs to prepare its acquired properties to be rented. These costs are capitalized and allocated to building costs. Costs incurred by the Company to lease the properties are capitalized and amortized over the life of the lease (included in other assets).

The Company evaluates its long-lived assets for impairment periodically or whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If an impairment indicator exists, the Company compares the expected future undiscounted cash flows against the carrying amount of an asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, the Company would record an impairment loss for the difference between the estimated fair value and the carrying amount of the asset.

Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and expenditures for significant renovations that improve the asset and extend the useful life of the asset are capitalized and depreciated over their estimated useful life.

Cash and Cash Equivalents

The Company maintains its cash and cash equivalents and escrow deposits at financial institutions. The combined account balances at one or more institutions typically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions' non-performance.

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Table of Contents

TWO HARBORS PROPERTY INVESTMENT LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands)

Note 2. Basis of Presentation and Significant Accounting Policies (Continued)

Escrow Deposits

Escrow deposits include refundable and non-refundable cash on deposit with property acquisition managers for property purchases, renovation costs, and earnest money deposits and non-refundable cash on deposit for tenant security deposits.

Revenue Recognition

Rental income attributable to residential leases is recorded on a straight-line basis, which is not materially different than if it were recorded when due from residents and recognized monthly as it was earned. Leases entered into between residents and the Company for the rental of property units are generally year-to-year, renewable upon consent of both parties on an annual or monthly basis.

Note 3. Related Party Transactions

The Company is allocated certain advisory expenses from Two Harbors that relate to the operations of the Company. The Company incurred $804 as an advisory management fee to Two Harbors for the nine months ended September 30, 2012, which represents approximately 1.5% of member's equity on an annualized basis. This fee is based upon the same fee structure incurred by Two Harbors for services provided by PRCM. In addition, the Company is allocated certain direct general and administrative expenses (primarily professional fees and travel costs) paid by Two Harbors to external vendors. For the nine months ended September 30, 2012, the Company was allocated $285 in direct expenses and $214 in prepaid assets for property insurance of which $76 has been expensed and included in property operating and maintenance expense. Amounts due to Parent represent a non-interest bearing liability to Two Harbors that is payable upon demand and is generally settled on a periodic basis. As of September 30, 2012, amounts due Parent totaled $1,282 for allocated expenses.

On February 3, 2012, the Company entered into Acquisition Services and Property Management Agreements with PRCM Real Estate Advisers LLC (f/k/a Silver Bay Property Management LLC), or Silver Bay Property. Silver Bay Property is a joint venture between Provident Real Estate Advisors LLC and an affiliate of PRCM Advisers and PRCM. Under these agreements, Silver Bay Property will assist the Company in identifying and acquiring a portfolio of residential real properties, will operate, maintain, repair, manage and lease the residential properties and collect rental income for the benefit of the Company. Pursuant to these agreements, the Company is obligated to pay Silver Bay Property for these various services as follows: acquisition services, leasing services per property and 6% of gross rental income for property management services plus an annual maintenance fee per rented property. For the nine months ended September 30, 2012, the Company incurred $2,583 in acquisition fees which were capitalized as part of the property acquisition cost, $127 for leasing services, which have been capitalized and are being amortized over the life of the leases (included in other assets, net of accumulated amortization) and $41 in property management, which is included in property management fees. As of September 30, 2012, the Company owes $454 for these services, which is included in accrued property expenses.

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TWO HARBORS PROPERTY INVESTMENT LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands)

Note 4. Commitments and Contingencies

Homeowners' Association Fees

Certain of the Company's properties are located in communities that are subject to homeowners' association fees. The fees are generally billed monthly and subject to annual adjustments. The fees cover the costs of maintaining common areas and are generally paid for by the Company.

Escrow deposits

Escrow deposits include non-refundable cash on deposit for the purchase of properties for an aggregate amount of $557. However, not all of these properties are certain to be acquired as properties may fall out of escrow through the closing process for various reasons. Escrow deposits also include non-refundable cash on deposit for tenant security deposits totaling $479.

Legal

From time to time, the Company is subject to potential liability under various claims and legal actions arising in the ordinary course of business. Liabilities are established for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts established for those claims. Based on information currently available, management is not aware of any legal claims that would have a material effect on the Company's consolidated financial statements and therefore no accrual is required at September 30, 2012.

Note 5. Subsequent Events

Events subsequent to September 30, 2012 were evaluated through the date the financial statements were issued. No additional events were identified requiring further disclosure in these consolidated financial statements.

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TWO HARBORS PROPERTY INVESTMENT LLC

SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF SEPTEMBER 30, 2012

(dollar amounts in thousands)

Location				Initial Cost to Company(1)				Costs Capitalized (Improvements)				Gross Amounts Carried at Close of Period September 30, 2012

County	State	Number of Properties		Land		Depreciable Property		Land		Depreciable Property		Land		Depreciable Property		Total		Accumulated Depreciation(2)			Date of Acquisition
Barrow	GA		1	$	12	$	42	$	—	$	27	$	12	$	69	$	81	$	—			2012
Cabarrus	NC		2		67		226		—		2		67		228		295		—			2012
Cherokee	GA		33		776		2,658		—		359		776		3,017		3,793		(19	)		2012
Clark	NV		126		2,263		12,135		—		899		2,263		13,034		15,297		(38	)		2012
Clayton	GA		3		31		109		—		38		31		147		178		(2	)		2012
Cobb	GA		67		1,489		5,109		—		749		1,489		5,858		7,347		(33	)		2012
Colton	CA		1		28		81		—		—		28		81		109		—			2012
Contra Costa	CA		63		2,841		8,220		—		344		2,841		8,564		11,405		(15	)		2012
Dekalb	GA		22		273		959		—		233		273		1,192		1,465		(3	)		2012
Douglas	GA		22		395		1,371		—		158		395		1,529		1,924		(5	)		2012
Fayette	GA		1		32		107		—		1		32		108		140		—			2012
Forsyth	GA		19		569		1,942		—		252		569		2,194		2,763		(15	)		2012
Fulton	GA		52		1,040		3,597		—		503		1,040		4,100		5,140		(11	)		2012
Gwinette	GA		93		1,859		6,404		—		1,360		1,859		7,764		9,623		(50	)		2012
Hall	GA		1		22		75		—		2		22		77		99		(1	)		2012
Henry	GA		31		727		2,501		—		44		727		2,545		3,272		(1	)		2012
Hillsborough	FL		174		4,216		13,730		—		943		4,216		14,673		18,889		(11	)		2012
Manatee	FL		15		331		1,109		—		18		331		1,127		1,458		—			2012
Maricopa	AZ		360		8,312		33,953		—		2,592		8,312		36,545		44,857		(145	)		2012
Mecklenburg	GA		9		200		694		—		10		200		704		904		—			2012
Napa	GA		1		42		121		—		20		42		141		183		—			2012
Newton	GA		3		45		160		—		53		45		213		258		(1	)		2012
Orange	FL		24		584		1,935		—		239		584		2,174		2,758		(4	)		2012
Pasco	FL		51		1,065		3,570		—		415		1,065		3,985		5,050		(6	)		2012
Paulding	GA		4		43		154		—		57		43		211		254		—			2012
Pima	AZ		150		1,869		7,636		—		1,375		1,869		9,011		10,880		(51	)		2012
Pinellas	FL		52		1,173		3,918		—		194		1,173		4,112		5,285		—			2012
Riverside	CA		81		2,370		6,894		—		145		2,370		7,039		9,409		(3	)		2012
Rockdale	GA		5		50		179		—		77		50		256		306		(2	)		2012
San Bernardino	CA		45		1,426		4,155		—		155		1,426		4,310		5,736		(4	)		2012
Sarasota	FL		42		873		2,925		—		209		873		3,134		4,007		(1	)		2012
Seminole	FL		10		260		847		—		82		260		929		1,189		(1	)		2012
Solano	CA		103		4,080		11,835		—		1,023		4,080		12,858		16,938		(36	)		2012
Walton	GA		1		14		47		—		12		14		59		73		—			2012

Total			1667	$	39,377	$	139,398	$	—	$	12,590	$	39,377	$	151,988	$	191,365	$	(458	)

(1): All properties acquired to date for cash and no debt has been incurred.
(2): Except for amounts attributed to land, real estate related assets are depreciated over their estimated useful lives of 27.5 years using the straight-line method.

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TWO HARBORS PROPERTY INVESTMENT LLC

SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

AS OF SEPTEMBER 30, 2012

(dollar amounts in thousands)

A summary of activity for real estate and accumulated depreciation for the nine-month period ended September 30, 2012 is as follows:

Investments in Real Estate (includes the following balance sheet line items: land and buildings):


Balance as of January 1, 2012	$	—
Acquisitions		178,775
Improvements		12,590

Balance as of September 30, 2012	$	191,365

Accumulated depreciation (includes balance sheet line items under investments in real estate):


Balance as of January 1, 2012	$	—
Depreciation expense		(458	)

Balance as of September 30, 2012	$	(458	)

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Report of Independent Auditors

The Management of Pine River Capital Management L.P.:

We have audited the accompanying combined statements of revenues and certain operating expenses of the Provident Entities (as defined in Note 1) for the years ended December 31, 2011 and 2010. These financial statements are the responsibility of the management of the Provident Entities. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Provident Entities' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Form S-11 of Silver Bay Realty Trust Corp. as described in Note 1, and are not intended to be a complete presentation of the Provident Entities' revenues and expenses.

In our opinion, the financial statements referred to above presents fairly, in all material respects, the combined revenues and certain operating expenses, as described in Note 1, of the Provident Entities for the years ended December 31, 2011 and 2010, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP
Minneapolis, Minnesota

September 10, 2012

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PROVIDENT ENTITIES

COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

(amounts in thousands)

	Nine Months Ended September 30,				Year Ended December 31,

	2012		2011		2011		2010
	(unaudited)
Revenues:
Rental income	$	7,351	$	3,404	$	5,095	$	1,739
Other income		191		130		187		138

Total revenue		7,542		3,534		5,282		1,877
Operating Expenses:
Property operating and maintenance		1,440		654		1,767		417
Real estate taxes		1,274		568		883		264
Home owner's association fees		921		479		790		272
Property management fees		531		229		354		120

Total expenses		4,166		1,930		3,794		1,073

Revenues in excess of certain operating expenses	$	3,376	$	1,604	$	1,488	$	804

The accompanying notes are an integral part of these combined financial statements.

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PROVIDENT ENTITIES

NOTES TO THE COMBINED STATEMENTS OF REVENUES
AND CERTAIN OPERATING EXPENSES

Note 1. General Information

Silver Bay Realty Trust Corp. ("the Company") anticipates entering a merger agreement or contribution agreement with the members of five limited liability companies (the "Provident Entities") managed by Provident Real Estate Advisors LLC ("Provident"). The Provident Entities own and operate single-family home rental properties located in the southeastern and southwestern United States, whereby the members of the five LLCs have the option to either: (i) contribute their ownership interests in exchange for ownership units in the Company's newly formed operating partnership, (ii) exchange their ownership interests for shares of the Company or (iii) exchange their ownership interests for cash.

The accompanying combined statements include the revenues and certain operating expenses of single-family home rental operations of the Provident Entities. The homes have been purchased primarily through foreclosure auctions. Prior to acquisition, the homes were generally owned by their primary residents and were not rental properties. Provident began acquiring the homes in 2009, acquired its last home in March, 2012. All utilities and certain general maintenance costs (primarily yard maintenance) are the responsibility of the tenant. The accompanying combined statements of revenues and certain operating expenses include the operations of the homes during the period in which they were owned and had rental operations. The Provident Entities are not a legal entity, but rather a combination of limited liability companies under common control and management of Provident.

The accompanying combined statements of revenues and certain operating expenses have been prepared on the accrual basis of accounting for the purpose of complying with Rule 3-14 of Regulation S-X of the U.S. Securities and Exchange Commission (the "Commission") for inclusion on Form S-11 of the Company. Accordingly, certain historical expenses that may not be comparable to the expenses expected to be incurred in the future have been excluded. The combined statements of revenues and certain operating expenses exclude the following items that are not comparable to the proposed future operations of the acquired properties: depreciation and amortization and other overhead costs not directly related to the future operations of the Company. The accompanying combined statements of revenues and certain operating expenses for the nine months ended September 30, 2012 and 2011 are unaudited. In the opinion of management, all normal and recurring adjustments necessary to present fairly the revenues and certain operating expenses of the Provident Entities for the unaudited periods presented have been made. The results for the nine months ended September 30, 2012 should not be construed as indicative of the results to be expected for the full year.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and certain operating expenses during the reporting period. Actual results could differ from those estimates.

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PROVIDENT ENTITIES

NOTES TO THE COMBINED STATEMENTS OF REVENUES
AND CERTAIN OPERATING EXPENSES (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

Revenue Recognition

Rental income attributable to leases is recorded when earned from residents. Leases entered into by tenants are primarily one year and are renewable by mutual agreement of the Provident Entities and residents. Rent received in advance is deferred and recognized in income when earned.

Repair and Maintenance

The initial costs to make a home ready for rental are capitalized. Once a home is made rent ready, ongoing expenditures for repairs and maintenance are expensed as incurred.

Note 3. Property Management Fees

From inception until the transition to Silver Bay (described below), the Provident Entities' rental operations were managed by local property management companies who were compensated according to the individually negotiated management and leasing agreements. The management fees were based upon a combination of percentage of gross collected rent and/or a minimum flat fee per home. The management fees as a percentage of gross collected rent ranged from 0% to 7% and the minimum flat fee per home ranged from $0 to $60 per month. The leasing fees ranged from $500 to $600 for each new tenant and from $50 to $500 for each lease renewal.

Beginning in March 2012, management of the Provident Entities began a transition to Silver Bay Property Corp. (Silver Bay), an affiliate through common ownership. Silver Bay provides property management, maintenance and leasing services and is compensated based upon the Property Management Agreements established with each of the five LLCs. The management fee is the greater of 6% of gross collected rent or $50 per home per month. During the nine months ended September 30, 2012, Silver Bay earned approximately $150 from the Provident Entities, all of which is included in property management fees expense within the combined statement.

Note 4. Subsequent Events

Events subsequent to September 30, 2012 were evaluated through the date these financial statements were issued and no additional events were identified requiring further disclosure in these combined financial statements.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 31. Other Expenses of Issuance and Distribution.

The following table shows the fees and expenses, other than underwriting discounts and commissions, to be paid by us in connection with the sale and distribution of the securities being registered hereby. All amounts except for the SEC registration fee and the FINRA filing fee are estimated.


SEC registration fee	$	35,301
Financial Industry Regulatory Authority, Inc. (FINRA) filing fee		46,213
Exchange/market listing fee		165,000
Legal fees and expenses (including blue sky fees)		2,110,000
Accounting fees and expenses		919,000
Printing and engraving expenses		250,000
Transfer agent fees and expenses		50,000
Miscellaneous fees and expenses		124,486

Total	$	3,700,000

Item 32. Sales to Special Parties.

On August 27, 2012, in connection with our formation, we issued 1,000 shares of our common stock to PRCM Real Estate Advisers LLC, our Manager, for total consideration of $1,000 in cash in order to provide for our initial capitalization. We will repurchase these shares at cost upon the closing of this offering.

Item 33. Recent Sales of Unregistered Securities.

On August 27, 2012, in connection with our formation, we issued 1,000 shares of our common stock to PRCM Real Estate Advisers LLC, our Manager, for total consideration of $1,000 in cash in order to provide for our initial capitalization. Such issuance was exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") pursuant to Section 4(2) thereof.

In connection with the Formation Transactions, we will issue an aggregate of 23,935,073 shares of common stock and 27,295 common units in the Operating Partnership with an aggregate value of approximately $455 million, based on the midpoint of the price range set forth on the front cover of the prospectus that forms a part of this registration statement, to affiliates of Two Harbors and Provident that are transferring interests to us in the entities that own our properties and other assets prior to the Formation Transactions in consideration of such transfer. In addition, we will issue to Two Harbors 1,000 shares of our cumulative redeemable preferred stock with a $1 million aggregate liquidation preference in connection with the Formation Transactions. Each such person had a substantive, pre-existing relationship with us. The issuance of such shares and common units will be effected in reliance upon exemptions from registration provided by Section 4(2) of the Securities Act.

Item 34. Indemnification of Directors and Officers.

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action. Our charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law.

The Maryland General Corporation Law, or the MGCL, requires us (unless our charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made or threatened to be made a party by reason of his service in that capacity. The MGCL permits us to indemnify our present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that (i) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (A) was committed in bad faith or (B) was the result of active and deliberate dishonesty; (ii) the director or officer actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. Under the MGCL, a Maryland corporation may not indemnify a director or officer in a suit by or in the right of the corporation in which the director or officer was adjudged liable on the basis that personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by us or in our right, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. In addition, the MGCL permits us to advance reasonable expenses to a director or officer upon our receipt of (i) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by us and (ii) a written undertaking by the director or officer or on the director's or officer's behalf to repay the amount paid or reimbursed by us if it is ultimately determined that the director or officer did not meet the standard of conduct.

Under the management agreement, our Manager maintains a contractual as opposed to a fiduciary relationship with us which limits our Manager's obligations to us to those specifically set forth in the management agreement. The ability of our Manager and its officers and employees to engage in other business activities may reduce the time our Manager spends managing us. In addition, unlike for directors, there is no statutory standard of conduct under the MGCL for officers of a Maryland corporation. Instead, officers of a Maryland corporation, including officers who are employees of our Manager, are subject only to general agency principles, including the exercise of reasonable care and skill in the performance of their responsibilities, as well as the duties of loyalty, good faith and candid disclosure.

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We expect to enter into indemnification agreements with each of our directors and executive officers that provide for indemnification to the maximum extent permitted by Maryland law.

Item 35. Treatment of Proceeds from Stock Being Registered.

None of the proceeds will be credited to an account other than the appropriate capital share account.

Item 36. Financial Statements and Exhibits.

(a) Financial Statements. See page F-1 for an index to the financial statements and schedules included in this registration statement.

(b) Exhibits. The attached Exhibit Index is incorporated herein by reference.

Item 37. Undertakings.

(a) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of this registration statement in reliance under Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or Rule 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this Amendment No. 4 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on December 3, 2012.


		SILVER BAY REALTY TRUST CORP.
		By:		/s/ DAVID N. MILLER David N. Miller President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 4 to the registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Capacity	Date


/s/ DAVID N. MILLER David N. Miller	President, Chief Executive Officer and Director (Principal Executive Officer)	December 3, 2012
/s/ CHRISTINE BATTIST Christine Battist	Chief Financial Officer (Principal Financial and Accounting Officer)	December 3, 2012

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EXHIBIT INDEX

		Exhibit Description

1.1	*	Form of Underwriting Agreement.
2.1		Contribution Agreement to be entered into by and among Silver Bay Realty Trust Corp., Silver Bay Operating Partnership L.P., and Two Harbors Operating Company LLC.†
2.2	**	Contribution Agreement to be entered into by and among Silver Bay Realty Trust Corp., Silver Bay Operating Partnership L.P. and the members of Polar Cactus LLC.†
2.3	**	Contribution Agreement to be entered into by and among Silver Bay Realty Trust Corp., Silver Bay Operating Partnership L.P. and the members of Polar Cactus II LLC.†
2.4	**	Contribution Agreement to be entered into by and among Silver Bay Realty Trust Corp., Silver Bay Operating Partnership L.P. and the members of Cool Willow LLC.†
2.5	**	Agreement and Plan of Merger to be entered into by and among Silver Bay Realty Trust Corp., Silver Bay Operating Partnership L.P., SB RESI I Merger Sub LLC and Provident Residential Real Estate Fund LLC.†
2.6	**	Agreement and Plan of Merger to be entered into by and among Silver Bay Realty Trust Corp., Silver Bay Operating Partnership L.P., SB RESI II Merger Sub LLC and Resi II LLC.†
2.7	**	Representation, Warranty and Indemnification Agreement by and among Silver Bay Realty Trust Corp., Silver Bay Operating Partnership L.P. and Provident Real Estate Advisors LLC.†
3.1	**	Articles of Incorporation of Silver Bay Realty Trust Corp., as currently in effect.
3.2	**	Bylaws of Silver Bay Realty Trust Corp., as currently in effect.
3.3	**	Articles of Amendment and Restatement of Silver Bay Realty Trust Corp. to be effective upon completion of this offering.
3.4		Articles Supplementary for Cumulative Redeemable Preferred Stock of Silver Bay Trust Corp. to be effective upon completion of this offering.
3.5	**	Amended and Restated Bylaws of Silver Bay Realty Trust Corp. to be effective upon completion of this offering.
4.1	**	Specimen Common Stock Certificate of Silver Bay Realty Trust Corp.
5.1		Opinion of Ballard Spahr LLP regarding the validity of the securities being registered.
8.1		Opinion of Orrick, Herrington & Sutcliffe LLP regarding certain tax matters.
10.1	**	Limited Partnership Agreement of Silver Bay Operating Partnership L.P., as currently in effect.
10.2		Amended and Restated Limited Partnership Agreement of Silver Bay Operating Partnership L.P. to be effective upon completion of this offering.
10.3	**	Management Agreement to be entered into by and among Silver Bay Realty Trust Corp., Silver Bay Operating Partnership L.P. and PRCM Real Estate Advisers LLC.
10.4	**	Property Management and Acquisition Services Agreement to be entered into by and between Silver Bay Operating Partnership L.P. and Silver Bay Property Corp.
10.5	**	Registration Rights Agreement to be entered into by and among Silver Bay Realty Trust Corp., Two Harbors Investment Corp. and certain holders of shares of common stock in Silver Bay Realty Trust Corp.
10.6	**	Registration Rights Agreement to be entered into by and among Silver Bay Realty Trust Corp. and certain holders of common units in Silver Bay Operating Partnership L.P.
10.7	**	Director Designation Agreement to be entered into by and between Silver Bay Realty Trust Corp. and Two Harbors Investment Corp.

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		Exhibit Description

10.8		Silver Bay Realty Trust Corp. 2012 Equity Incentive Plan.
10.9	**	Form of Restricted Stock Agreement under the 2012 Equity Incentive Plan.
10.10	**	Indemnification Agreement to be entered into by and between Silver Bay Realty Trust Corp. and certain officers and directors.
21.1	**	List of Subsidiaries.
23.1		Consent of Ernst & Young LLP.
23.2		Consent of Ballard Spahr LLP (included in Exhibit 5.1).
23.3		Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 8.1).
24.1	**	Power of Attorney.
99.1	**	Consent of Director Nominee of Brian C. Taylor.
99.2	**	Consent of Director Nominee of Irvin R. Kessler.
99.3	**	Consent of Director Nominee of Thomas Siering.
99.4	**	Consent of Director Nominee of Tanuja M. Dehne.
99.5	**	Consent of Director Nominee of William W. Johnson.
99.6	**	Consent of Director Nominee of Stephen G. Kasnet.
99.7		Consent of Director Nominee Thomas W. Brock.
99.8		Consent of Director Nominee Ronald N. Weiser.

*: To be filed by amendment.
**: Previously filed.
†: The schedules and exhibits to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally a copy of any such omitted schedules or exhibits to the SEC upon request.

EX-2.1 2 a2211979zex-2_1.htm EX-2.1

Exhibit 2.1

CONTRIBUTION AGREEMENT

DATED AS OF , 2012

BY AND AMONG

SILVER BAY REALTY TRUST CORP.,
a Maryland corporation

SILVER BAY OPERATING PARTNERSHIP L.P.,
a Delaware limited partnership

AND

TWO HARBORS OPERATING COMPANY LLC,
a Delaware limited liability company

TABLE OF CONTENTS

			Page

ARTICLE I	CONTRIBUTION		2
Section 1.01.		CONTRIBUTION TRANSACTION; ASSIGNMENT AND ASSUMPTION	2
Section 1.02.		CONSIDERATION	2
Section 1.03.		FRACTIONAL INTEREST	2
Section 1.04.		FURTHER ACTION; MUTUAL COVENANTS AND OTHER AGREEMENTS	2
ARTICLE II	CLOSING		4
Section 2.01.		CONDITIONS PRECEDENT	4
Section 2.02.		TIME AND PLACE	7
Section 2.03.		DELIVERY OF CONTRIBUTION CONSIDERATION	7
Section 2.04.		CLOSING DELIVERIES	7
Section 2.05.		CLOSING COSTS	8
Section 2.06.		TERM OF THE AGREEMENT	8
Section 2.07.		EFFECT OF TERMINATION	8
Section 2.08.		TAX WITHHOLDING	8
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF THE REIT AND THE OPERATING PARTNERSHIP		8
Section 3.01.		ORGANIZATION; AUTHORITY	8
Section 3.02.		DUE AUTHORIZATION	9
Section 3.03.		CONSENTS AND APPROVALS	9
Section 3.04.		NO VIOLATION	9
Section 3.05.		VALIDITY OF REIT SHARES	10
Section 3.06.		OUTSTANDING EQUITY	10
Section 3.07.		LITIGATION	10
Section 3.08.		ORGANIZATIONAL DOCUMENTS	10
Section 3.09.		REIT STATUS	10
Section 3.10.		COMPLIANCE WITH LAWS	10
Section 3.11.		LIMITED ACTIVITIES	10
Section 3.12.		FORMATION TRANSACTION DOCUMENTATION	10
Section 3.13.		NO UNTRUE STATEMENT	11

TABLE OF CONTENTS

(continued)

			Page

Section 3.14.		KNOWLEDGE OF TWO HARBORS OR TWO HARBORS LLC	11
Section 3.15.		NO OTHER REPRESENTATIONS OR WARRANTIES; SURVIVAL	11
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF TWO HARBORS LLC AND TWO HARBORS		11
Section 4.01.		ORGANIZATION; AUTHORITY	11
Section 4.02.		DUE AUTHORIZATION	12
Section 4.03.		OWNERSHIP OF CONTRIBUTED INTERESTS	12
Section 4.04.		CAPITALIZATION	13
Section 4.05.		CONSENTS AND APPROVALS	13
Section 4.06.		NO VIOLATION	13
Section 4.07.		LICENSES AND PERMITS	14
Section 4.08.		LITIGATION	14
Section 4.09.		COMPLIANCE WITH LAWS/RESTRICTIONS	15
Section 4.10.		PROPERTIES	15
Section 4.11.		FINANCIAL STATEMENTS	16
Section 4.12.		CONDITION OF PROPERTIES	16
Section 4.13.		INSURANCE	16
Section 4.14.		ENVIRONMENTAL MATTERS	17
Section 4.15.		EMINENT DOMAIN	17
Section 4.16.		TAXES	17
Section 4.17.		INSOLVENCY	18
Section 4.18.		EMPLOYEES	18
Section 4.19.		CONTRACTS AND COMMITMENTS	18
Section 4.20.		NO SIDE LETTERS	18
Section 4.21.		PRE-CLOSING COVENANTS	18
Section 4.22.		INVESTMENT	18
Section 4.23.		NO OTHER REPRESENTATIONS OR WARRANTIES	18
Section 4.24.		SOME REPRESENTATIONS AND WARRANTIES LIMITED	18
Section 4.25.		KNOWLEDGE OF REIT OR MANAGER	19

TABLE OF CONTENTS

(continued)

			Page

Section 4.26.		SURVIVAL OF REPRESENTATIONS AND WARRANTIES	19
ARTICLE V	COVENANTS AND OTHER AGREEMENTS		19
Section 5.01.		PRE-CLOSING COVENANTS OF TWO HARBORS LLC	19
Section 5.02.		AMENDMENT OF FORMATION TRANSACTION DOCUMENTATION	21
Section 5.03.		COMMERCIALLY REASONABLE EFFORTS BY THE OPERATING PARTNERSHIP AND TWO HARBORS LLC	21
Section 5.04.		TAX MATTERS	21
Section 5.05.		ADDITIONAL CONSIDERATION	22
Section 5.06.		ACQUISITION CASH AND RENOVATION CASH CONTRIBUTION	23
Section 5.07.		POST-CLOSING COVENANTS	23
ARTICLE VI	INDEMNIFICATION		25
Section 6.01.		INDEMNIFICATION OF CONSOLIDATED ENTITIES	25
Section 6.02.		INDEMNIFICATION OF TWO HARBORS	25
Section 6.03.		CLAIMS	26
Section 6.04.		AUTHORIZATION	27
Section 6.05.		REIT SAVINGS PROVISION	27
ARTICLE VII	GENERAL PROVISIONS		28
Section 7.01.		NOTICES	28
Section 7.02.		DEFINITIONS	28
Section 7.03.		COUNTERPARTS	34
Section 7.04.		ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES	34
Section 7.05.		GOVERNING LAW	34
Section 7.06.		ASSIGNMENT	34
Section 7.07.		JURISDICTION	34
Section 7.08.		DISPUTE RESOLUTION	34
Section 7.09.		SEVERABILITY	35
Section 7.10.		RULES OF CONSTRUCTION	35
Section 7.11.		EQUITABLE REMEDIES	36
Section 7.12.		TIME OF THE ESSENCE	36

iii

TABLE OF CONTENTS

(continued)

		Page

Section 7.13.	DESCRIPTIVE HEADINGS	36
Section 7.14.	NO PERSONAL LIABILITY CONFERRED	36
Section 7.15.	AMENDMENTS	36

Schedules and Exhibits

Schedule 3.01(c)	Operating Partnership Subsidiaries
Schedule 4.01(c)	Subsidiaries of Two Harbors Property
Schedule 4.04	Members of Two Harbors Property and Subsidiaries, Ownership Interests, Shares of Consideration
Schedule 4.07	Licenses and Permits
Schedule 4.10(a)	Properties
Schedule 4.10(b)	Contracts
Schedule 4.10(d)	Leases
Schedule 4.13	Insurance
Schedule 4.16	Taxes
Schedule 4.19	Rights to Purchase
Schedule 4.20	Side Letters
Schedule 5.05	Additional Consideration
Exhibit A	LIST OF PARTICIPATING ENTITIES
Exhibit B	OPERATING PARTNERSHIP AGREEMENT
Exhibit C	MANAGEMENT AGREEMENT
Exhibit D	PROPERTY MANAGEMENT AND ACQUISITION SERVICES AGREEMENT
Exhibit E	EXTENDED LOCK-UP AGREEMENT
Exhibit F	REGISTRATION RIGHTS AGREEMENT FOR REIT SHARES ISSUED TO TWO HARBORS AND THE PRE-FORMATION PARTICIPANTS IN THE PROVIDENT ENTITIES
Exhibit G	DIRECTOR DESIGNATION AGREEMENT
Exhibit H	CHARTER AND BYLAWS OF THE REIT
Exhibit I	FORMATION TRANSACTION DOCUMENTATION
Exhibit J	AUTOMATED VALUATION MODEL

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT is made and entered into as of 2012 (this “Agreement”), by and among Silver Bay Operating Partnership L.P., a Delaware limited partnership (the “Operating Partnership”), Silver Bay Realty Trust Corp., a Maryland corporation (the “REIT”), Two Harbors Operating Company LLC, a Delaware limited liability company (“Two Harbors LLC”), and for the purposes of ARTICLE IV, ARTICLE V and ARTICLE VI, Two Harbors Investment Corp. (“Two Harbors”). Certain capitalized terms are defined in Section 7.02 of this Agreement.

RECITALS

WHEREAS, the REIT desires to consolidate the ownership of a portfolio of properties currently owned, directly or indirectly, by certain entities each as described on Exhibit A hereto;

WHEREAS, Two Harbors LLC owns 100% of the interests in Two Harbors Property Investment LLC (“Two Harbors Property”).

WHEREAS, pursuant to this Agreement, concurrently with the completion of the IPO (as defined below), Two Harbors LLC shall contribute to the REIT all of Two Harbors LLC’s interest in Two Harbors Property, and the REIT shall acquire from Two Harbors LLC all of Two Harbors LLC’s right, title and interest in Two Harbors Property that it will immediately transfer to the Operating Partnership;

WHEREAS, concurrently with the execution of this Agreement, the REIT and the Operating Partnership will enter into contribution agreements with holders of interests in certain Provident Entities (the “Contribution Entities”) identified on Exhibit A hereto, pursuant to which, concurrently with the contribution described in the preceding paragraph, each such contributor shall contribute to the Operating Partnership all of such contributor’s interests in the applicable Contribution Entity and the Operating Partnership shall acquire from each such contributor all of such contributor’s right, title and interest as a holder of the interests in such Contribution Entities;

WHEREAS, concurrently with the execution of this Agreement, the REIT and the Operating Partnership will enter into agreements and plans of merger with each Provident Entity identified as a “Merger Entity” on Exhibit A (collectively, the “Merger Entities”), pursuant to which, concurrently with the contributions identified in the preceding paragraphs, a separate wholly owned Subsidiary of the Operating Partnership will merge with and into each Merger Entity;

WHEREAS, the Formation Transactions relate to the proposed initial public offering (the “IPO”) of the common stock, par value $0.01 per share of the REIT (“REIT Shares”), under a Form S-11 Registration Statement initially filed on September 11, 2012 (File No. 333-183838), as the same may be amended from time to time (the “Registration Statement”), immediately following which the REIT will contribute the IPO proceeds to the Operating Partnership concurrently with the mergers and contributions described above and will elect to be taxed and operate as a real estate investment trust within the meaning of Section 856 of the Code, externally managed by PRCM Real Estate Advisers LLC; and

WHEREAS, all necessary approvals have been obtained by each of the REIT, the Operating Partnership and Two Harbors LLC to consummate the transactions contemplated herein and by the other Formation Transaction Documentation.

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and other terms contained in this Agreement, the parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE I
CONTRIBUTION

Section 1.01. CONTRIBUTION TRANSACTION; ASSIGNMENT AND ASSUMPTION.

(a) At the Closing (as defined below) and subject to the terms and conditions contained in this Agreement:

(i) Two Harbors LLC hereby contributes, assigns, sets over, transfers, conveys and delivers to the REIT, absolutely and unconditionally and free and clear of all Liens, all of its right, title and interest in and to Two Harbors Property, including all rights to indemnification in favor of Two Harbors LLC under the LLC Agreement;

(ii) immediately following the transfer described in Section 1.01(a)(i), the REIT hereby contributes, assigns, sets over, transfers, conveys and delivers to the Operating Partnership, absolutely and unconditionally and free and clear of all Liens, all of its right, title and interest in and to Two Harbors Property;

(iii) the REIT accepts the assignment by Two Harbors LLC, the Operating Partnership accepts the assignment by the REIT, and the Operating Partnership agrees to be bound by the terms of the LLC Agreement and undertakes, assumes and agrees punctually and faithfully to perform, pay or discharge when due and otherwise in accordance with its terms, all agreements, covenants, conditions, obligations and liabilities of Two Harbors LLC with respect to Two Harbors Property on or after the Closing Date (as defined below).

(b) All of the parties hereto agree that, as a result of the assignment and assumptions hereunder, for purposes of the LLC Agreement, the Operating Partnership shall become the sole member and manager of Two Harbors Property.

Section 1.02. CONSIDERATION. At Closing, subject to the terms and conditions contained in this Agreement, including Section 1.03, in exchange for its interest in Two Harbors Property, Two Harbors LLC shall receive (a) the number of REIT Shares equal to the Contribution Consideration minus the number of REIT Shares equal to the Redeemable Preferred Purchase Price divided by the IPO Price and (b) 1,000 Redeemable Preferred Shares. If the payment of REIT Shares would result in a violation of the restrictions on ownership and transfer set forth in Section 7.2.1 of the REIT’s charter (the “Ownership Limits”), the Board of Directors of the REIT shall grant Two Harbors LLC an exception with respect to the Ownership Limits.

Section 1.03. FRACTIONAL INTEREST. No fractional REIT Shares shall be issued pursuant to this Agreement. All fractional REIT Shares that Two Harbors LLC would otherwise be entitled to receive as a result of its contribution and the other Formation Transactions shall be aggregated, and Two Harbors LLC shall receive the number of whole REIT Shares resulting from such aggregation and, in lieu of any fractional REIT Share resulting from such aggregation, an amount in cash determined by multiplying that fraction of a REIT Shares to which Two Harbors LLC would otherwise have been entitled, by the IPO Price. No interest will be paid or will accrue on any cash paid or payable in lieu of any fractional REIT Share.

Section 1.04. FURTHER ACTION; MUTUAL COVENANTS AND OTHER AGREEMENTS.

(a) If, at any time after the Closing, the REIT shall determine or be advised that any deeds, bills of sale, assignments, assurances or other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the REIT or the Operating Partnership all of the right, title or interest in or to Two Harbors Property or otherwise to carry out this Agreement, Two Harbors LLC shall execute and deliver all such deeds, bills of sale, assignments and assurances and take and do all such other reasonable actions and things as may be reasonably necessary or desirable to vest, perfect or confirm any and all right, title and interest in Two Harbors Property or otherwise to carry out this Agreement at the REIT’s cost.

(b) After the Closing, except in the case of any action by one party or its affiliate against the other party or its affiliates, each party will use its commercially reasonable efforts to make available to the other, upon written request, the former, current and future directors, officers, employees, other personnel and agents of such party as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents are reasonably requested in connection with any action in which the requesting party may from time to time be involved or any other reasonable business purpose, regardless of whether, in the case of an action, such action is a matter with respect to which indemnification may be sought hereunder.

(c) Each of Two Harbors and the REIT agrees to provide, or cause to be provided, to each other as soon as reasonably practicable after written request therefor, any information in the possession or under the control of such party that the requesting party reasonably needs: (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities laws) by Law or by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any regulatory, judicial or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation, subpoena or other similar requirements, (iii) to comply with its obligations under this Agreement or (iv) in connection with its ongoing businesses as it relates to the conduct of such businesses, as the case may be; provided, however, that in the event that any party determines that any such provision of information could be commercially detrimental, violate any law or agreement, or waive any privilege, the parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence.

(d) The parties will keep strictly confidential any and all proprietary, technical, business, marketing, sales and other information disclosed to another party in connection with the performance of this Agreement and the preparation of the registration statement (the “Confidential Information”), and will not disclose the same or any part thereof to any third party, or use the same for their own benefit or for the benefit of any third party. The obligations of secrecy and nonuse as set forth herein will survive the termination of this Agreement for a period of five years. Excluded from this provision is any information available in the public domain and any information disclosed to any of the parties by a third party who is not in breach of confidentiality obligations owed to another person or entity. Notwithstanding the foregoing, each party may disclose Confidential Information to (i) to its bankers, attorneys, accountants and other advisors subject to the same confidentiality obligations imposed herein and (ii) as may be required by Law from time to time.

(e) Two Harbors has the right, but not the obligation, following the consummation of the IPO, to effect the distribution of some or all of its REIT Shares to its stockholders (the “Distribution”). Two Harbors shall (in its sole and absolute discretion) determine whether to effect the

Distribution and, if so, the date of its consummation and all of its terms, including (i) the form, structure and terms of any transaction(s) and/or offering(s) to effect the Distribution; (ii) the timing of and conditions to the consummation of the Distribution; (iii) the selection of any investment banker(s) and manager(s) and (iv) the selection of any financial printer, solicitation, and/or exchange agent and financial, legal, accounting and other advisors. In addition, Two Harbors may, at any time and from time to time until the completion of the Distribution, modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or a part of the Distribution. At the request of Two Harbors, the REIT shall cooperate with Two Harbors as reasonably required to accomplish the Distribution and shall, at the direction of Two Harbors, promptly take any and all actions reasonably necessary or desirable to effect the Distribution.

(f) After the Closing Date (i) each party shall maintain in effect at its own cost and expense adequate systems and controls for its business to the extent necessary to enable the other party to satisfy its reporting, accounting, audit and other obligations in compliance with all applicable Law and stock exchange requirements and (ii) each party shall provide, or cause to be provided, to the other party in such form as such requesting party shall request all financial and other data and information as the requesting party determines necessary or advisable in order to prepare its financial statements and reports or filings with any Governmental Authority.

(g) Any information owned by a party that is provided to a requesting party pursuant to this Agreement shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such information.

ARTICLE II
CLOSING

Section 2.01. CONDITIONS PRECEDENT.

(a) Condition to Each Party’s Obligations. The respective obligation of each party to effect the contributions contemplated by this Agreement and to consummate the other transactions contemplated hereby to occur on the Closing Date is subject to the satisfaction or waiver on or prior to the Closing of the following conditions:

(i) Registration Statement. The Registration Statement shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings by the Securities and Exchange Commission (“SEC”) seeking a stop order. This condition may not be waived by any party.

(ii) No Injunction. No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, judgment, injunction or other order (whether temporary, preliminary or permanent), in any case which is in effect and which prevents or prohibits consummation of any of the transactions contemplated in this Agreement nor shall any of the same brought by a Governmental Authority of competent jurisdiction be pending that seeks the foregoing.

(iii) Preferred Stock Purchaser. Two Harbors LLC shall have entered into a stock purchase agreement for the sale of the Redeemable Preferred Shares from Two Harbors LLC to a third-party purchaser who is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act of 1933).

(iv) Operating Partnership Agreement. The Operating Partnership Agreement, in substantially the form attached hereto as Exhibit B shall have been executed and delivered by the partners of the Operating Partnership and shall be in full force and effect and, except as

contemplated by Section 2.03 or the other Formation Transaction Documentation, shall not have been amended or modified.

(v) IPO Closing. The closing of the IPO shall occur substantially concurrently with the Closing.

(vi) Consents, Etc. All necessary consents and approvals of Governmental Authorities or third parties for Two Harbors, Two Harbors Property, Two Harbors LLC, the REIT, the Operating Partnership and any other party to the Formation Transaction Documentation to consummate the transactions contemplated hereby shall have been obtained.

(vii) Formation Transactions. The Formation Transactions shall have been or shall simultaneously be consummated in accordance with their terms and the timing set forth in the respective Formation Transaction Documentation.

(viii) Management Agreement. The REIT shall have received a copy of the Management Agreement in substantially the form attached as Exhibit C executed by the parties thereto.

(ix) Property Management and Acquisition Services Agreement. The Operating Partnership shall have received a copy of the Property Management and Acquisition Services Agreement in substantially the form attached as Exhibit D executed by the parties thereto.

(x) Shared Services Agreement. That certain Shared Services and Facilities Agreement by and between the Manager and Pine River Domestic Management L.P. shall have been executed and delivered by the parties thereto.

(xi) Mutual Shared Services Agreement. That certain Mutual Shared Services Agreement by and between the Manager and the Operating Subsidiary shall have been executed and delivered by the parties thereto.

(b) Conditions to Obligations of the REIT and the Operating Partnership. The obligations of the REIT and the Operating Partnership are further subject to satisfaction of the following conditions (any of which may be waived by the REIT and the Operating Partnership in whole or in part):

(i) Representations and Warranties. Except as would not have a Two Harbors Material Adverse Effect, the representations and warranties of Two Harbors LLC and Two Harbors contained in this Agreement shall be true and correct in all material respects at the Closing as if made again at that time (except to the extent that any representation or warranty speaks as of an earlier date, in which case it must be true and correct only as of that earlier date).

(ii) Performance by Two Harbors LLC. Two Harbors LLC shall have performed each of the agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date and Two Harbors LLC shall not have breached any of its covenants contained herein in any material respect.

(iii) No Material Adverse Change. There shall have not occurred between the date hereof and the Closing Date a Two Harbors Material Adverse Effect.

(iv) Lock-Up Agreements.

(A) Two Harbors shall have entered into a lock-up agreement providing for a 90-day lock-up period in accordance with the Underwriting Agreement.

(B) Each officer and director of the REIT named in the Registration Statement shall have entered into a lock-up agreement providing for a 180-day lock-up period in accordance with the Underwriting Agreement.

(C) Irvin Kessler and each partner of Pine River Domestic Management L.P. who receives shares of the REIT in connection with the IPO or the Formation Transactions, whether directly, through the Distribution by Two Harbors, or otherwise, shall have entered into the Extended Lock-Up Agreement providing for a one-year lock-up period substantially in the form attached as Exhibit E.

(c) Conditions to Obligations of Two Harbors LLC. The obligations of Two Harbors LLC to effect the contribution contemplated by this Agreement and to consummate the other transactions contemplated hereby to occur on the Closing Date are further subject to satisfaction of the following conditions (any of which, except as provided, may be waived by Two Harbors LLC in whole or in part):

(i) Representations and Warranties. Except as would not have a REIT Material Adverse Effect, the representations and warranties of the REIT and the Operating Partnership contained in this Agreement, the members of the Provident Entities contained in the Formation Transaction Documentation to which they are a party, Provident in the Representation, Warranty and Indemnity Agreement, the Manager contained in the Management Agreement and the Operating Subsidiary contained in the Property Management and Acquisition Services Agreement shall be true and correct at the Closing as if made again at that time (except to the extent that any representation or warranty speaks as of an earlier date, in which case it must be true and correct only as of that earlier date).

(ii) Performance by the REIT, the Operating Partnership and Provident. Except as would not have a REIT Material Adverse Effect, each of the REIT and the Operating Partnership, Provident and the Provident Entities shall have performed all agreements and covenants required by this Agreement and the Formation Transaction Documentation to be performed or complied with by any of such entities on or prior to the Closing Date.

(iii) No Material Adverse Change. There shall not have occurred between the date hereof and the Closing Date a REIT Material Adverse Effect.

(iv) Amendment to Two Harbors Management Agreement. PRCM Advisers LLC shall have entered into that certain First Amendment to the Management Agreement dated as of October 28, 2009 to revise the definition of “Stockholders’ Equity” to exclude from such amount the value of the consideration to be received by Two Harbors in the Formation Transactions.

(v) Termination of Two Harbors Agreements with Manager. Those certain Acquisition Services Agreement, Property Management Agreement and Letter Agreement (the “Letter Agreement”) by and between the Manager and Two Harbors Property each dated as of February 3, 2012 shall have been terminated (except those sections described in the Side Letter) and any Termination Fee (as defined in the Letter Agreement) that would otherwise be payable under such agreements shall have been waived pursuant to the Side Letter.

(vi) Consolidation. Two Harbors shall not be required to consolidate the REIT for accounting purposes, provided that the REIT and Two Harbors LLC shall use their reasonable

commercial efforts to avoid such consolidation, which may include accepting cash in lieu of REIT Shares valued at the IPO Price for a portion of the Contribution Consideration payable to Two Harbors hereunder.

(vii) Registration Rights Agreement. The REIT shall have entered into the registration rights agreement substantially in the form attached as Exhibit F hereto. This condition may not be waived by any party hereto.

(viii) Director Designation Agreement. The REIT shall have entered into the Director Designation Agreement substantially in the form attached as Exhibit G.

(ix) Tax and Legal Opinions. The REIT shall have delivered or caused to be delivered to Two Harbors a reliance letter from counsel entitling Two Harbors to rely on the legal and tax opinions in connection with the IPO.

Section 2.02. TIME AND PLACE. Unless this Agreement shall have been terminated pursuant to Section 2.06 hereof, and subject to satisfaction or waiver of the conditions in Section 2.01 hereof, the closing of the contribution contemplated by Section 1.01 and the other transactions contemplated hereby shall occur substantially concurrently with the receipt by the REIT of the proceeds from the IPO from the underwriters (the “Closing” or the “Closing Date”). The Closing shall take place at the offices of Orrick, Herrington & Sutcliffe LLP or such other place as determined by the REIT in its sole discretion. The Closing hereunder and the closing of the IPO shall be deemed concurrent for all purposes.

Section 2.03. DELIVERY OF CONTRIBUTION CONSIDERATION. As soon as reasonably practicable after the Closing, the Operating Partnership shall deliver to Two Harbors LLC the REIT Shares and any Redeemable Preferred Shares payable to Two Harbors LLC in the amounts and form provided in Section 1.02 hereof. Any certificate representing REIT Shares issued as Contribution Consideration or any Redeemable Preferred Shares issued pursuant to this Agreement shall bear the following legend:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE CORPORATION AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.

In addition, each such certificate representing Redeemable Preferred Shares or REIT Shares so issued shall bear a legend reflecting certain transfer and other restrictions for the purpose of maintaining the REIT’s status as a real estate investment trust under the Code, in accordance with applicable Law.

Section 2.04. CLOSING DELIVERIES. At the Closing, the parties shall make, execute, acknowledge and deliver, or cause to be made, executed, acknowledged and delivered, any other documents reasonably requested by the Operating Partnership or reasonably necessary or desirable to assign, transfer, convey, contribute and deliver all interests in Two Harbors Property, free and clear of all Liens and to effectuate the transactions contemplated hereby.

Section 2.05. CLOSING COSTS. The transaction costs and expenses of the REIT, the Operating Partnership and the Participating Entities in connection with the Formation Transactions and the IPO, which include, but are not limited to, the underwriting discounts and commissions shall be paid in accordance with the terms of the Side Letter.

Section 2.06. TERM OF THE AGREEMENT. This Agreement shall terminate (a) upon notice by Two Harbors in accordance with Section 7.01, at any time after 30 days from the date hereof or (b) automatically if the Registration Statement shall have been withdrawn (such date is hereinafter referred to as the “Outside Date”).

Section 2.07. EFFECT OF TERMINATION. In the event of termination of this Agreement for any reason, all obligations on the part of the REIT, the Operating Partnership and Two Harbors LLC under this Agreement shall terminate, except that the obligations set forth in ARTICLE VII shall survive, it being understood and agreed, however, for the avoidance of doubt, that if this Agreement is terminated because one or more of the conditions to the non-breaching party’s obligations under this Agreement are not satisfied by the Outside Date as a result of the other party’s material breach of a covenant, representation, warranty or other obligation under this Agreement or any other Formation Transaction Documentation, the non-breaching party’s right to pursue all legal remedies with respect to such breach will survive such termination unimpaired.

Section 2.08. TAX WITHHOLDING. The REIT and the Operating Partnership, as applicable, shall be entitled to deduct and withhold from the consideration payable pursuant to this Agreement to Two Harbors LLC such amounts required to be deducted and withheld with respect to the making of such payment under the Code or any provision of state, local or foreign tax Law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to Two Harbors LLC in respect of which such deduction and withholding was made. To the extent the amount required to be withheld exceeds the amount of cash receivable by Two Harbors LLC, the excess withheld amount shall be treated as a loan from the payor to Two Harbors LLC, which shall be due immediately from Two Harbors LLC and shall bear interest at the rate of fifteen percent (15%) per annum (or, if less, the maximum rate allowable under applicable Law).

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE REIT AND THE OPERATING PARTNERSHIP

Each of the REIT and the Operating Partnership hereby represents and warrants to Two Harbors LLC, severally as to itself, that the following statements are true and correct as of the date hereof and shall be true and correct as of the Closing Date:

Section 3.01. ORGANIZATION; AUTHORITY.

(a) The REIT is a corporation duly organized, validly existing and in good standing under the Laws of the State of Maryland. The REIT has all requisite power and authority to enter into this Agreement and the other Formation Transaction Documentation and to carry out the transactions contemplated hereby and thereby, and to own, lease or operate its property and to carry on its business as presently conducted and, to the extent required under applicable Law, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary, other than in such jurisdictions where the failure to be so qualified would not have a REIT Material Adverse Effect.

(b) The Operating Partnership is a limited partnership duly formed, validly existing and in good standing under the Laws of the State of Delaware and, upon the effectiveness of the Operating Partnership Agreement, will have all requisite power and authority to enter into this Agreement and the other Formation Transaction Documentation and to carry out the transactions contemplated hereby and thereby, and to own, lease and/or operate its property and to carry on its business as presently conducted and, to the extent required under applicable Laws, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary, other than such failures to be so qualified as would not, individually or in the aggregate, reasonably be expected to have a REIT Material Adverse Effect.

(c) Schedule 3.01(c) sets forth as of the date hereof, each Subsidiary of the Operating Partnership (each an “Operating Partnership Subsidiary”), all of which are, directly or indirectly, wholly owned by the Operating Partnership. Each Operating Partnership Subsidiary has been duly organized or formed and is validly existing and is in good standing under the Laws of its jurisdiction of organization or formation, as applicable, has all requisite power and authority to own, lease and/or operate its property and to carry on its business as presently conducted and, to the extent required under applicable Laws, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary, other than such failures to be so qualified as would not, individually or in the aggregate, reasonably be expected to have a REIT Material Adverse Effect.

Section 3.02. DUE AUTHORIZATION. The execution, delivery and performance of this Agreement and the other Formation Transaction Documentation (including each agreement, document and instrument executed and delivered by or on behalf of the REIT and the Operating Partnership pursuant to this Agreement or the other Formation Transaction Documentation) by the REIT and the Operating Partnership have been duly and validly authorized by all necessary actions required of each of the REIT and the Operating Partnership, respectively. This Agreement, the other Formation Transaction Documentation and each agreement, document and instrument executed and delivered by or on behalf of each of the REIT and the Operating Partnership pursuant to this Agreement or the other Formation Transaction Documentation constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of each of the REIT and the Operating Partnership, enforceable against each of the REIT and the Operating Partnership in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

Section 3.03. CONSENTS AND APPROVALS. Except for the SEC declaring the Registration Statement effective, related filings with FINRA and any necessary flings under state blue-sky laws in connection with the IPO and the consummation of the other Formation Transactions, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by the REIT or the Operating Partnership in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a REIT Material Adverse Effect.

Section 3.04. NO VIOLATION. None of the execution, delivery or performance of this Agreement, the other Formation Transaction Documentation, any agreement contemplated hereby between the parties to this Agreement and the transactions contemplated hereby between the parties to this Agreement does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, acceleration, cancellation or other right under, (a) the organizational documents of the REIT or the

Operating Partnership, (b) any material agreement, document or instrument to which the REIT or the Operating Partnership or any of their respective assets are bound or (c) any term or provision of any judgment, order, writ, injunction, or decree binding on the REIT or the Operating Partnership.

Section 3.05. VALIDITY OF REIT SHARES. The REIT Shares to be issued pursuant to this Agreement will have been duly authorized by the REIT and, when issued against the consideration therefor, will be validly issued, fully paid and non-assessable and free and clear of all Liens created by the REIT (other than Liens created by the charter of the REIT).

Section 3.06. OUTSTANDING EQUITY.

(a) All issued and outstanding capital stock of the REIT, comprising 1,000 REIT Shares, are held by the Manager as of the date hereof. Such REIT Shares shall be redeemed upon Closing.

(b) Upon Closing and completion of the IPO, and after redemption of the REIT Shares described in (a), the only issued and outstanding REIT Shares and common units in the Operating Partnership shall be those issued in connection with the IPO and the Formation Transactions, as described in the Registration Statement.

Section 3.07. LITIGATION. Except for actions, suits or proceedings covered by policies of insurance, there is no action, suit or proceeding pending or, to the knowledge of the REIT or the Operating Partnership, threatened against the REIT, the Operating Partnership or any Operating Partnership Subsidiary.

Section 3.08. ORGANIZATIONAL DOCUMENTS. Attached as Exhibit H hereto is a true and correct copy of the charter and bylaws of the REIT in substantially final form. Attached as Exhibit B hereto is a true and correct copy of the Operating Partnership Agreement in substantially final form.

Section 3.09. REIT STATUS. The REIT intends to qualify as a real estate investment trust under the Code, and the REIT will be organized and operated in conformity with the requirements for qualification and taxation as a real estate investment trust under the Code, and its proposed ownership and method of operation will enable it to continue to qualify as a real estate investment trust under the Code for the REIT’s taxable years ending December 31, 2012 and thereafter.

Section 3.10. COMPLIANCE WITH LAWS. Each of the REIT and the Operating Partnership has conducted its respective business in compliance with all applicable Laws, except for such failures that would not, individually or in the aggregate, reasonably be expected to have a REIT Material Adverse Effect. Neither the REIT nor the Operating Partnership nor, to the knowledge of the REIT, any third party has been informed in writing of any continuing violation of any such Laws or that any investigation has been commenced and is continuing or is contemplated respecting any such possible violation, except in each case for violations that would not, individually or in the aggregate, reasonably be expected to have a REIT Material Adverse Effect.

Section 3.11. LIMITED ACTIVITIES. Except for activities in connection with the IPO or the Formation Transactions or in the ordinary course of business, none of the REIT, the Operating Partnership or the Operating Partnership Subsidiaries have engaged in any material business or incurred any material obligations.

Section 3.12. FORMATION TRANSACTION DOCUMENTATION. All of the Formation Transaction Documentation shall have been executed and delivered.

Section 3.13. NO UNTRUE STATEMENT. The Registration Statement does not, and on the Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading.

Section 3.14. KNOWLEDGE OF TWO HARBORS OR TWO HARBORS LLC. Neither the REIT nor the Operating Partnership shall be liable for any breach of a representation or warranty under this Agreement for any Losses related thereto if any of Two Harbors, Two Harbors LLC or any of their Subsidiaries had knowledge of such inaccuracy or breach prior to the Closing.

Section 3.15. NO OTHER REPRESENTATIONS OR WARRANTIES; SURVIVAL. Other than the representations and warranties expressly set forth in this ARTICLE III and any other agreement entered into in connection with the Formation Transactions, the REIT and the Operating Partnership shall not be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby. All representations and warranties of the REIT and the Operating Partnership contained in this Agreement (other than Section 3.01, Section 3.02,Section 3.03, Section 3.04, Section 3.05, Section 3.06, Section 3.08, Section 3.10 and Section 3.12, which shall survive until the first anniversary of the Closing Date) shall expire at Closing and all covenants shall survive until performed.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TWO HARBORS LLC AND TWO HARBORS

Except as disclosed in the schedules attached hereto, Two Harbors LLC and Two Harbors hereby represent and warrant to the REIT and the Operating Partnership (the “Consolidated Entities”) that the following statements are true and correct as of the date hereof and shall be true and correct as of the Closing Date:

Section 4.01. ORGANIZATION; AUTHORITY.

(a) Two Harbors LLC is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware, and has all requisite power and authority to enter into this Agreement, each agreement contemplated hereby and the other Formation Transaction Documentation to which it is a party (including any agreement, document and instrument executed and delivered by or on behalf of Two Harbors LLC pursuant to this Agreement or the other Formation Transaction Documentation) and to carry out the transactions contemplated hereby and thereby.

(b) Two Harbors Property is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware and has all requisite power and authority to enter into each agreement or other document included in or contemplated by the Formation Transaction Documentation and to carry out the transactions contemplated thereby, and to own, lease and/or operate each Property owned, leased and/or operated by it and to carry on its business as presently conducted. Two Harbors Property, to the extent required under applicable Laws, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its Properties make such qualification necessary.

(c) Schedule 4.01(c) sets forth as of the date hereof each Subsidiary of Two Harbors Property, each of which is wholly owned by Two Harbors Property. Each Subsidiary of Two Harbors Property has been duly organized and is validly existing and is in good standing under the Laws of its jurisdiction of organization, and has all requisite power and authority to own, lease and/or operate its Properties and other assets and to carry on its business as presently conducted. Each Subsidiary of Two Harbors Property, to the extent required under applicable Laws, is qualified to do business and is in good

standing in each jurisdiction in which the nature of its business or the character of its Properties and other assets make such qualification necessary.

(d) Two Harbors has been duly incorporated and is validly existing and in good standing under the Laws of the State of Maryland and has all requisite power and authority to enter into each agreement or other document included in or contemplated by the Formation Transaction Documentation and to carry out the transactions contemplated thereby and to carry on its business as presently conducted. Two Harbors, to the extent required under applicable Laws, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business make such qualification necessary.

Section 4.02. DUE AUTHORIZATION.

(a) The execution, delivery and performance of this Agreement (including any agreement, document and instrument executed and delivered pursuant to this Agreement) by Two Harbors LLC has been duly and validly authorized by all necessary actions required of Two Harbors LLC. This Agreement and each agreement, document and instrument executed and delivered by or on behalf of Two Harbors LLC pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of Two Harbors LLC, each enforceable against Two Harbors LLC in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

(b) The execution, delivery and performance by Two Harbors Property of each agreement or other document included in or contemplated by the Formation Transaction Documentation to which it is a party has been duly and validly authorized by all necessary actions required of Two Harbors Property. Each agreement, document and instrument included in or contemplated by the Formation Transaction Documentation and executed and delivered by or on behalf of Two Harbors Property constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of Two Harbors Property, each enforceable against Two Harbors Property in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

(c) The execution, delivery and performance by Two Harbors of this Agreement and each other Formation Transaction Documentation to which it is a party have been duly and validly authorized by all necessary actions required of Two Harbors. Each agreement, document and instrument included in or contemplated by the Formation Transaction Documentation and executed and delivered by or on behalf of Two Harbors constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of Two Harbors, each enforceable against Two Harbors in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

Section 4.03. OWNERSHIP OF CONTRIBUTED INTERESTS. Two Harbors LLC is the sole record owner of all of the interests in Two Harbors Property and has the power and authority to transfer, sell, assign and convey to the REIT its interest in Two Harbors Property free and clear of any Liens and, upon delivery of the consideration for the interests in Two Harbors Property as provided herein, the REIT will acquire good and valid title thereto, free and clear of any Liens. Except as provided for or contemplated by this Agreement or the other applicable Formation Transaction Documentation, there are no rights to purchase, veto rights with respect to transfers, subscriptions, warrants, options, conversion rights, preemptive rights, agreements, instruments or understandings of any kind outstanding (a) relating to the interests in Two Harbors Property or (b) to purchase, transfer or to otherwise acquire, or to in any way encumber, any of the interests in Two Harbors Property or any securities or obligations of any kind

convertible into any of the interests of Two Harbors Property. Two Harbors LLC has no equity interest, either direct or indirect, in the Properties, except for Two Harbors LLC’s interests in Two Harbors Property.

Section 4.04. CAPITALIZATION. Schedule 4.04 sets forth as of the date hereof the ownership of Two Harbors Property and its Subsidiaries. All of the issued and outstanding equity interests of Two Harbors Property and its Subsidiaries are duly authorized, validly issued and fully paid and, except as set forth in Schedule 4.04, are not subject to preemptive rights or appraisal, dissenters’ or other similar rights under the Organizational Documents of or any contract to which Two Harbors Property or its Subsidiaries is a party or otherwise bound. There are no outstanding rights to purchase, subscriptions, warrants, options or any other security convertible into or exchangeable for equity interests in Two Harbors Property or its Subsidiaries.

Section 4.05. CONSENTS AND APPROVALS. Except in connection with the IPO and the consummation of the other Formation Transactions, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration, or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Two Harbors LLC or Two Harbors Property in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

Section 4.06. NO VIOLATION.

(a) None of the execution, delivery or performance by Two Harbors LLC of this Agreement, any agreement contemplated hereby between the parties to this Agreement and the transactions contemplated hereby between the parties to this Agreement does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, acceleration, cancellation or other right under, (i) the organizational documents of Two Harbors LLC, (ii) any agreement, document or instrument to which Two Harbors LLC is a party or by which Two Harbors LLC is bound or (iii) any term or provision of any judgment, order, writ, injunction, or decree binding on Two Harbors LLC (or its assets or properties).

(b) None of the execution, delivery or performance by Two Harbors Property of any agreement or document included in or contemplated by the Formation Transaction Documentation to which it is a party and the transactions contemplated hereby and thereby does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, acceleration, cancellation or other right under, (i) the Organizational Documents of Two Harbors Property or any of its Subsidiaries, (ii) any covenants, conditions and restrictions binding any of the Properties (other than Silver Bay Properties) or, to Two Harbors’ Knowledge, Silver Bay Properties, (iii) any other agreement, document or instrument to which Two Harbors Property or any of its Subsidiaries or any of their respective assets or properties (other than Silver Bay Properties) or, to Two Harbors’ Knowledge, Silver Bay Properties are bound or (iv) any term or provision of any judgment, order, writ, injunction, or decree binding on Two Harbors Property, any of its Subsidiaries, its assets or properties (other than Silver Bay Properties) or, to Two Harbors’ Knowledge, Silver Bay Properties.

(c) None of the execution, delivery or performance by Two Harbors of this Agreement or any other agreement or document included in or contemplated by the Formation Transaction Documentation to which it is a party and the transactions contemplated hereby and thereby does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, acceleration, cancellation or other right under, (i) the Organizational Documents of Two Harbors or any of its

Subsidiaries, (ii) any other agreement, document or instrument to which Two Harbors or any of its assets or properties (other than Silver Bay Properties) or, to Two Harbors’ Knowledge, Silver Bay Properties are bound or (iii) any term or provision of any judgment, order, writ, injunction, or decree binding on Two Harbors, any of its Subsidiaries, its assets or properties (other than Silver Bay Properties) or, to Two Harbors’ Knowledge, Silver Bay Properties.

Section 4.07. LICENSES AND PERMITS. To Two Harbors’ Knowledge, all notices, licenses, permits, certificates and authorizations, required for the continued use, occupancy, management, leasing and operation of the Properties of Two Harbors Property have been obtained or can be obtained without material cost, are in full force and effect, are in good standing and (to the extent required in connection with the transactions contemplated by the Formation Transaction Documentation) are assignable to the extent contemplated in the Formation Transaction Documentation, except in each case for items that, if not so obtained, obtainable and/or transferred, would not, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect. There are no licenses, permits, certificates and authorizations held by Two Harbors Property other than those copies of which have been delivered to the Consolidated Entities, and each of which is identified on Schedule 4.07. Neither Two Harbors Property nor any of its Subsidiaries nor, to Two Harbors’ Knowledge, any third party has taken any action that (or failed to take any action the omission of which) would result in the revocation of any such notice, license, permit, certificate or authorization where such revocation or revocations would, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect, nor has any of them received any written notice of violation from any Governmental Authority or written notice of the intention of any entity to revoke any of such notice, license, permit, certificate or authorization, that in each case has not been cured or otherwise resolved to the satisfaction of such Governmental Authority except as would not, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect.

Section 4.08. LITIGATION.

(a) To Two Harbors’ Knowledge, there is no action, suit or proceeding pending or threatened against Two Harbors LLC affecting all or any portion of Two Harbors LLC’s interest in Two Harbors Property or Two Harbors LLC’s ability to consummate the transactions contemplated hereby which, if adversely determined, would adversely affect Two Harbors LLC’s ability to so consummate the transactions contemplated hereby. To Two Harbors’ Knowledge, there is no outstanding order, writ, injunction or decree of any Governmental Authority against or affecting all or any portion of Two Harbors LLC’s Contributed Interests, which in any such case would impair Two Harbors LLC’s ability to enter into and perform all of its obligations under this Agreement.

(b) There is no action, suit or proceeding pending (for which Two Harbors Property or its Subsidiaries, as applicable, has been properly served or otherwise has Knowledge) or, to Two Harbors’ Knowledge, threatened against Two Harbors Property or any of its Subsidiaries or any officer, director, principal or managing member of any of the foregoing or the Properties which, if adversely determined, would have a Two Harbors Material Adverse Effect. There is no action, suit or proceeding pending or, to Two Harbors’ Knowledge, threatened against Two Harbors Property or any of its Subsidiaries or any officer, director, principal or managing member of any of the foregoing which challenges or impairs the ability of Two Harbors Property or any of its Subsidiaries to execute or deliver, or perform its obligations under any of the Formation Transaction Documentation or to consummate the transactions contemplated hereby and thereby. There is no material judgment, decree, injunction, or order of a Governmental Authority outstanding against Two Harbors Property or any of its Subsidiaries or any officer, director, principal or managing member of any of the foregoing in their capacity as such or, to Two Harbors’ Knowledge, any city ordinance or property violations relating to Silver Bay Properties.

(c) There is no action, suit or proceeding pending or, to Two Harbors’ Knowledge, threatened against Two Harbors or any officer, director, principal or managing member of Two Harbors which, if adversely determined, would have a Two Harbors Material Adverse Effect. There is no action, suit or proceeding pending or, to Two Harbors’ Knowledge, threatened against Two Harbors or any officer, director, principal or managing member of Two Harbors which challenges or impairs the ability of Two Harbors to execute or deliver, or perform its obligations under any of the Formation Transaction Documentation or to consummate the transactions contemplated hereby and thereby.

Section 4.09. COMPLIANCE WITH LAWS/RESTRICTIONS. Two Harbors Property and its Subsidiaries have conducted their respective businesses and maintained each Property in compliance with all applicable Laws and any covenants, conditions and restrictions or other obligations in respect of any homeowners’ association binding on any of the Properties, except for such failures that would not, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect. Neither Two Harbors Property nor its Subsidiaries nor, to Two Harbors’ Knowledge, any third party has been informed in writing of any continuing violation of any such Laws or that any investigation has been commenced and is continuing or is contemplated respecting any such possible violation or violations of any of such covenants, conditions and restrictions or other obligations in respect of any homeowners’ association, except in each case for violations that would not, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect.

Section 4.10. PROPERTIES.

(a) Schedule 4.10(a) sets forth each Property owned by Two Harbors Property or its Subsidiaries as of the date hereof. Except as set forth on Schedule 4.10(a),

(i) Two Harbors Property or one of its Subsidiaries set forth on Schedule 4.10(a) is the insured under a policy of title insurance as the owner of, and Two Harbors Property or its Subsidiary is the owner of, the fee simple estate (or, in the case of certain Properties, the leasehold estate) to each Property identified on Schedule 4.10(a) as being owned by Two Harbors Property or its Subsidiary, and

(ii) in each case such Property is owned free and clear of all Liens except for Permitted Liens.

(b) There are no agreements between Two Harbors Property and a third party other than those agreements copies of which have been delivered to the Consolidated Entities, and each of which is identified on Schedule 4.10(b), other than leases described in Section 4.10(d). There are no other understandings, oral or written, between Two Harbors Property and any of the other parties to the agreements except as provided therein. Except for matters that would not, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect, (i) neither Two Harbors Property nor any of its Subsidiaries, nor to Two Harbors’ Knowledge any other party to any material agreement affecting any Property (other than a Lease (as such term is hereinafter defined) for such Property, but including any agreement that constitutes a Permitted Lien), is in breach or default of any such agreement, (ii) no event has occurred or, to Two Harbors’ Knowledge, has been threatened in writing, which with or without the passage of time or the giving of notice, or both, would, individually or together with all such other events, constitute a default under any such agreement, or would, individually or together with all such other events, reasonably be expected to cause the acceleration of any material obligation of Two Harbors Property or its Subsidiaries or the creation of a Lien upon any asset of Two Harbors Property or any of its Subsidiaries, except for Permitted Liens and (iii) to Two Harbors’ Knowledge, all agreements affecting any Property required for the continued use, occupancy,

management, leasing and operation of such Property are valid and binding and in full force and effect, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

(c) To Two Harbors’ Knowledge, as presently conducted, none of the operation of the buildings, fixtures and other improvements comprising a part of the Properties is in violation of any applicable building code, zoning ordinance or other “land use” Law, except for such violations that would not, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect.

(d) Two Harbors Property or one of its Subsidiaries holds the lessor’s interest (directly or indirectly through one or more agents) under the leases with tenants of each Property (the “Leases”). There are no Leases other than those forms of which have been delivered to the Consolidated Entities. To Two Harbors’ Knowledge, the rent rolls attached as Schedule 4.10(d) accurately describe all existing Leases as of the date hereof. Two Harbors Property has not entered into any other material understandings, oral or written between Two Harbors Property and any of the tenants with respect to the Properties (other than Silver Bay Properties) other than the Leases. To Two Harbors’ Knowledge, Two Harbors Property has not entered into any other material understandings, oral or written between Two Harbors Property and any of the tenants with respect to Silver Bay Properties other than the Leases. Except as would not have a Two Harbors Material Adverse Effect or set forth in Schedule 4.10(d), (i) neither Two Harbors Property nor any of its Subsidiaries, nor, to Two Harbors’ Knowledge, any other party to any Lease, is in breach or default of any such Lease, (ii) no event has occurred or, to Two Harbors’ Knowledge, has been threatened in writing, which with or without the passage of time or the giving of notice, or both, would, individually or together with all such other events, constitute a default under any Lease, or would, permit termination, modification or acceleration under such Lease, and (iii) each of the Leases is valid and binding and in full force and effect, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

Section 4.11. FINANCIAL STATEMENTS. Two Harbors has delivered to the Consolidated Entities the Combined Financial Statements of Two Harbors Property for the nine months ended September 30, 2012, audited by Ernst & Young LLP. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis and fairly represent the financial condition of Two Harbors Property for the respective periods indicated.

Section 4.12. CONDITION OF PROPERTIES. To Two Harbors’ Knowledge, no improvements or alterations have been made to the Properties without a permit where one was required. To Two Harbors’ Knowledge, there are no unfilled orders or directives of any applicable Governmental Authority or casualty insurance company that require any work of investigation, remediation, repair, maintenance or improvement to be performed on the Properties. Except for newly acquired Properties in the process of eviction, dispossessory or similar proceedings and/or under renovation, Properties under renovation in the ordinary course of business and Properties sustaining ordinary wear and tear consistent with leasing activities, each of the Properties is in satisfactory condition and repair, suitable for its intended use and is undamaged by waste, vandalism, fire, hurricane, earthquake or earth movement, windstorm, flood, tornado or other casualty or natural disaster so as to make the Property ill-suited for its intended use, provided that no breach of this Section 4.12 shall be deemed to have occurred where a Property was in the foregoing condition when leased and, subsequent to a tenant taking possession under a lease, such Property sustained such damage or is in a state of disrepair and none of Two Harbors LLC or its subsidiaries has Knowledge of such condition.

Section 4.13. INSURANCE. Two Harbors Property or its Subsidiaries has in place public liability, casualty and other insurance coverage with respect to each Property owned, leased and/or

managed by it as Two Harbors reasonably deems necessary. There are no insurance policies held by Two Harbors Property other than those copies of which have been delivered to the Consolidated Entities, and each of which is identified on Schedule 4.13. Each of the insurance policies with respect to the Properties is in full force and effect in all material respects and all premiums due and payable thereunder have been fully paid when due. To Two Harbors’ Knowledge, neither Two Harbors Property nor its Subsidiaries has received from any insurance company any notices of cancellation or intent to cancel any such insurance.

Section 4.14. ENVIRONMENTAL MATTERS. Except for matters that would not, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect, (a) Two Harbors Property and its Subsidiaries are in compliance with all Environmental Laws, (b) neither Two Harbors Property nor any of its Subsidiaries have received any written notice from any Governmental Authority or third party alleging that Two Harbors Property, any of its Subsidiaries or any Property is not in compliance with applicable Environmental Laws, and (c) there has not been a release of a hazardous substance on any Property that would require investigation or remediation under applicable Environmental Laws.

Section 4.15. EMINENT DOMAIN. There is no existing, or to Two Harbors’ Knowledge, proposed or threatened condemnation, eminent domain or similar proceeding, or private purchase in lieu of such a proceeding which would affect any of the Properties, except for such proceedings that would not, individually or in the aggregate, reasonably be expected to have a Two Harbors Material Adverse Effect.

Section 4.16. TAXES. Except as set forth in Schedule 4.16:

(a) Two Harbors and each of its Subsidiaries has timely and properly filed all Tax returns and reports required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Authority having authority to do so), and all such returns and reports are accurate and complete in all material respects. Two Harbors Property and each of its Subsidiaries has paid (or had paid on its behalf) all Taxes as required to be paid by it.

(b) No deficiencies for any Taxes have been proposed, asserted or assessed against Two Harbors or its Subsidiaries, and no requests for waivers of the time to assess any such Taxes are pending.

(c) There are no pending or, to Two Harbors’ Knowledge, threatened audits, assessments or other actions for or relating to any liability in respect of income or material non-income Taxes of Two Harbors or its Subsidiaries, there are no matters under discussion with any Tax authority with respect to income or material non-income Taxes that are likely to result in an additional liability for Taxes with respect to Two Harbors Property or its Subsidiaries and neither Two Harbors Property nor its Subsidiaries is, or has ever been, a party to or bound by any Tax indemnity agreement, Tax sharing agreement, Tax allocation agreement or similar contract.

(d) As of the date hereof, Two Harbors Property and Two Harbors LLC are disregarded entities for federal income tax purposes. At all times during its existence, Two Harbors has qualified and been taxable as a “real estate investment trust” for federal and all applicable state tax purposes and will so qualify as of the Closing Date. As of the date hereof, each Subsidiary of Two Harbors Property is treated for federal and all applicable state income Tax purposes as a disregarded entity. No election has been made to treat Two Harbors Property or any Subsidiary of Two Harbors Property as a corporation or a “qualified REIT subsidiary” for federal or any state income Tax purpose.

Section 4.17. INSOLVENCY. No attachments, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings are pending or, to Two Harbors’ Knowledge, threatened against Two Harbors LLC, Two Harbors Property or any of its Subsidiaries, nor are any such proceedings contemplated by Two Harbors LLC, Two Harbors Property or its Subsidiaries.

Section 4.18. EMPLOYEES. Neither Two Harbors Property nor any of its Subsidiaries has or has ever had any employees.

Section 4.19. CONTRACTS AND COMMITMENTS. Except as set forth in Schedule 4.19, neither Two Harbors Property nor any of its Subsidiaries is a party to any agreements for the sale of its assets, for the grant to any Person of any preferential right to purchase any such assets or the acquisition of any operating business, assets or capital stock of any other corporation, entity or business.

Section 4.20. NO SIDE LETTERS. Except as set forth in Schedule 4.20, there are no side letters or other writing between or among Two Harbors, Two Harbors Property and Two Harbors LLC which have the effect of establishing rights under, or altering or supplementing, the terms of Two Harbors Property’s certificate of formation, limited liability company agreement or operating agreement or similar organizational documentation.

Section 4.21. PRE-CLOSING COVENANTS. Two Harbors Property has performed in all material respects all agreements and covenants required by the Formation Transaction Documentation to be performed or complied with by it on or prior to the Closing Date.

Section 4.22. INVESTMENT. Two Harbors LLC acknowledges that the offering and issuance of the REIT Shares to be acquired by Two Harbors pursuant to this Agreement are intended to be exempt from registration under the Securities Act and that the REIT’s and Operating Partnership’s reliance on such exemptions is predicated in part on the accuracy and completeness of the representations and warranties of Two Harbors LLC contained herein. In furtherance thereof, Two Harbors LLC represents and warrants to the Consolidated Entities as follows:

(a) Two Harbors LLC is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act).

(b) Two Harbors LLC acknowledges that the REIT Shares have not been registered under the Securities Act and, therefore, unless registered under the Securities Act or an exemption from registration is available, must be held (and Two Harbors LLC must continue to bear the economic risk of the investment in the REIT Shares) indefinitely and may not be transferred or sold.

Section 4.23. NO OTHER REPRESENTATIONS OR WARRANTIES. Other than the representations and warranties expressly set forth in this ARTICLE IV and any other agreement entered into by Two Harbors LLC in connection with the Formation Transactions, Two Harbors LLC shall not be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby.

Section 4.24. SOME REPRESENTATIONS AND WARRANTIES LIMITED. With respect to Properties acquired and managed pursuant to the Acquisition Services Agreement and Property Management Agreement each dated February 3, 2012 between the Operating Subsidiary and Two Harbors Property (such Properties, “Silver Bay Properties” and such agreements, the “Prior Agreements”), the following shall apply:

(a) A breach of the representations and warranties found in Section 4.07 (Licenses and Permits), Section 4.09 (Compliance with Laws/Restrictions), Section 4.10 (Properties), Section 4.12 (Condition of Properties), Section 4.13 (Insurance), Section 4.14 (Environmental Matters) and Section 4.16 (Taxes), shall not be considered when determining whether the conditions of Section 2.01(b)(i) have been satisfied, unless such breach results from an action of Two Harbors Property prior to the Closing Date that is contrary to the express advice or recommendation of the Operating Subsidiary;

(b) The sole remedy of the Consolidated Entities in case of a breach of Section 4.10(a)(i) shall be payment for the purchase price and capitalized renovation costs of any Property for which title is divested or is determined not to have vested in a Subsidiary of Two Harbors Property, but only to the extent such purchase price or capitalized renovation costs are not subsequently refunded to Two Harbors Property or its Subsidiaries or recovered under a policy of insurance; and

(c) The sole remedy of the Consolidated Entities in case of a breach of Section 4.10(a)(ii) shall be payment for the current portion of any amount related to a Lien, but only to the extent discovered within 180 days of the Closing Date with there being no remedy for Liens discovered more than 180 days after the Closing Date, unless such breach results from an action of Two Harbors Property prior to the Closing Date that is contrary to the express advice or recommendation of the Operating Subsidiary; and

(d) The Consolidated Entities shall have no remedy in case of a breach of Section 4.07 (Licenses and Permits), Section 4.09 (Compliance with Laws/Restrictions), Section 4.10 (Properties), Section 4.12 (Condition of Properties), Section 4.13 (Insurance), Section 4.14 (Environmental Matters) and Section 4.16 (Taxes) to the extent such breach is a result of the action, inaction or omission of the Operating Subsidiary (or one of its third party property managers), unless such breach results from an action of Two Harbors Property prior to the Closing Date that is contrary to the express advice or recommendation of the Operating Subsidiary.

Section 4.25. KNOWLEDGE OF REIT OR MANAGER. Neither Two Harbors nor Two Harbors LLC shall be liable for any breach of a representation or warranty under this Agreement for any Losses related thereto if any of the Operating Partnership, the REIT, the Manager or any of their Subsidiaries had knowledge of such inaccuracy or breach prior to the Closing.

Section 4.26. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties of Two Harbors LLC and Two Harbors contained in this Agreement shall survive after the effective time of the mergers, contributions and other Formation Transactions contemplated in the Formation Transaction Documentation until the first anniversary of the Closing Date other than the representations and warranties contained in Section 4.16, which shall survive under the expiration of the applicable statute of limitations (each, an “Expiration Date”). All covenants of Two Harbors LLC and Two Harbors shall survive until performed. If written notice of a claim in accordance with Section 6.03 has been given prior to the applicable Expiration Date, then the relevant representation or warranty shall survive, but only with respect to such specific claim, until such claim has been finally resolved. Any claim for indemnification not so asserted in writing by the applicable Expiration Date may not thereafter be asserted and shall forever be waived.

ARTICLE V
COVENANTS AND OTHER AGREEMENTS

Section 5.01. PRE-CLOSING COVENANTS OF TWO HARBORS LLC. From the date hereof through the Closing, except as otherwise provided for or as contemplated by this Agreement or the other applicable Formation Transaction Documentation, Two Harbors LLC shall cause Two Harbors

Property to use commercially reasonable efforts to conduct its business and operate and maintain the Properties in the ordinary course of business consistent with past practice, continue to fund the trust accounts of its property managers to fund operating and renovation costs in a manner consistent with past practice, pay its obligations as they become due and payable, and use commercially reasonable efforts to preserve intact its current business organizations and preserve its relationships with customers, tenants, suppliers and others having business dealings with it, in each case consistent with past practice. In addition, and without limiting the generality of the foregoing, during the period from the date hereof to the Closing Date and except in connection with the Formation Transactions, Two Harbors and Two Harbors LLC shall not permit Two Harbors Property or any Subsidiary of Two Harbors Property without the prior written consent of the REIT, which consent may be withheld by the REIT in its sole discretion, to:

(a) Issue, deliver, sell transfer, dispose, mortgage, pledge, assign or otherwise encumber, or cause the issuance, delivery, sale, transfer, disposition, mortgage, pledge, assignment or other encumbrance of, any limited liability company or other equity interests in Two Harbors Property or any Subsidiary of Two Harbors Property or any other assets or Properties of Two Harbors Property;

(b) Cause or permit Two Harbors Property or its Subsidiaries to: file an entity classification election pursuant to Treasury Regulation Section 301.7701-3(c) on Internal Revenue Service Form 8832 (Entity Classification Election) to treat Two Harbors LLC or any of its Subsidiaries as an association taxable as a corporation for United States federal income tax purposes (or make any comparable election for state purposes); make or change any other Tax elections; settle or compromise any claim, notice, audit report or assessment in respect of Taxes; change any annual Tax accounting period; adopt or change any method of Tax accounting; file any amended Tax return; enter into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or closing agreement relating to any Tax; surrender of any right to claim a Tax refund; or consent to any extension or waiver of the statute of limitations period applicable to any Tax claim or assessment; or

(c) (i) Declare, set aside or pay any dividends or distributions, (ii) issue or authorize the issuance of any other securities of Two Harbors Property or (iii) purchase, redeem or otherwise acquire any securities of Two Harbors Property;

(d) Take or omit to take any action to cause any Lien to attach to any Property, except for Permitted Liens;

(e) Amend, modify or terminate any lease, contract or other instruments relating to the Properties, except in the ordinary course of business consistent with past practice;

(f) Adopt a plan of liquidation, dissolution, merger, consolidation, restructuring, recapitalization or reorganization;

(g) Materially alter the manner of keeping Two Harbors Property’s books, accounts or records or the accounting practices therein reflected;

(h) Terminate or amend any existing insurance policies affecting the Properties that results in a reduction in insurance coverage for the Properties so long as such coverage is available at a commercially reasonable cost;

(i) Knowingly cause or permit Two Harbors Property to violate, or fail to use commercially reasonable efforts to cure any violation of, any applicable Laws which would have a Two Harbors Material Adverse Effect;

(j) Permit or cause Two Harbors LLC to take, any of the actions prohibited by the Formation Transaction Documentation; or

(k) Authorize, commit or agree to take any of the foregoing actions.

Section 5.02. AMENDMENT OF FORMATION TRANSACTION DOCUMENTATION. The REIT and the Operating Partnership shall not materially amend or cause to be materially amended any of the Formation Transaction Documentation without the consent of Two Harbors.

Section 5.03. COMMERCIALLY REASONABLE EFFORTS BY THE OPERATING PARTNERSHIP AND TWO HARBORS LLC. Each of the Consolidated Entities, on the one hand, and Two Harbors LLC, on the other hand, shall use commercially reasonable efforts and cooperate with each other in (i) promptly determining whether any filings are required to be made or consents, approvals, waivers, permits or authorizations are required to be obtained (under any applicable Law or regulation or from any Governmental Authority or third party) in connection with the transactions contemplated by this Agreement, and (ii) promptly making any such filings, in furnishing information required in connection therewith and in timely seeking to obtain any such consents, approvals, waivers, permits or authorizations.

Section 5.04. TAX MATTERS.

(a) The transfer of the interests in Two Harbors Property pursuant to this Agreement will occur simultaneously with the contributions and mergers and the contribution of the proceeds of the IPO to the Operating Partnership by the REIT described in the recitals as part of a single plan. The parties intend that, solely for federal income tax purposes, the transfer of the interests in Two Harbors Property to the Operating Partnership in exchange for cash and/or REIT Shares will be treated as a taxable contribution by Two Harbors of the assets of Two Harbors Property to the REIT followed by a drop-down of such assets into the Operating Partnership governed by Section 721 of the Code.

(b) The Operating Partnership shall prepare or cause to be prepared and file or cause to be filed all income Tax returns of Two Harbors Property and any Subsidiary thereof which are due after the Closing Date. All such income Tax returns (including, for the avoidance of doubt, any amended Tax returns) shall be prepared in a manner consistent with past practice, except as otherwise required by applicable Law. With respect to income Tax returns of Two Harbors Property which are due after the Closing Date, but which include a period prior to the Closing Date, the Operating Partnership shall deliver such income Tax returns to Two Harbors no later than ten (10) days prior to the due date (including extensions) for filing such income Tax returns for its review and approval, which approval shall not be unreasonably withheld.

(c) The Operating Partnership shall prepare or cause to be prepared all other Tax returns of Two Harbors Property and any Subsidiary of Two Harbors Property which are due after the Closing Date.

(d) The REIT, the Operating Partnership and Two Harbors LLC shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax returns related to the transactions pursuant to this Agreement and any audit, litigation or administrative, judicial or other inquiry or proceeding with respect to Taxes related to the transactions pursuant to this Agreement. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such action or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The REIT, the Operating Partnership and Two Harbors

LLC further agree, upon request, to use their reasonable efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed with respect to the transactions contemplated hereby.

(e) Prior to Closing, Two Harbors shall deliver to the REIT a properly executed certificate prepared in accordance with Treasury regulations Section 1.1445-2(b) certifying Two Harbors’ non-foreign status and, if requested by the Operating Partnership, any similar withholding certificates or other forms under applicable state, local or foreign Tax laws.

(f) Neither the REIT nor the Operating Partnership makes any representations or warranties to Two Harbors, Two Harbors LLC or Two Harbors Property regarding the Tax treatment of the contributions pursuant to this Agreement or of the other Formation Transactions, or with respect to any other Tax consequences to Two Harbors, Two Harbors LLC or Two Harbors Property of this Agreement or the other Formation Transactions. Two Harbors, Two Harbors LLC and Two Harbors Property each acknowledges that it is relying solely on its own Tax advisors in connection with this Agreement and the other Formation Transactions.

(g) The REIT and the Operating Partnership shall deliver to Two Harbors from time to time such information as Two Harbors may request so that Two Harbors can timely file its federal, state and other tax returns and otherwise monitor its REIT status.

(h) It is understood and agreed that the REIT and the Operating Partnership shall pay all transfer taxes, all unpaid property taxes and non-ad valorem and similar property taxes, condominium and homeowners association assessments and the like assessed against the Properties. Such taxes and assessments relating to any period before the Closing and paid by the REIT or the Operating Partnership shall be included as Current Liabilities in determining Additional Consideration (as defined below).

(i) Two Harbors has not taken, and will not take, any action that would either prevent or delay the REIT from electing to become a REIT for federal or any pertinent state tax purpose or would cause the REIT to lose its status as a REIT for federal or any state tax purpose. Two Harbors shall reasonably cooperate with the REIT as necessary to enable the REIT to qualify for taxation as a REIT for federal income tax purposes in the event the REIT is a “successor corporation, trust or association” within the meaning of Section 1.856-8(c)(2) of the Treasury Regulations, including, at the option of the REIT, either (i) providing information and representations to the REIT and its tax counsel with respect to the composition of Two Harbors’ income and assets, the composition of its shareholders, its operations and other information requested by the REIT and its tax counsel to enable such tax counsel to render an opinion as to Two Harbors’ qualification as a REIT for federal and all applicable state income tax purposes for all periods or (ii) causing Two Harbors’ tax counsel to render an opinion, which the REIT may rely upon, as to the Two Harbors’ qualification as a REIT for federal and all applicable state income tax purposes for all periods.

Section 5.05. ADDITIONAL CONSIDERATION. As specified on Schedule 5.05, following the Closing and after such amounts are determined, Two Harbors Property and its Subsidiaries shall distribute or cause to be distributed or paid out to Two Harbors LLC the net assets and other amount identified on Schedule 5.05 (the “Additional Consideration”) as additional consideration for the contribution of its interests in Two Harbors Property. If the amounts determined as specified on Schedule 5.05 are negative, Two Harbors LLC shall pay such amounts to Two Harbors Property after such amounts are determined.

Section 5.06. ACQUISITION CASH AND RENOVATION CASH CONTRIBUTION.

(a) Immediately following the Initial Valuation, Two Harbors LLC shall contribute $50 million of cash to Two Harbors Property (such amount, the “Acquisition Cash Amount”). The Acquisition Cash Amount shall be used to purchase additional Properties between the Initial Valuation and the Closing and to renovate the same. Cash amounts already on deposit with agents of Two Harbors Property for use in acquiring additional Properties shall be applied to the obligation of Two Harbors LLC to fund the Acquisition Cash Amount. If a Subsequent Valuation shall be required, Two Harbors LLC and the REIT shall agree on an amount to be funded as of the date of such Subsequent Valuation to fund acquisitions between such date and the Closing, which shall be zero dollars if the parties are unable to agree, and Two Harbors LLC shall fund such amount (such amount, the “Subsequent Acquisition Cash Amount”).

(b) Within ten (10) days of the Initial Valuation, Two Harbors and the REIT shall determine and agree to an amount that represents the estimated renovation costs for those Properties included in the Initial Valuation, and immediately following such calculation, Two Harbors LLC shall contribute such amount to Two Harbors Property (such amount, the “Renovation Cash Amount”). The Renovation Cash Amount shall be used to renovate Properties owned at the time of and included in the Initial Valuation. Cash amounts already on deposit with agents of Two Harbors Property for use in renovating such Properties shall be applied to the obligation of Two Harbors LLC to fund the Renovation Cash Amount. If a Subsequent Valuation shall be required, Two Harbors LLC and the REIT shall agree on an amount to be funded as of the date of such Subsequent Valuation to fund renovations of Properties included in such Subsequent Valuation and Two Harbors LLC shall fund such amount (such amount, the “Subsequent Renovation Cash Amount”). If the Renovation Cash Amount or, alternatively as applicable, the Subsequent Renovation Cash Amount, is exhausted prior to the Closing, Two Harbors LLC may continue to fund the renovations but shall be reimbursed within ten (10) days of the Closing for expenditures in excess of the Renovation Cash Amount or, alternatively as applicable, the Subsequent Renovation Cash Amount.

Section 5.07. POST-CLOSING COVENANTS.

(a) The REIT shall cause Two Harbors Property to change its name so as not to use “Two Harbors” and shall otherwise discontinue use of the “Two Harbors” name except as required to comply with reporting, disclosure, filing or other requirements imposed by Law or by a Governmental Authority. For purposes of clarification, the REIT and the Operating Partnership shall continue to have the right to use the name “THPI” in its business. The REIT and the Operating Partnership acknowledge that Two Harbors has prior and superior rights to use the name “Two Harbors” and is retaining all of its right, title and interest (including its trademark rights) therein and thereto.

(b) Other than describing the Formation Transactions and including any necessary financial statements of Two Harbors Property in the REIT’s SEC filings and earnings releases, and except as required by law, not to refer to Two Harbors and its business in the REIT’s SEC filings without the consent of Two Harbors.

(c) So long as Two Harbors holds at least 10% of the REIT Shares initially issued to it pursuant to this Agreement, the REIT shall (and shall cause each of its Subsidiaries to) maintain a fiscal year that commences and ends on the same calendar days as the fiscal year of Two Harbors commences and ends, and to maintain monthly accounting periods that commence and end on the same calendar days as the monthly accounting periods of Two Harbors commence and end.

(d) For each month end, so long as Two Harbors holds at least 10% of the REIT Shares initially issued to it pursuant to this Agreement, the REIT shall deliver to Two Harbors final consolidated and consolidating balance sheets, statements of operations and statements of cash flows as

well as a consolidated statement of stockholders’ equity for the REIT and its Subsidiaries as of and for such period, in such format and detail as Two Harbors may reasonably request. All of the financial statements described in the preceding sentence shall be stated in U.S. dollars, prepared in accordance with GAAP and Article 10 of Regulation S-X and any similar or successor rule to the extent applicable to Two Harbors and delivered by the REIT to Two Harbors no later than 15 calendar days after the month-end being reported.

(e) So long as Two Harbors holds at least 10% of the REIT Shares initially issued to it pursuant to this Agreement, as soon as practicable and in no event no later than 30 calendar days prior to the date on which Two Harbors is required to file a Form 10-Q or Form 10-K or other document containing its quarterly or annual financial statements with the SEC, the REIT shall deliver to Two Harbors such other information that Two Harbors may need to prepare its Form 10-Q or Form 10-K or other filing, including information needed to prepare footnotes to Two Harbors’ financial statements and a management discussion and analysis.

(f) So long as Two Harbors holds at least 10% of the REIT Shares initially issued to it pursuant to this Agreement, in the event Two Harbors intends to engage in an offering of securities, the REIT shall promptly provide such information as Two Harbors shall reasonably request and make available it management and auditors for due diligence purposes, provided, however, that Two Harbors shall not publicly release any financial information that conflicts with the information publicly reported by the REIT without prior consent of the REIT. Upon Two Harbors’ request and at Two Harbors’ cost and expense, REIT shall use reasonable best efforts to cause to be delivered “comfort letters” of the REIT’s auditors with regard to Two Harbors’ financial statements, dated as of the pricing dates and the closing date(s) and addressed to the underwriters, in any offering of securities by Two Harbors for which such comfort letters are required by underwriters. Such “comfort letters” shall be in form reasonably satisfactory to Two Harbors and customary in scope and substance for “comfort letters” delivered by independent public accountants in connection with public securities offerings. The REIT shall use reasonable best efforts to cause its auditors to consent to the inclusion of their report in, and to be named in, the REIT’s filings with the Commission with respect to any such information as is customary for such consents.

(g) So long as Two Harbors holds at least 10% of the REIT Shares initially issued to it pursuant to this Agreement, the REIT shall cooperate fully, and shall use reasonable best efforts to cause its auditors to cooperate fully, with Two Harbors, to the extent reasonably requested by Two Harbors, in the preparation of Two Harbor’s public earnings or other press releases, Quarterly Reports on Form 10-Q, Annual Reports to Stockholders, Annual Reports on Form 10-K, Current Reports on Form 8-K, and any other proxy, information and registration statements, reports, notices, prospectuses, and any other filings made by Two Harbors with the SEC or any national securities exchange or otherwise made publicly available by or on behalf of Two Harbors (collectively, the “Two Harbors Public Filings”). The REIT shall provide to Two Harbors all information Two Harbors reasonably requests in connection with any Two Harbors Public Filings or that, in the judgment of legal advisors to Two Harbors, is required to be disclosed or incorporated by reference therein under applicable Law. The REIT shall provide such information in a timely manner on the dates reasonably requested by Two Harbors (which may be earlier than the dates on which the REIT otherwise would be required hereunder to have such information available) to enable Two Harbors to prepare, print and release all Two Harbors Public Filings on such dates as Two Harbors shall determine but in no event later than as required by applicable Law. If and to the extent reasonably requested by Two Harbors, the REIT shall diligently and promptly review all drafts of such Two Harbors Public Filings and prepare in a diligent and timely fashion any portion of such Two Harbors Public Filing pertaining to the REIT. Prior to any printing or public release of any Two Harbors Public Filing, an appropriate executive officer of the REIT shall, if reasonably requested by Two Harbors, certify for and on behalf of the REIT that the information relating to the REIT or any of its Subsidiaries in

such Two Harbors Public Filing is accurate, true, complete, and correct in all material respects. Unless otherwise required by applicable Law, REIT shall not publicly release any financial information that conflicts with the information with respect to the REIT or its Subsidiaries that is included in any Two Harbors Public Filing without prior notice to Two Harbors. Prior to the release or filing thereof, Two Harbors shall provide REIT with a draft of any portion of a Two Harbors Public Filing containing information relating to REIT and its Subsidiaries and shall give REIT a reasonable opportunity to review such information and comment thereon; provided, however, that Two Harbors shall determine in its sole and absolute discretion the final form and content of all Two Harbors Public Filings.

(h) So long as Two Harbors continues to own more than 10% of the stock of the REIT, without prior notice to Two Harbors, the REIT may not change its accounting principles or practices if a change in such accounting principle or practice would be required to be disclosed in the REIT’s financial statements as filed with the Commission or otherwise publicly disclosed. The REIT shall give Two Harbors as much prior notice as reasonably practical of any proposed determination of, or any significant changes in, its accounting estimates or, subject as aforesaid, accounting principles from those in effect on the Closing Date.

(i) So long as Two Harbors continues to own more than 10% of the stock of the REIT, the REIT shall deliver to Two Harbors such quarterly reports as may be reasonably requested by Two Harbors to enable Two Harbors to determine whether or not the REIT is continuing to satisfy all of the requirements to be taxable as a REIT for federal and all applicable state income tax purposes.

(j) So long as Two Harbors continues to own more than 10% of the stock of the REIT, in the event Two Harbors is raising capital, the REIT shall reasonably cooperate with Two Harbors in connection with such offering, including, at the option of Two Harbors, either (i) providing information and representations to Two Harbors and its tax counsel with respect to the composition of the REIT’s income and assets, the composition of its shareholders, its operations and other information requested by Two Harbors and its tax counsel to enable such tax counsel to render an opinion as to the REIT’s qualification as a REIT for federal and all applicable state income tax purposes or (ii) causing the REIT’s tax counsel to render an opinion, which Two Harbors may rely upon, as to the REIT’s qualification as a REIT for federal and all applicable state income tax purposes.

ARTICLE VI
INDEMNIFICATION

Section 6.01. INDEMNIFICATION OF CONSOLIDATED ENTITIES. The Consolidated Entities and their Affiliates and each of their respective directors, officers, employees, agents and representatives (each of which is a “REIT Indemnified Party”), shall be indemnified and held harmless by Two Harbors, under the terms and conditions of this Agreement, from and against any and all Losses arising out of or relating to, asserted against, imposed upon or incurred by the Indemnified Parties in connection with or as a result of any breach of a representation or warranty contained in ARTICLE IV of this Agreement (subject to the limitations set forth in Section 4.24 and Section 4.25 and the survival limitations set forth in Section 4.26 hereof); provided, however, that the liability of Two Harbors hereunder shall be limited to an aggregate of ten percent (10%) of the Contribution Consideration multiplied by the IPO Price; and provided, further, that the directors, officers and employees of the Consolidated Entities shall be indemnified hereunder only in their capacities as such and not individually. No REIT Indemnified Party (other than the Consolidated Entities) may make a claim hereunder without the prior written consent of the REIT.

Section 6.02. INDEMNIFICATION OF TWO HARBORS. Two Harbors and its Affiliates and each of their respective directors, officers, employees, agents and representatives (each of which is a

“Two Harbors Indemnified Party” and together with the REIT Indemnified Parties, the “Indemnified Parties”), shall be indemnified and held harmless by the REIT, under the terms and conditions of this Agreement, from and against any and all Losses arising out of or relating to, asserted against, imposed upon or incurred by the Two Harbors Indemnified Parties in connection with or as a result of any breach of a representation or warranty contained in ARTICLE III of this Agreement (subject to the limitations set forth in Section 3.14 and Section 3.15 and the survival limitations set forth in Section 3.15 hereof); provided, however, that the liability of the REIT hereunder shall be limited to an aggregate of the Contribution Consideration multiplied by the IPO Price; and provided, further, that the directors, officers and employees of the Two Harbors and its Affiliates shall be indemnified hereunder only in their capacities as such and not individually. No Two Harbors Indemnified Party may make a claim hereunder without the prior written consent of Two Harbors.

Section 6.03. CLAIMS.

(a) At the time when any Indemnified Party learns of any potential claim under this Agreement (a “Claim”) against an indemnifying party, it will promptly give written notice (a “Claim Notice”) to the indemnifying party; provided that the failure to so notify the indemnifying party shall not prevent recovery under this Agreement, except to the extent that the indemnifying party shall have been materially prejudiced by such failure. Each Claim Notice shall describe in reasonable detail the facts known to the Indemnified Party giving rise to such Claim and the amount or good faith estimate of the amount of Losses arising therefrom. The Indemnified Party shall deliver to the indemnifying party, promptly after the Indemnified Party’s receipt thereof, copies of all notices and documents (including court papers) received by such Indemnified Party relating to a Third-Party Claim (as defined below); provided that failure to do so shall not prevent recovery under this Agreement, except to the extent that the indemnifying party shall have been materially prejudiced by such failure. Any Indemnified Party may at its option demand indemnity under this Article VI as soon as a Claim has been threatened by a third party, regardless of whether an actual Loss has been suffered, so long as the Indemnified Party shall in good faith determine that such claim is not frivolous and that the Indemnified Party may be liable for, or otherwise incur, a Loss as a result thereof.

(b) The indemnifying party shall be entitled, at its own expense, to elect in accordance with Section 6.04 below, to assume and control the defense of any Claim based on claims asserted by third parties (“Third-Party Claims”), through counsel chosen by the indemnifying party and reasonably acceptable to the Indemnified Party, if it gives written notice of its intention to do so to the Indemnified Party within thirty (30) days of the receipt of the applicable Claim Notice; provided, however, that the Indemnified Parties may at all times participate in such defense at their own expense. Without limiting the foregoing, in the event that the indemnifying party exercises the right to undertake any such defense against a Third-Party Claim, the Indemnified Party shall cooperate with the indemnifying party in such defense and make available to the indemnifying party, at the indemnifying party’s expense, all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under such Indemnified Party’s control relating thereto as is reasonably required by the indemnifying party. No compromise or settlement of such Third-Party Claim may be effected by either the Indemnified Party, on the one hand, or the indemnifying party, on the other hand, without the other party’s consent (which shall not be unreasonably withheld or delayed) unless (i) there is no finding or admission of any violation of Law and no effect on any other claims that may be made against such other party, (ii) each Indemnified Party that is party to such claim is released from all liability with respect to such claim, and (iii) there is no equitable order, judgment or term that in any manner affects, restrains or interferes with the business of the Indemnified Party that is party to such claim or any of its Affiliates. Notwithstanding the foregoing, if the compromise or settlement of such Third-Party Claim could reasonably be expected to adversely affect the status of the REIT as a real investment trust within the

meaning of Section 856 of the Code, then the REIT shall make such decision to compromise or settle the Third-Party Claim without the need to obtain Two Harbors’ consent.

Section 6.04. AUTHORIZATION. For purposes of this Article VI:

(a) a decision, act, consent, election or instruction of Two Harbors shall be deemed to be authorized if approved in writing by Two Harbors and the Consolidated Entities may rely upon such decision, act, consent or instruction as provided in this Section 6.04(a) as being the decision, act, consent or instruction of Two Harbors. The Consolidated Entities, including their respective directors, officers, employees, agents and representatives, are hereby relieved from any liability to any Person for any acts done by them in accordance with such decision, act, consent or instruction. Two Harbors may from time to time by written notice to the Consolidated Entities appoint a representative or representatives to exercise such powers with respect to one or more claims as may be delegated by Two Harbors

(b) a decision, act, consent, election or instruction of the Consolidated Entities shall be deemed to be authorized if approved in writing by the REIT and Two Harbors may rely upon such decision, act, consent or instruction as provided in this Section 6.04(b) as being the decision, act, consent or instruction of the Consolidated Entities. Two Harbors, including their respective directors, officers, employees, agents and representatives, are hereby relieved from any liability to any Person for any acts done by them in accordance with such decision, act, consent or instruction. The REIT may from time to time by written notice to Two Harbors appoint a representative or representatives to exercise such powers with respect to one or more claims as may be delegated by the REIT.

Section 6.05. REIT SAVINGS PROVISION. Notwithstanding the foregoing, in the event that counsel or independent accountants for the REIT determine that there exists a material risk that any amounts due to a REIT Indemnified Party under Section 6.01 of this Agreement would be treated as Nonqualifying Income upon the payment of such amounts to the REIT Indemnified Party, the amount paid to such REIT Indemnified Party pursuant to Section 6.01 of this Agreement in any tax year shall not exceed the maximum amount that can be paid to the REIT Indemnified Party in such year without causing the REIT to fail to meet the REIT Requirements for such year, determined as if the payment of such amount were Nonqualifying Income as determined by such counsel or independent accountants to the REIT. If the amount payable for any tax year under the preceding sentence is less than the amount which Two Harbors would otherwise be obligated to pay to a REIT Indemnified Party pursuant to Section 6.01 of this Agreement (the “Expense Amount”), then at the REIT’s sole cost and expense, including attorneys’ fees incurred by Two Harbors in complying with this Section 6.05: (1) Two Harbors shall place the Expense Amount into an escrow account (the “Escrow Account”) using an escrow agent and agreement acceptable to the REIT Indemnified Party and shall not release any portion thereof to the REIT Indemnified Party, and the REIT Indemnified Party shall not be entitled to any such amount, unless and until the REIT Indemnified Party delivers to Two Harbors, at the sole option of the REIT, (i) an opinion (an “Expense Amount Tax Opinion”) of the REIT’s tax counsel to the effect that such amount, if and to the extent paid, would not constitute Nonqualifying Income, (ii) a letter (an “Expense Amount Accountant’s Letter”) from the REIT’s independent accountants indicating the maximum amount that can be paid at that time to the REIT Indemnified Party without causing the REIT to fail to meet the REIT Requirements for any relevant taxable year, or (iii) a private letter ruling issued by the IRS to the REIT indicating that the receipt of any Expense Amount hereunder will not cause the REIT to fail to satisfy the REIT Requirements (a “REIT Qualification Ruling” and, collectively with an Expense Amount Tax Opinion and an Expense Amount Accountant’s Letter, a “Release Document”); and (2) pending the delivery of a Release Document by the REIT Indemnified Party to Two Harbors, the Indemnified Party shall have the right, but not the obligation, to borrow the Expense Amount from the Escrow Account pursuant to a loan agreement (an “Indemnity Loan Agreement”) acceptable to the REIT Indemnified Party that (i) requires Two Harbors to lend the REIT Indemnified Party immediately available cash

proceeds in an amount equal to the Expense Amount (an “Indemnity Loan”), and (ii) provides for (A) a commercially reasonable interest rate and commercially reasonable covenants, taking into account the credit standing and profile of the Indemnified Party or any guarantor of the REIT Indemnified Party, including the REIT, at the time of such Loan, and (B) a 15 year maturity with no periodic amortization.

ARTICLE VII
GENERAL PROVISIONS

Section 7.01. NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed given when (a) delivered personally, (b) five (5) Business Days after being mailed by certified mail, return receipt requested and postage prepaid, (c) one (1) Business Day after being sent by a nationally recognized overnight courier or (d) transmitted by facsimile if confirmed within twenty-four (24) hours thereafter by a signed original sent in the manner provided in clause (a), (b) or (c) to the parties at the following addresses (or at such other address for a party as shall be specified by notice from such party):

(a) if to the REIT or the Operating Partnership, to:

Silver Bay Realty Trust Corp.
601 Carlson Parkway
Suite 250
Minnetonka, Minnesota 55305
Fax:
Attention: Chief Executive Officer

(b) If to Two Harbors or Two Harbors LLC, to:

Two Harbors Investment Corp.

601 Carlson Parkway
Suite 1400
Minnetonka, Minnesota 55305
Fax: 612-629-2501
Attention: Brad Farrell, Chief Financial Officer

Section 7.02. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings.

(a) “Accredited Investor” has the meaning set forth under Regulation D of the Securities Act.

(b) “Acquisition Cash Amount” has the meaning set forth in Section 5.06(a).

(d) “Adjusted Acquisition Cost” means, with respect to a property, (i) the actual purchase price and commissions paid for such property by a Participating Entity plus (ii) (a) if the property was leased or available for lease as of the date of the Valuation, the actual capitalized renovation costs incurred as of such date or (b) if such property is not leased or available for lease as of the date of the Valuation, the estimated renovation cost for such property calculated in a manner agreed to by the REIT, Two Harbors and Provident.

(e) “Adjusted Cash Date” has the meaning set forth in Section 7.02(dddd).

(f) “Affiliate” means, with respect to any Person, a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the specified Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.

(g) “AVM Date” has the meaning set forth in Section 7.02(ffff).

(h) “Business Day” means any day that is not a Saturday, Sunday or legal holiday in the State of Minnesota.

(i) “Claim” has the meaning set forth in Section 6.03(a).

(j) “Claim Notice” has the meaning set forth in Section 6.03(a).

(k) “Closing” has the meaning set forth in Section 2.02.

(l) “Closing Date” has the meaning set forth in Section 2.02.

(m) “Code” means the Internal Revenue Code of 1986, as amended, together with the rules and regulations promulgated or issued thereunder.

(n) “Confidential Information” has the meaning set forth in Section 1.04(d).

(o) “Consolidated Entities” has the meaning set forth in ARTICLE IV.

(p) “Contribution Consideration” means the maximum number of REIT Shares issuable to Two Harbors LLC in exchange for its interest in Two Harbors Property, which maximum number of REIT Shares shall be equal to the product determined by multiplying by a fraction the numerator of which is the Valuation of the Properties (plus the Acquisition Cash Amount plus the Subsequent Acquisition Cash Amount, without duplicating any amounts for properties in the Valuation) and the denominator of which is the aggregate Valuation of the properties of the Participating Entities, which maximum number of REIT Shares actually issued to Two Harbors LLC shall be reduced as described in Section 1.02.

(q) “Contribution Entity” has the meaning set forth in the recitals.

(r) “Dispute” has the meaning set forth in Section 7.08(a).

(s) “Distribution” has the meaning set forth in Section 1.04(e).

(t) “Environmental Laws” means all federal, state and local Laws governing pollution or the protection of human health or the environment.

(u) “Escrow Account” has the meaning set forth in Section 6.05.

(v) “Expense Amount” has the meaning set forth in Section 6.05.

(w) “Expense Amount Accountant’s Letter” has the meaning set forth in Section 6.05.

(x) “Expense Amount Tax Opinion” has the meaning set forth in Section 6.05.

(y) “Expiration Date” has the meaning set forth in Section 4.26.

(z) “Extended Lock-Up Agreement” means that certain Lock-Up Agreement by and between the REIT and certain partners of Pine River Domestic Management L.P. and Irvin Kessler.

(aa) “Formation Transaction Documentation” means all of the agreements and plans of merger relating to all Merger Entities and all contribution agreements of the Contribution Entities (including this Agreement) and Two Harbors LLC and related documents and agreements identified in Exhibit I hereto, pursuant to which all of the Participating Entities and/or the equity interests in the Participating Entities are to be acquired by the REIT or the Operating Partnership, directly or indirectly, as part of the Formation Transactions.

(bb) “Formation Transactions” means the transactions contemplated by this Agreement and the other Formation Transaction Documentation.

(cc) “GAAP” means generally accepted accounting principles, as in effect in the United States of America as of the date of determination.

(dd) “Governmental Authority” means any government or agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

(ee) “Indemnified Parties” has the meaning set forth in Section 6.02.

(ff) “Indemnity Loan” has the meaning set forth in Section 6.05.

(gg) “Indemnity Loan Agreement” has the meaning set forth in Section 6.05.

(hh) “Initial Valuation” means the first Valuation conducted, the results of which are included in the Registration Statement.

(ii) “IPO Price” means the initial public offering price of a REIT Share in the IPO.

(jj) “JAMS” has the meaning set forth in Section 7.08(b).

(kk) “Laws” means laws, statutes, rules, regulations, codes, orders, ordinances, judgments, injunctions, decrees and policies of any Governmental Authority, including, without limitation, zoning, land use or other similar rules or ordinances.

(ll) “Leases” has the meaning set forth in Section 4.10(d).

(mm) “Letter Agreement” has the meaning set forth in Section 2.01(c)(v).

(nn) “Liens” means all pledges, claims, liens, charges, restrictions, controls, easements, rights of way, exceptions, reservations, leases, licenses, grants, covenants and conditions, encumbrances and security interests of any kind or nature whatsoever.

(oo) “LLC Agreement” means the Limited Liability Company Agreement of Two Harbors Property Investment LLC, as amended.

(pp) “Losses” means charges, complaints, claims, actions, causes of action, losses, damages, Taxes, liabilities and expenses of any nature whatsoever, including without limitation, amounts paid in settlement, reasonable attorneys’ fees, costs of investigation, costs of investigative judicial or administrative proceedings or appeals therefrom and costs of attachment or similar bonds, but does not include any diminution in value of the Consolidated Entities except in the case of breaches of Section 4.14.

(qq) “Management Agreement” means that certain management agreement among the REIT, the Operating Partnership and PRCM Real Estate Advisers LLC to be dated as of the Closing Date.

(rr) “Manager” means PRCM Real Estate Advisers LLC, a Delaware limited liability company.

(ss) “Merger Entity” has the meaning set forth in the recitals.

(tt) “Nonqualifying Income” means any amount that is treated as gross income for purposes of Section 856 of the Code and which is not Qualifying Income.

(uu) “Operating Partnership Agreement” means the agreement of limited partnership of the Operating Partnership, as amended and restated and in effect immediately prior to the Closing.

(vv) “Operating Partnership Subsidiary” has the meaning set forth in Section 3.01(c).

(ww) “Operating Subsidiary” means Silver Bay Property Corp., a Delaware corporation.

(xx) “Organizational Documents” means with respect to Two Harbors or Two Harbors Property the articles of incorporation or organization, bylaws, limited liability company agreement or operating agreement of such entity or other similar documents.

(yy) “Outside Date” has the meaning set forth in Section 2.06.

(zz) “Ownership Limits” has the meaning set forth in Section 1.02.

(aaa) “Participating Entity” means a Contribution Entity, a Merger Entity or Two Harbors Property, as applicable. As used herein, “Participating Entities” refer to each Participating Entity, collectively.

(bbb) “Permitted Liens” means (i) Liens, or deposits made to secure the release of such Liens, securing Taxes, the payment of which is not delinquent or the payment of which (including, without limitation, the amount or validity thereof) is being contested in good faith by appropriate proceedings for which adequate reserves have been made in accordance with GAAP; (ii) zoning, entitlement, building and other land use Laws imposed by governmental agencies having jurisdiction over the Properties; (iii) covenants, conditions, restrictions, easements for public utilities, encroachments, rights of access or other non-monetary matters that do not materially impair the use of the Properties for the purposes for which they are currently being used or proposed to be used in connection with the relevant Person’s business; (iv) Liens arising under Leases in effect as of the Closing Date; (v) any exceptions contained in any title policy delivered by Two Harbors Property relating to the Properties as of

the Closing Date, and with respect to Properties other than Silver Bay Properties, none of which substantially and materially impair the use of the Properties for the purposes for which they are currently being used in connection with the relevant Person’s business or relating to or arising from any unfilled obligations of Two Harbors Property or any previous owner of a Property or Lien voluntarily incurred by Two Harbors Property or any previous owner of a Property and (vi) mechanics’, carriers’, workers’, repairers’ and similar Liens arising or incurred in the ordinary course of business that are not yet due and payable and which are not, in the aggregate, material to the business, operations and financial condition of the Properties so encumbered.

(ccc) “Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity.

(ddd) “Prior Agreements” has the meaning set forth in Section 4.24.

(eee) “Properties” means the homes or other property owned by Two Harbors Property or any of its Subsidiaries.

(fff) “Property Management and Acquisition Services Agreement” means that certain property management and acquisition services agreement between the Operating Partnership and the Operating Subsidiary to be dated as of the Closing Date.

(ggg) “Provident” means Provident Real Estate Advisors LLC, a Minnesota limited liability company.

(hhh) “Provident Entities” means, collectively, the Contribution Entities and the Merger Entities.

(iii) “Qualifying Income” means gross income that is described in Section 856(c)(2) or 856(c)(3) of the Code.

(jjj) “Redeemable Preferred Shares” means shares of 10% Cumulative Redeemable Preferred Stock of the REIT, par value $0.01 per share, having a liquidation preference of $1,000 per share (plus accrued and unpaid dividends).

(kkk) “Redeemable Preferred Purchase Price” means $840,000.

(lll) “REIT Indemnified Party” has the meaning set forth in Section 6.01.

(mmm) “REIT Material Adverse Effect” means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of the REIT and its Subsidiaries, taken as a whole.

(nnn) “REIT Qualification Ruling” has the meaning set forth in Section 6.05.

(ooo) “REIT Requirements” shall mean the requirements imposed on REITs pursuant to Sections 856 through and including 860 of the Code.

(ppp) “REIT Shares” has the meaning set forth in the recitals.

(qqq) “Release Document” has the meaning set forth in Section 6.05.

(rrr) “Renovation Cash Amount” has the meaning set forth in Section 5.06(b).

(sss) “Securities Act” means the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder.

(ttt) “Side Letter” means that certain Letter Agreement by and among the REIT, the Manager, Operating Subsidiary, Two Harbors, Two Harbors Property and Provident dated as of the date hereof.

(uuu) “Silver Bay Properties” has the meaning set forth in Section 4.24.

(vvv) “Subsequent Acquisition Cash Amount” has the meaning set forth in Section 5.06(a).

(www) “Subsequent Renovation Cash Amount” has the meaning set in Section 5.06(b).

(xxx) “Subsidiary” of any Person means any corporation, partnership, limited liability company, joint venture, trust or other legal entity of which such Person owns (either directly or through or together with another Subsidiary of such Person) either (i) a general partner, managing member or other similar interest, or (ii)(A) more than fifty percent (50%) of the voting power of the voting capital stock or other equity interests, or (B) more than fifty percent (50%) of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other legal entity.

(yyy) “Tax” means all federal, state, local and foreign income, gross receipts, license, property, withholding, sales, franchise, employment, payroll, goods and services, stamp, environmental, customs duties, capital stock, social security, transfer, alternative minimum, excise and other taxes, tariffs or governmental charges of any nature whatsoever, including estimated taxes, together with penalties, interest or additions to Tax with respect thereto, whether or not disputed.

(zzz) “Third-Party Claims” has the meaning set forth in Section 6.03(b).

(aaaa) “Two Harbors Indemnified Party” has the meaning set forth in Section 6.02.

(bbbb) “Two Harbors’ Knowledge” means the actual current knowledge of Brad Farrell, Karen Fox, Mary Riskey and Rebecca Sandberg.

(cccc) “Two Harbors Material Adverse Effect” means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of Two Harbors Property and its Subsidiaries, taken as a whole.

(dddd) “Two Harbors Public Filings” has the meaning set forth in Section 5.07(g).

(eeee) “Underwriting Agreement” means that certain Underwriting Agreement by and among Credit Suisse Securities (USA) LLC as representative of the underwriters, the REIT, the Operating Partnership and the Manager.

(ffff) “Valuation” means (i) the dollar amount determined by the most recent application of the Automated Valuation Model described on Exhibit J hereto on all properties owned by a

Participating Entity that were acquired on or before August 31, 2012 (the “AVM Date”) plus (ii) the Adjusted Acquisition Cost of all properties owned by a Participating Entity that were acquired on or after September 1, 2012 (the “Adjusted Cash Date”).

Section 7.03. COUNTERPARTS. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to each other party.

Section 7.04. ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES. This Agreement and the other Formation Transaction Documentation to which the parties hereto are a party, including, without limitation, the exhibits and schedules hereto and thereto, constitute the entire agreement and, except as set forth in Section 2.05, supersede each prior agreement and understanding, whether written or oral, among the parties regarding the subject matter of this Agreement. This Agreement is not intended to confer any rights or remedies on any Person other than the parties hereto.

Section 7.05. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Delaware, regardless of any Laws that might otherwise govern under applicable principles of conflicts of laws thereof.

Section 7.06. ASSIGNMENT. This Agreement shall be binding upon, and shall be enforceable by and inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that this Agreement may not be assigned (except by operation of law) by any party without the prior written consent of the other parties, and any attempted assignment without such consent shall be null and void and of no force and effect, except that the Operating Partnership may assign its rights and obligations hereunder to an Affiliate.

Section 7.07. JURISDICTION. Subject to Section 7.08, the parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the County of Hennepin, Minnesota, with respect to any dispute arising out of this Agreement or any transaction contemplated hereby to the extent such courts would have subject matter jurisdiction with respect to such dispute, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the action is brought in an inconvenient forum, or that the venue of the action is improper.

Section 7.08. DISPUTE RESOLUTION. The parties intend that this Section 7.08 will be valid, binding, enforceable, exclusive and irrevocable and that it shall survive any termination of this Agreement.

(a) Upon any dispute, controversy or claim arising out of or relating to this Agreement or the enforcement, breach, termination or validity thereof (“Dispute”), the party raising the Dispute will give written notice to the other parties to the Dispute describing the nature of the Dispute following which the parties to such Dispute shall attempt for a period of ten (10) Business Days from receipt by the parties of notice of such Dispute to resolve such Dispute by negotiation between representatives of the parties hereto who have authority to settle such Dispute. All such negotiations shall be confidential and any statements or offers made therein shall be treated as compromise and settlement negotiations for purposes of any applicable rules of evidence and shall not be admissible as evidence in any subsequent proceeding for any purpose. The statute of limitations applicable to the commencement of a lawsuit shall apply to the commencement of an arbitration hereunder, except that no defense based on the running of the statute of limitations will be available based upon the passage of time during any such

negotiation. Regardless of the foregoing, a party shall have the right to seek immediate injunctive relief pursuant to Section 7.08(c) below without regard to any such ten (10) Business Day negotiation period.

(b) Any Dispute (including the determination of the scope or applicability of this agreement to arbitrate) that is not resolved pursuant to Section 7.08(a) above shall be submitted to final and binding arbitration in Hennepin County, Minnesota, before one neutral and impartial arbitrator, in accordance with the Laws of the State of Delaware for agreements made in and to be performed in that State. The arbitration shall be administered by JAMS, Inc. (“JAMS”) pursuant to its Comprehensive Arbitration Rules and Procedures. One arbitrator shall be appointed by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures, as in effect on the date hereof. The arbitrator shall designate the place and time of the hearing. The hearing shall be scheduled to begin as soon as practicable and no later than sixty (60) days after the appointment of the arbitrator (unless such period is extended by the arbitrator for good cause shown) and shall be conducted as expeditiously as possible. The award, which shall set forth the arbitrator’s findings of fact and conclusions of law, shall be filed with JAMS and mailed to the parties no later than thirty (30) days after the close of the arbitration hearing. The arbitration award shall be final and binding on the parties and not subject to collateral attack. Judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof.

(c) Notwithstanding the parties’ agreement to submit all Disputes to final and binding arbitration before JAMS, the parties shall have the right to seek and obtain temporary or preliminary injunctive relief in any court having jurisdiction thereof. Such courts shall have authority to, among other things, grant temporary or provisional injunctive relief in order to protect any party’s rights under this Agreement. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal shall have full authority to grant provisional remedies and to direct the parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect.

(d) The prevailing party shall be entitled to recover its costs and reasonable attorneys’ fees, and the non-prevailing party shall pay all expenses and fees of JAMS, all costs of the stenographic record, all expenses of witnesses or proofs that may have been produced at the direction of the arbitrator, and the fees, costs, and expenses of the arbitrator. The arbitrator shall allocate such costs and designate the prevailing party or parties for these purposes.

Section 7.09. SEVERABILITY. Each provision of this Agreement will be interpreted so as to be effective and valid under applicable Law, but if any provision is held invalid, illegal or unenforceable under applicable Law in any jurisdiction, then such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been included herein.

Section 7.10. RULES OF CONSTRUCTION.

(a) The parties hereto agree that they had the opportunity to be represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any Law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

(b) The words “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the

articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” All terms defined in this Agreement shall have the defined meanings contained herein when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. Unless explicitly stated otherwise herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time, amended, qualified or supplemented, including (in the case of agreements and instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns.

Section 7.11. EQUITABLE REMEDIES. The parties agree that irreparable damage would occur to each party in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that each party shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by the other parties and to enforce specifically the terms and provisions hereof in any federal or state court located in Hennepin County, Minnesota, this being in addition to any other remedy to which such parties are entitled under this Agreement or otherwise at law or in equity.

Section 7.12. TIME OF THE ESSENCE. Time is of the essence with respect to all obligations under this Agreement.

Section 7.13. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for convenience only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

Section 7.14. NO PERSONAL LIABILITY CONFERRED. This Agreement shall not create or permit any personal liability or obligation on the part of any officer, director, partner, employee or shareholder of the Operating Partnership or Two Harbors LLC.

Section 7.15. AMENDMENTS. This Agreement may not be amended without the prior written consent of Two Harbors LLC.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective duly authorized officers or representatives, all as of the date first written above.

		SILVER BAY REALTY TRUST CORP.,
		a Maryland corporation

		By:
		Name:
		Title:

		SILVER BAY OPERATING PARTNERSHIP L.P., a
		Delaware limited partnership

		By:	SILVER BAY MANAGEMENT LLC,
			a Delaware limited liability company
			Its General Partner

		By:	SILVER BAY REALTY TRUST CORP.,
			a Maryland corporation
			Its Managing Member

		By:
		Name:
		Title:

[Signature Page to Operating Partnership Contribution Agreement]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective duly authorized officers or representatives, all as of the date first written above.

		TWO HARBORS OPERATING COMPANY LLC,
		a Delaware limited liability company

		By:	TWO HARBORS INVESTMENT CORP.,
			a Maryland corporation
			Its Managing Member

		By:
			Name:
			Title:

		TWO HARBORS INVESTMENT CORP.,
		a Maryland corporation

		By:
			Name:
			Title:

[Signature Page to Operating Partnership Contribution Agreement]

EX-3.4 3 a2211979zex-3_4.htm EX-3.4

Exhibit 3.4

SILVER BAY REALTY TRUST CORP.

ARTICLES SUPPLEMENTARY

SILVER BAY REALTY TRUST CORP., a Maryland corporation (the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland (the “Department”) that:

FIRST: Pursuant to the authority expressly vested in the Board of Directors of the Corporation (the “Board of Directors”) by Article VI of the charter of the Corporation (the “Charter”) and Section 2-105 of the Maryland General Corporation Law (the “MGCL”), the Board of Directors duly adopted resolutions on or as of December 3, 2012 (i) classifying and designating 1,000 shares of the authorized but unissued preferred stock of the Corporation, par value $0.01 per share (“Preferred Stock”), as a separate class of Preferred Stock to be known as the “10% Cumulative Redeemable Preferred Stock”, (ii) setting the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, terms and conditions of redemption and other terms and conditions of such 10% Cumulative Redeemable Preferred Stock, and (iii) authorizing the issuance of 1,000 shares of such 10% Cumulative Redeemable Preferred Stock.

SECOND: The designation, number of shares, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, terms and conditions of redemption and other terms and conditions of the separate class of Preferred Stock of the Corporation designated as 10% Cumulative Redeemable Preferred Stock are as follows, which upon any restatement of the Charter shall be made a part of, or incorporated by reference into, the Charter with any necessary or appropriate changes to the enumeration or lettering of sections or subsections thereof:

1. Designation and Number. A series of Preferred Stock, designated the “10% Cumulative Redeemable Preferred Stock” (the “10% Cumulative Redeemable Preferred Stock”), is hereby established. The number of shares of 10% Cumulative Redeemable Preferred Stock initially shall be 1,000.

2. Rank. The 10% Cumulative Redeemable Preferred Stock will rank, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, (i) senior to all classes or series of common stock, par value $0.01 per share (“Common Stock”), of the Corporation and all classes or series of capital stock of the Corporation expressly designated as ranking junior to the 10% Cumulative Redeemable Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, (ii) on parity with any class or series of capital stock of the Corporation expressly designated as ranking on parity with the 10% Cumulative Redeemable Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, and (iii) junior to all other classes or series of Preferred Stock that may be issued after the date hereof (other than classes or series of stock referred to in clauses (i) and (ii)) and all classes or series of capital stock of the Corporation expressly designated as ranking senior to the 10% Cumulative Redeemable Preferred Stock as to

dividend rights and rights upon liquidation, dissolution or winding up of the Corporation (“Senior Stock”). The term “capital stock” does not include convertible or exchangeable debt securities, which will rank senior to the 10% Cumulative Redeemable Preferred Stock prior to conversion or exchange. The 10% Cumulative Redeemable Preferred Stock will rank junior in right of payment to the Corporation’s other existing and future debt obligations.

3. Dividends.

(a) Subject to the preferential rights of the holders of any class or series of capital stock of the Corporation ranking senior to the 10% Cumulative Redeemable Preferred Stock as to dividends, the holders of shares of 10% Cumulative Redeemable Preferred Stock shall be entitled to receive, when, as and if authorized by the Board of Directors and declared by the Corporation, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 10% per annum of the $1,000 liquidation preference per share of the 10% Cumulative Redeemable Preferred Stock (equivalent to the fixed annual amount of $80 per share of the 10% Cumulative Redeemable Preferred Stock). Such dividends shall accrue on a daily basis and be cumulative from and including the first date on which any shares of 10% Cumulative Redeemable Preferred Stock are issued (the “Initial Issue Date”), and shall be payable annually in arrears on June 30 of each year (“Dividend Payment Date”) or, if not a business day, the next succeeding business day with the same force and effect as if paid on such Dividend Payment Date and no interest or additional dividends or other sums shall accrue on the amount so payable from such Dividend Payment Date to such next succeeding business day. Any dividend payable on the 10% Cumulative Redeemable Preferred Stock for any partial Dividend Period (as defined below) will be computed on the basis of a 360-day year consisting of twelve 30-day months. The term “Dividend Period” shall mean, with respect to the first “Dividend Period”, the period from and including the Initial Issue Date to and including the first Dividend Payment Date, and with respect to each subsequent “Dividend Period”, the period from but excluding a Dividend Payment Date to and including the next succeeding Dividend Payment Date. Dividends shall be paid to holders of record of the 10% Cumulative Redeemable Preferred Stock as their names appear in the stock transfer records of the Corporation at the close of business on the applicable record date, which shall be the 15th day of the calendar month in which the applicable Dividend Payment Date falls or such other date designated by the Board of Directors for the payment of dividends that is not more than 30 nor less than ten days prior to such Dividend Payment Date or prior to such other date set by the Board of Directors for the payment of dividends (each, a “Dividend Record Date”). Dividends in respect of any past Dividend Periods that are in arrears may be authorized and paid at any time to holders of record on the Dividend Record Date related to each such Dividend Period. Any dividend payment made on the 10% Cumulative Redeemable Preferred Stock shall be credited first against the earliest accrued but unpaid dividend due which remains payable. The Board of Directors may at its option declare and pay accrued dividends more frequently than as otherwise provided for above.

(b) No dividends on the 10% Cumulative Redeemable Preferred Stock shall be authorized by the Board of Directors or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibit such authorization, payment or setting apart for payment or provide that such authorization, payment or setting apart for payment would

constitute a breach thereof or a default thereunder, or if such authorization or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the 10% Cumulative Redeemable Preferred Stock shall accrue whether or not the terms and provisions set forth in Section 3(b) hereof at any time prohibit the current payment of dividends, whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared. Accrued but unpaid dividends on the 10% Cumulative Redeemable Preferred Stock will accumulate as of the Dividend Payment Date on which they first become payable.

(d) Except as provided in Section 3(e), unless full cumulative dividends on the 10% Cumulative Redeemable Preferred Stock have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past completed full annual Dividend Periods, no dividends (other than in shares of Common Stock or other shares of stock ranking junior to the 10% Cumulative Redeemable Preferred Stock as to dividends and upon liquidation) shall be authorized or paid or set aside for payment, nor shall any other distribution be authorized or made, upon the Common Stock or any other stock of the Corporation ranking junior to the 10% Cumulative Redeemable Preferred Stock as to dividends or upon liquidation, nor shall any shares of Common Stock or any other shares of stock of the Corporation ranking junior to the 10% Cumulative Redeemable Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except (i) by conversion into or exchange for other stock of the Corporation ranking junior to the 10% Cumulative Redeemable Preferred Stock as to dividends and upon liquidation or (ii) to the extent necessary to preserve the Corporation’s status as a real estate investment trust for federal income tax purposes).

(e) When dividends are not paid in full (and a sum sufficient for such full payment is not so set aside) upon the 10% Cumulative Redeemable Preferred Stock and the shares of any other class or series of capital stock ranking, as to dividends, on parity with the 10% Cumulative Redeemable Preferred Stock, all dividends declared upon the 10% Cumulative Redeemable Preferred Stock and each such other class or series of capital stock ranking, as to dividends, on parity with the 10% Cumulative Redeemable Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of 10% Cumulative Redeemable Preferred Stock and such other class or series of capital stock shall in all cases bear to each other the same ratio that accrued dividends per share on the 10% Cumulative Redeemable Preferred Stock and such other class or series of capital stock (which shall not include any accrual in respect of unpaid dividends on such other class or series of capital stock for prior Dividend Periods if such other class or series of capital stock does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the 10% Cumulative Redeemable Preferred Stock which may be in arrears.

(f) Holders of the 10% Cumulative Redeemable Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or shares, in excess of the full cumulative dividends on the 10% Cumulative Redeemable Preferred Stock as described above.

(g) If, for any taxable year, the Corporation elects to designate as “capital gain dividends” (as defined in Section 856 of the Code) any portion (the “Capital Gains Amount”) of the dividends paid or made available for the year to holders of all classes of stock (the “Total Dividends”), then the Capital Gains Amount allocable to holders of the 10% Cumulative Redeemable Preferred Stock shall be the amount that the total dividends paid or made available to the holders of the 10% Cumulative Redeemable Preferred Stock for the year bears to the Total Dividends.

4. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, subject to the preferential rights of the holders of any class or series of capital stock of the Corporation ranking senior to the 10% Cumulative Redeemable Preferred Stock as to liquidation rights, the holders of the 10% Cumulative Redeemable Preferred Stock shall be entitled to receive out of the assets of the Corporation legally available for distribution to its stockholders a liquidation preference in the amount of $1,000 per share, plus an amount equal to any dividends accrued and unpaid thereon to and including the date of payment, before any distribution of assets is made to holders of Common Stock or any other class or series of stock of the Corporation that ranks junior to the 10% Cumulative Redeemable Preferred Stock as to liquidation rights.

(b) In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the legally available assets of the Corporation are insufficient to pay the full amount of the liquidation preference plus an amount equal to all dividends accrued and unpaid on all outstanding shares of 10% Cumulative Redeemable Preferred Stock and the corresponding amounts payable on all shares of other classes or series of capital stock of the Corporation ranking, as to liquidation rights, on parity with the 10% Cumulative Redeemable Preferred Stock in the distribution of assets, then the holders of the 10% Cumulative Redeemable Preferred Stock and each such other class or series of shares of capital stock ranking, as to liquidation rights, on parity with the 10% Cumulative Redeemable Preferred Stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.

(c) After payment of the full amount of liquidating distributions to which they are entitled, the holders of the 10% Cumulative Redeemable Preferred Stock will have no right or claim to any of the remaining assets of the Corporation.

(d) Neither the consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation, trust or entity with or into the Corporation, nor the sale, lease or conveyance of all or substantially all of the property or business of the Corporation, shall be deemed to constitute a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 4.

(e) In determining whether a distribution (other than upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation) by dividend, redemption or other acquisition of shares of stock of the Corporation or otherwise is permitted under the MGCL, no effect shall be given to amounts that would be needed, if the Corporation were to be

dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of the 10% Cumulative Redeemable Preferred Stock whose preferential rights upon dissolution are superior to those receiving the distribution.

5. Redemption.

(a) Right of Optional Redemption by the Corporation. The Corporation, at its option and upon not less than 15 nor more than 60 days’ written notice, may redeem the 10% Cumulative Redeemable Preferred Stock, in whole or in part, at any time or from time to time, beginning on the fifth anniversary of the Initial Issue Date (each, a “Redemption Date”), for cash at a redemption price of $1,000 per share, plus all accrued and unpaid dividends thereon to and including the date fixed for redemption (except as provided in Section 5(c) below) (the “Redemption Price”). If less than all of the outstanding shares of 10% Cumulative Redeemable Preferred Stock are to be redeemed, the shares of 10% Cumulative Redeemable Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation. The 10% Cumulative Redeemable Preferred Stock shall also be subject to re-purchase from time to time pursuant to the restrictions and limitations on ownership and Transfer (as defined in Article VII of the Charter) referred to in Section 11 below, and any successor provision of similar import.

(b) Limitations on Redemption. Unless full cumulative dividends on the 10% Cumulative Redeemable Preferred Stock have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past completed full annual Dividend Periods, no 10% Cumulative Redeemable Preferred Stock shall be redeemed unless all outstanding 10% Cumulative Redeemable Preferred Stock is simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire directly or indirectly any of the 10% Cumulative Redeemable Preferred Stock (except by exchange for capital stock of the Corporation ranking junior to the 10% Cumulative Redeemable Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase or acquisition of the 10% Cumulative Redeemable Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of 10% Cumulative Redeemable Preferred Stock or any purchase or acquisition made in order to ensure that the Corporation remains qualified as a real estate investment trust for federal income tax purposes.

(c) Rights to Dividends on Shares Called for Redemption. Immediately prior to any redemption of the 10% Cumulative Redeemable Preferred Stock, the Corporation shall pay, in cash, any accrued and unpaid dividends through the Redemption Date, unless a Redemption Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of the 10% Cumulative Redeemable Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

(d) Procedures for Redemption.

(i) Notice of redemption will be given by the Corporation not less than 15 nor more than 60 days prior to the Redemption Date, addressed to the respective holders of record of the shares of 10% Cumulative Redeemable Preferred Stock to be redeemed. No failure to give such notice or any defect thereof or in the sending thereof shall affect the validity of the proceedings for the redemption of any of the shares of 10% Cumulative Redeemable Preferred Stock except as to the holder to whom notice was defective or not given.

(ii) In addition to any information required by law, such notice shall state: (A) the Redemption Date; (B) the Redemption Price; (C) the number of shares of 10% Cumulative Redeemable Preferred Stock to be redeemed; (D) the place or places where the shares of 10% Cumulative Redeemable Preferred Stock are to be surrendered for payment of the Redemption Price; and (E) that dividends on the shares to be redeemed will cease to accrue on such Redemption Date. If less than all of the shares of 10% Cumulative Redeemable Preferred Stock held by any holder are to be redeemed, the notice sent to such holder shall also specify the number of shares of 10% Cumulative Redeemable Preferred Stock held by such holder to be redeemed.

(iii) If notice of redemption of any of the shares of 10% Cumulative Redeemable Preferred Stock has been given and if the funds necessary for such redemption have been set aside by the Corporation in trust for the benefit of the holders of the shares of 10% Cumulative Redeemable Preferred Stock so called for redemption, then, from and after the Redemption Date, dividends will cease to accrue on such shares of 10% Cumulative Redeemable Preferred Stock, such shares of 10% Cumulative Redeemable Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the Redemption Price. Holders of the shares of 10% Cumulative Redeemable Preferred Stock to be redeemed shall surrender such shares of 10% Cumulative Redeemable Preferred Stock at the place designated in such notice and, upon surrender in accordance with said notice of the certificates for the shares of 10% Cumulative Redeemable Preferred Stock so redeemed (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice shall so state), if the 10% Cumulative Redeemable Preferred Stock is certificated, such shares of 10% Cumulative Redeemable Preferred Stock shall be redeemed by the Corporation at the Redemption Price. In case fewer than all of the shares of 10% Cumulative Redeemable Preferred Stock represented by any such certificate are redeemed, a new certificate or certificates, if the 10% Cumulative Redeemable Preferred Stock is certificated, shall be issued representing the unredeemed shares of 10% Cumulative Redeemable Preferred Stock without cost to the holder thereof.

(iv) The deposit of funds with a bank or trust company for the purpose of redeeming the shares of 10% Cumulative Redeemable Preferred Stock shall be irrevocable except that:

(A) The Corporation shall be entitled to receive from such bank or trust company the interest or other earnings, if any, earned on any money so deposited in trust, and the holder of any shares redeemed shall have no claim to such interest or other earnings; and

(B) Any balance of money so deposited by the Corporation and unclaimed by the holders of the 10% Cumulative Redeemable Preferred Stock entitled thereto at

the expiration of two years from the applicable Redemption Date shall be paid, together with any interest or other earnings earned thereon, to the Corporation, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings.

(e) Legally Available Funds. No shares of 10% Cumulative Redeemable Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price.

(f) Status of Redeemed Shares. Any shares of 10% Cumulative Redeemable Preferred Stock that shall at any time have been redeemed pursuant to this Section 5 shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular class or series by the Board of Directors.

6. Put Right.

(a) At any time or from time to time, beginning on the sixth anniversary of the Initial Issue Date, the Corporation shall, at the request of any stockholder holding shares of 10% Cumulative Redeemable Preferred Stock and upon delivery of 60 days’ written notice to the Corporation from such stockholder (the “Repurchase Notice”), to the fullest extent permitted by applicable law, repurchase the Repurchase Shares (as defined below) held by such stockholder at a price per share equal to the liquidation preference of $1,000 plus all accrued and unpaid dividends on such Repurchase Shares to and including the date fixed for such repurchase. The Repurchase Notice shall specify the number of shares of 10% Cumulative Redeemable Preferred Stock held by the stockholder that the stockholder proposes to sell to the Corporation (the “Repurchase Shares”).

(b) At the closing of the sale of any Repurchase Shares, the Corporation shall purchase the Repurchase Shares from the stockholder, and the stockholder shall sell the Repurchase Shares to the Corporation, subject to, if the 10% Cumulative Redeemable Preferred Stock is certificated, the delivery by the stockholder of any certificate or certificates representing the Repurchase Shares, each certificate to be properly endorsed for transfer or accompanied by duly executed stock powers. The Corporation may require waivers of any liens, evidence of good title to the Repurchase Shares, and such other documents and agreements as it may reasonably deem necessary in connection with the repurchase.

(c) Notwithstanding Sections 6(a) and 6(b) above, in the event that the Board of Directors shall determine at any time that the repurchase by the Corporation of the Repurchase Shares as otherwise contemplated by this Section 6 would be reasonably likely to have a material adverse effect on the Corporation, its business or its prospects, the Corporation shall have the right to repurchase the Repurchase Shares ratably over time and from time to time, in increments of no less than 25% of the original number of Repurchase Shares per annum, such that the incremental repurchases shall be accomplished without being reasonably likely to have a material adverse effect on the Corporation, its business or prospects.

(d) Any shares of 10% Cumulative Redeemable Preferred Stock that shall at any time have been repurchased pursuant to this Section 6 shall, after such repurchase, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular class or series by the Board of Directors.

7. Voting Rights. Holders of the 10% Cumulative Redeemable Preferred Stock shall not have any voting rights, except as set forth in this Section 7. So long as any shares of 10% Cumulative Redeemable Preferred Stock remain outstanding, the affirmative vote or consent of the holders of two-thirds of the shares of 10% Cumulative Redeemable Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, will be required to: (a) authorize, create or issue, or increase the number of authorized or issued shares of, any class or series of Senior Stock or reclassify any authorized shares of capital stock into shares of any such class or series, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any shares of any such class or series; or (b) amend, alter or repeal the terms of the 10% Cumulative Redeemable Preferred Stock, whether by merger, consolidation or otherwise (an “Event”), so as to materially and adversely affect any right, preference, privilege or voting power of the 10% Cumulative Redeemable Preferred Stock, provided, however, that with respect to the occurrence of any Event, so long as shares of 10% Cumulative Redeemable Preferred Stock remain outstanding with the terms thereof materially unchanged or the holders of shares of 10% Cumulative Redeemable Preferred Stock receive shares of stock or beneficial interest, or other equity interests, with rights, preferences, privileges and voting powers substantially similar, taken as a whole, to the rights, preferences, privileges and voting powers of the 10% Cumulative Redeemable Preferred Stock, taking into account that, upon the occurrence of an Event, the Corporation may not be the surviving entity, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the 10% Cumulative Redeemable Preferred Stock or the holders thereof, and in such case such holders shall not have any voting rights with respect to the occurrence of any Event set forth above. In addition, if the holders of the 10% Cumulative Redeemable Preferred Stock receive (or will receive) the $1,000 liquidation preference per share of the 10% Cumulative Redeemable Preferred Stock, plus an amount equal to any dividends accrued and unpaid thereon to and including the date of payment, pursuant to the occurrence of any Event set forth above, then such holders shall not have any voting rights with respect to any such Event. For the avoidance of doubt and without limitation, holders of shares of 10% Cumulative Redeemable Preferred Stock shall not be entitled to vote with respect to: (i) any increase in the total number of authorized shares of Common Stock or the authorization for issuance or issuance of any shares of Common Stock, (ii) any increase in the total number of authorized shares of 10% Cumulative Redeemable Preferred Stock or the authorization for issuance or issuance of any such shares, (iii) any increase in the total number of authorized shares of Preferred Stock or the creation, authorization for issuance or issuance of any Preferred Stock or of any Preferred Stock of any class or series, or the creation, authorization for issuance or issuance of any other class or series of capital stock (except for Senior Stock in respect of which the affirmative vote or consent of the holders of the 10% Cumulative Redeemable Preferred Stock shall be required as provided in clause (a) above), or (iv) the creation, authorization or issuance of any obligation or security convertible into or evidencing the right to purchase any shares described in clause (i), (ii) or (iii) above. Except as specifically set forth

herein, holders of the 10% Cumulative Redeemable Preferred Stock shall not have any voting rights with respect to, and the consent of the holders of the 10% Cumulative Redeemable Preferred Stock shall not be required for, the taking of any corporate action, including an Event, regardless of the effect that such corporate action or Event may have upon the powers, preferences, voting power or other rights or privileges of the 10% Cumulative Redeemable Preferred Stock.

8. No Preemptive Rights or Appraisal Rights. No holder of 10% Cumulative Redeemable Preferred Stock shall be entitled to any preemptive rights to subscribe for or acquire any unissued shares of capital stock of the Corporation (whether now or hereafter authorized) or securities of the Corporation convertible into or exchangeable for, or carrying a right to subscribe for or acquire, shares of capital stock of the Corporation. Holders of shares of 10% Cumulative Redeemable Preferred Stock shall not be entitled to exercise any rights of an objecting stockholder provided for under Title 3, Subtitle 2 of the MGCL.

9. Conversion. The 10% Cumulative Redeemable Preferred Stock is not convertible into or exchangeable for any other property or securities of the Corporation.

10. Notice. All notices to be given to the holders of the 10% Cumulative Redeemable Preferred Stock shall be given by (i) mail, postage prepaid, (ii) overnight delivery courier service, (iii) facsimile transmission, (iv) electronic mail or (v) personal delivery, addressed to the holders of record at the mailing address or sent to the facsimile number or electronic mail address shown by the records of the Corporation.

11. Restrictions on Ownership and Transfer.

(a) The 10% Cumulative Redeemable Preferred Stock constitutes a class of Preferred Stock, and shares of Preferred Stock constitute Capital Stock (as defined in Article VII of the Charter) of the Corporation. Therefore, the 10% Cumulative Redeemable Preferred Stock, being Capital Stock, shall be subject to the Aggregate Stock Ownership Limit (as defined in Article VII of the Charter) applicable with respect to Capital Stock generally and all other restrictions and limitations on the ownership and Transfer (as defined in Article VII of the Charter) of Capital Stock set forth in the Charter and applicable to Capital Stock, including, without limitation, Section 7.2.7 of Article VII of the Charter and any successor provision of similar import.

(b) Each certificate for shares of 10% Cumulative Redeemable Preferred Stock, if certificated, or the written statement of information in lieu of a certificate, shall bear substantially the following legend:

The shares represented by this certificate are subject to restrictions on Beneficial Ownership and Constructive Ownership and Transfer for the purpose, among others, of the Corporation’s maintenance of its qualification as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain further restrictions and except as

expressly provided in the Corporation’s Charter, (i) no Person may Beneficially Own or Constructively Own shares of Capital Stock of the Corporation in excess of 9.8 percent (in value or number of shares) of the total outstanding shares of Capital Stock of the Corporation, unless such Person is an Excepted Holder (in which case the Excepted Holder Limit shall be applicable); (ii) no Person may Beneficially Own or Constructively Own Capital Stock that would result in the Corporation being “closely held” under Section 856(h) of the Code or otherwise cause the Corporation to fail to qualify as a REIT; and (iii) no Person may Transfer shares of Capital Stock if such Transfer would result in the Capital Stock of the Corporation being owned by fewer than 100 Persons after January 29, 2013. Any Person who Beneficially Owns or Constructively Owns or attempts to Beneficially Own or Constructively Own shares of Capital Stock which causes or will cause a Person to Beneficially Own or Constructively Own shares of Capital Stock in excess or in violation of the above limitations must immediately notify the Corporation. If the restrictions on transfer or ownership provided in (i) or (ii) above are violated, the shares of Capital Stock in excess or in violation of the above limitations will be automatically transferred to a Trustee of a Trust for the benefit of one or more Charitable Beneficiaries. In addition, the Corporation may redeem shares upon the terms and conditions specified by the Board of Directors in its sole discretion if the Board of Directors determines that ownership or a Transfer or other event may violate the restrictions described above. Furthermore, if the ownership restriction provided in (iii) above would be violated or upon the occurrence of certain events, attempted Transfers in violation of the restrictions described above may be void ab initio. All capitalized terms in this legend have the meanings defined in the Charter of the Corporation, as the same may be amended from time to time, a copy of which, including the restrictions on transfer and ownership, will be furnished to each holder of Capital Stock of the Corporation on request and without charge. Requests for such a copy may be directed to the Secretary of the Corporation at its principal office.

Instead of the foregoing legend, the certificate or written statement of information in lieu of a certificate may state that the Corporation will furnish a full statement about certain restrictions on transferability to a stockholder on request and without charge.

(c) In the case of an ambiguity in the application of any of the provisions of this Section 11, the Board of Directors shall have the power to determine the application of the provisions of this Section 11 and those other corresponding provisions of the Charter referred to herein or applicable hereto, in each case with respect to any situation based on the facts known to it.

(d) Except for any Transfer of shares of 10% Cumulative Redeemable Preferred Stock to any Trust (as defined in Article VII of the Charter) pursuant to Article VII of the Charter, the 10% Cumulative Redeemable Preferred Stock may not be sold, hypothecated, pledged, assigned or otherwise transferred without the prior approval of the Board of Directors.

THIRD: The 10% Cumulative Redeemable Preferred Stock has been classified and designated by the Board of Directors under the authority contained in the Charter.

FOURTH: These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law.

FIFTH: The undersigned President and Chief Executive Officer of the Corporation acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned President and Chief Executive Officer acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be executed under seal in its name and on its behalf by its President and Chief Executive Officer, and attested to by its Secretary, on this day of , 2012.

		SILVER BAY REALTY TRUST CORP.


		By:
			Name:	David N. Miller
			Title:	President and Chief Executive Officer
ATTEST:



Name:	Tim O’Brien
Title:	Secretary

EX-5.1 4 a2211979zex-5_1.htm EX-5.1
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Exhibit 5.1

Ballard Spahr LLP

300 East Lombard Street, 18th Floor
Baltimore, MD 21202-3268
TEL 410.528.5600
FAX 410.528.5650
www.ballardspahr.com

December 4, 2012

Silver Bay Realty Trust Corp.
601 Carlson Parkway, Suite 250
Minnetonka, Minnesota 55305

Re:: Silver Bay Realty Trust Corp., a Maryland corporation (the "Company")—Registration Statement on Form S-11, as amended, pertaining to the issuance and sale by the Company of up to 15,238,000 shares (the "Shares") of common stock, par value $0.01 per share (the "Common Stock"), of the Company

Ladies and Gentlemen:

We have acted as Maryland corporate counsel to the Company in connection with the registration of the Shares under the Securities Act of 1933, as amended (the "Act"), by the Company under the Registration Statement on Form S-11 (Reg. No. 333-183838), filed with the Securities and Exchange Commission (the "Commission") on or about September 11, 2012, as amended (the "Registration Statement"). You have requested our opinion with respect to the matters set forth below.

In our capacity as Maryland corporate counsel to the Company and for the purposes of this opinion, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (collectively, the "Documents"):

(i): the corporate charter of the Company (the "Charter") represented by Articles of Incorporation filed with the State Department of Assessments and Taxation of Maryland (the "Department") on June 29, 2012; and the Articles of Amendment and Restatement in the form attached as an exhibit to the Registration Statement and approved by the Board of Directors of the Corporation on December 3, 2012 (the "Articles Of Amendment and Restatement");
(ii): the Bylaws of the Company, adopted on or as of July 2, 2012 (the "Original Bylaws"), and the Amended and Restated Bylaws of the Company, adopted on or as of December 3, 2012 (the "Amended and Restated Bylaws", and together with the Original Bylaws, the "Bylaws");
(iii): the Unanimous Written Consent in Lieu of Meeting of the Board of Directors (the "Board of Directors") of the Company, dated as of July 2, 2012 (the "Organizational Minutes");
(iv): resolutions adopted by the Board of Directors on or as of September 10, 2012, September 11, 2012 and December 3, 2012 (the "Existing Directors' Resolutions", and together with the Organizational Minutes and the Final Determinations (as defined herein), the "Directors' Resolutions");
(v): the Registration Statement and the related form of prospectus included therein, in substantially the form filed or to be filed with the Commission pursuant to the Act;
(vi): a status certificate of the Department, dated as of a recent date, to the effect that the Company is duly incorporated and existing under the laws of the State of Maryland;
(vii): a Certificate of Timothy O'Brien, Secretary of the Company, dated as of the date hereof (the "Officers' Certificate"), certifying that, as a factual matter, the Charter, the Bylaws and the Directors' Resolutions are true, correct and complete, and have not been rescinded or

modified except as noted therein, and as to the manner of adoption of the Organizational Resolutions and the Existing Resolutions; and

(viii): such other documents and matters as we have deemed necessary and appropriate to render the opinions set forth in this letter, subject to the limitations, assumptions, and qualifications noted below.

In reaching the opinions set forth below, we have assumed the following:

(a): each person executing any of the Documents on behalf of any party (other than the Company) is duly authorized to do so;
(b): each natural person executing any of the Documents is legally competent to do so;
(c): any of the Documents submitted to us as originals are authentic; the form and content of any Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such documents as executed and delivered; any of the Documents submitted to us as certified, facsimile or photostatic copies conform to the original document; all signatures on all of the Documents are genuine; all public records reviewed or relied upon by us or on our behalf are true and complete; all statements and information contained in the Documents are true and complete; there has been no modification of, or amendment to, any of the Documents, and there has been no waiver of any provision of any of the Documents by action or omission of the parties or otherwise;
(d): the Officers' Certificate and all other certificates submitted to us are, as to factual matters, true and correct both when made and as of the date hereof;
(e): none of the Shares will be issued or transferred in violation of the provisions of the Article VII of the Charter relating to restrictions on ownership and transfer of capital stock; and
(f): prior to the issuance of the Shares subsequent to the date hereof, the Articles of Amendment and Restatement will be filed with and accepted for record by the Department, and the Board of Directors, or a duly authorized committee thereof, will adopt resolutions which establish the consideration to be received by the Company for the issuance and sale of the Shares (the "Final Determinations").

Based on our review of the foregoing and subject to the assumptions and qualifications set forth herein, it is our opinion that, as of the date of this letter:

(1): The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland.
(2): The issuance of the Shares has been duly authorized by all necessary corporate action on the part of the Company and when such Shares are issued and delivered by the Company in exchange for the consideration therefor as provided in, and in accordance with, the Directors' Resolutions, such Shares will be validly issued, fully paid and non-assessable.

The foregoing opinion is limited to the laws of the State of Maryland, and we do not express any opinion herein concerning any other law. We express no opinion as to the applicability or effect of any federal or state securities laws, including the securities laws of the State of Maryland, or as to federal or state laws regarding fraudulent transfers. To the extent that any matter as to which our opinion is expressed herein would be governed by any jurisdiction other than the State of Maryland, we do not express any opinion on such matter.

This opinion letter is issued as of the date hereof and is necessarily limited to laws now in effect and facts and circumstances presently existing and brought to our attention. We assume no obligation

to supplement this opinion letter if any applicable laws change after the date hereof, or if we become aware of any facts or circumstances that now exist or that occur or arise in the future and may change the opinions expressed herein after the date hereof.

We consent to the incorporation by reference of this opinion in the Registration Statement and further consent to the filing of this opinion as an exhibit to the applications to securities commissioners for the various states of the United States for registration of the Shares. We also consent to the identification of our firm as Maryland counsel to the Company in the section of the Registration Statement entitled "Legal Matters." In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the Act.


		Very truly yours,
		/s/ BALLARD SPAHR LLP

QuickLinks

Exhibit 5.1

EX-8.1 5 a2211979zex-8_1.htm EX-8.1

Exhibit 8.1

December 4, 2012

Silver Bay Realty Trust Corp.
601 Carlson Parkway, Suite 250
Minnetonka, Minnesota 55305

Re:	Certain Federal Income Tax Matters

Ladies and Gentlemen:

You have requested our opinion concerning certain United States federal income tax considerations in connection with the offering (the “Offering”) by Silver Bay Realty Trust Corp., a Maryland corporation (“Silver Bay”), of shares of Silver Bay common stock, $0.01 par value per share (“Common Stock”), pursuant to a registration statement on Form S-11 (Reg. No. 333-183838) (the “Registration Statement”), Amendment No. 4 of which was filed with the Securities and Exchange Commission (the “Commission”) on December 4, 2012. We have acted as tax counsel to Silver Bay in connection with the Offering, and have participated in the preparation of the Registration Statement and certain other documents.

In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Registration Statement and such other documentation and information provided to us by you as we have deemed necessary or appropriate as a basis for the opinion set forth herein. In addition, you have provided us with, and we are relying upon, a certificate containing certain factual statements, factual representations and covenants of an officer of Silver Bay (the “Officer’s Certificate”) relating to, among other things, the actual and proposed operations of Silver Bay and the entities in which it holds, or has held, a direct or indirect interest (collectively, the “Company”). For purposes of our opinion, we have not independently verified the facts, statements, representations and covenants set forth in the Officer’s Certificate, the Registration Statement, or in any other document. In particular, we note that the Company may engage in transactions in connection with which we have not provided legal advice, and have not reviewed, and of which we may be unaware.

Consequently, we have relied on your representation that the facts, statements, representations, and covenants presented in the Officer’s Certificate, the Registration Statement, and other documents, or otherwise furnished to us, accurately and completely describe all material facts relevant to our opinion. We have assumed that all such facts, statements, representations and covenants are true without regard to any qualification as to knowledge, belief, intent, or materiality. Our opinion is conditioned on the continuing accuracy and completeness of such facts, statements, representations and covenants. We are not aware of any facts inconsistent with the statements in the Officer’s Certificate. Any material change or inaccuracy in the facts, statements, representations, and

covenants referred to, set forth, or assumed herein or in the Officer’s Certificate may affect our conclusions set forth herein.

In our review of certain documents in connection with our opinion as expressed below, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed, photostatic, electronic or other copies, and the authenticity of the originals of such copies. Where documents have been provided to us in draft form, we have assumed that the final executed versions of such documents will not differ materially from such drafts.

Our opinion is also based on the correctness of the following assumptions: (i) Silver Bay and each of the entities comprising the Company have been and will continue to be organized and operated in accordance with the laws of the jurisdictions in which it was formed and in the manner described in the relevant organizational documents, (ii) there will be no changes in the applicable laws of the State of Maryland or of any other jurisdiction under the laws of which any of the entities comprising the Company have been formed, and (iii) each of the written agreements to which the Company is a party has been and will be implemented, construed and enforced in accordance with its terms.

In rendering our opinion, we have considered and relied upon the Internal Revenue Code of 1986, as amended (the “Code”), the regulations promulgated thereunder (“Regulations”), administrative rulings and other interpretations of the Code and the Regulations by the courts and the Internal Revenue Service (“IRS”), all as they exist at the date hereof. It should be noted that the Code, Regulations, judicial decisions, and administrative interpretations are subject to change at any time and, in some circumstances, with retroactive effect. A material change that is made after the date hereof in any of the foregoing bases for our opinion could affect our conclusions set forth herein. In addition, an opinion of counsel with respect to an issue represents counsel’s best judgment as to the outcome on the merits with respect to such issue, is not binding on the IRS or the courts, and is not a guarantee that the IRS will not assert a contrary position with respect to such issue or that a court will not sustain such a position if asserted by the IRS.

We express no opinion as to the laws of any jurisdiction other than the federal income tax laws of the United States. We express no opinion on any issue relating to the Company or any investment in Silver Bay, other than as expressly stated herein.

Based on and subject to the foregoing, we are of the opinion that:

1. Commencing with Silver Bay’s initial taxable year ending on December 31, 2012, Silver Bay has been organized in conformity with the requirements for qualification and taxation as a real estate

investment trust (a “REIT”) under the Code, and its proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code for its taxable year ending December 31, 2012 and subsequent years. As noted in the Registration Statement, Silver Bay’s qualification and taxation as a REIT under the Code depend upon its ability to meet on a continuing basis, through actual operating results, certain requirements relating to the sources of its income, the nature of its assets, its distribution levels, the diversity of its stock ownership, and various other qualification requirements imposed under the Code, and may depend in part upon the operating results, organizational structure and entity classification for United States federal income tax purposes of certain entities in which it invests. We will not review or monitor Silver Bay’s future results or compliance with these requirements. Accordingly, no assurance can be given that the actual results of Silver Bay’s operations for any particular taxable year will satisfy the requirements for qualification and taxation as a REIT under the Code.

2. Although the discussion set forth in the Registration Statement under the heading “U.S. Federal Income Tax Considerations” does not purport to discuss all possible United States federal income tax consequences of the ownership and disposition of Common Stock, such discussion, though general in nature, constitutes, in all material respects, an accurate summary under current law of the material United States federal income tax consequences of the ownership and disposition of Common Stock, subject to the qualifications, limitations and assumptions set forth therein. The United States federal income tax consequences of the ownership and disposition of Common Stock by an investor will depend upon that holder’s particular situation, and we express no opinion as to the completeness of the discussion set forth in the Registration Statement under the heading “U.S. Federal Income Tax Considerations” as applied to any particular holder.

This opinion is furnished to you in connection with the Offering. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to Orrick, Herrington & Sutcliffe LLP under the headings “Risk Factors,” “U.S. Federal Income Tax Considerations,” and “Legal Matters” in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Commission. This opinion is expressed as of the date hereof, and we are under no obligation to supplement or revise our opinion to reflect any legal developments or factual matters arising subsequent to the date hereof, or the impact of any information, document, certificate, record, statement, representation, covenant, or assumption relied upon herein that becomes incorrect or untrue.

Very truly yours,

/s/ Orrick, Herrington & Sutcliffe LLP

ORRICK, HERRINGTON & SUTCLIFFE LLP

EX-10.2 6 a2211900zex-10_2.htm EX-10.2

Exhibit 10.2

AMENDED AND RESTATED

LIMITED PARTNERSHIP AGREEMENT

SILVER BAY OPERATING PARTNERSHIP L.P.

a Delaware limited partnership

dated as of , 2012

TABLE OF CONTENTS

		Page

ARTICLE 1	DEFINED TERMS	1

ARTICLE 2	ORGANIZATIONAL MATTERS	16

Section 2.1.	Formation	16
Section 2.2.	Name	16
Section 2.3.	Delaware Office and Resident Agent; Principal Office	16
Section 2.4.	Power of Attorney	16
Section 2.5.	Term	17
Section 2.6.	Partnership Interests Are Securities	17
Section 2.7.	Certificates for Partnership Interests	17

ARTICLE 3	PURPOSE	18

Section 3.1.	Purpose and Business	18
Section 3.2.	Powers	18
Section 3.3.	Partnership Only for Purposes Specified	18
Section 3.4.	Authority; Obligations	18

ARTICLE 4	CAPITAL CONTRIBUTIONS	19

Section 4.1.	Admission and Capital Contributions of the Partners	19
Section 4.2.	Issuances of Additional Partnership Interests	19
Section 4.3.	Additional Funds and Capital Contributions	20
Section 4.4.	Stock Option Plans and Equity Plans	22
Section 4.5.	Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan	24
Section 4.6.	No Interest; No Return	24
Section 4.7.	Conversion or Redemption of Capital Shares	24
Section 4.8.	Other Contribution Provisions	24

ARTICLE 5	DISTRIBUTIONS	25

Section 5.1.	Requirement and Characterization of Distributions	25
Section 5.2.	Distributions in Kind	25
Section 5.3.	Amounts Withheld	25
Section 5.4.	Distributions to Reflect Additional Partnership Units	25
Section 5.5.	Restricted Distributions	26

ARTICLE 6	ALLOCATIONS	26

Section 6.1.	Timing and Amount of Allocations of Net Income and Net Loss	26
Section 6.2.	General Allocations	26
Section 6.3.	Regulatory Allocation Provisions	26
Section 6.4.	Tax Allocations	28

ARTICLE 7	MANAGEMENT AND OPERATIONS OF BUSINESS	29

Section 7.1.	Management	29

TABLE OF CONTENTS

(continued)

		Page

Section 7.2.	Certificate of Limited Partnership	33
Section 7.3.	Restrictions on General Partner’s Authority	33
Section 7.4.	Reimbursement of the General Partner and the Special Limited Partner	35
Section 7.5.	Outside Activities of the General Partner and the Special Limited Partner	35
Section 7.6.	Transactions with Affiliates	36
Section 7.7.	Indemnification	36
Section 7.8.	Liability of the General Partner and the Special Limited Partner	38
Section 7.9.	Other Matters Concerning the General Partner and the Special Limited Partner	40
Section 7.10.	Title to Partnership Assets	40
Section 7.11.	Reliance by Third Parties	40

ARTICLE 8	RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS	41

Section 8.1.	Limitation of Liability	41
Section 8.2.	Management of Business	41
Section 8.3.	Outside Activities of Limited Partners	41
Section 8.4.	Return of Capital	41
Section 8.5.	Rights of Limited Partners Relating to the Partnership	42
Section 8.6.	Partnership Right to Call Limited Partner Interests	42

ARTICLE 9	BOOKS, RECORDS, ACCOUNTING AND REPORTS	42

Section 9.1.	Records and Accounting	42
Section 9.2.	Partnership Year	43
Section 9.3.	Reports	43

ARTICLE 10	TAX MATTERS	43

Section 10.1.	Preparation of Tax Returns	43
Section 10.2.	Tax Elections	43
Section 10.3.	Tax Matters Partner	44
Section 10.4.	Withholding	45
Section 10.5.	Organizational Expenses	45

ARTICLE 11	PARTNER TRANSFERS AND WITHDRAWALS	45

Section 11.1.	Transfer	45
Section 11.2.	Transfer of General Partner’s Partnership Interest	46
Section 11.3.	Limited Partners’ Rights to Transfer	47
Section 11.4.	Admission of Substituted Limited Partners	49
Section 11.5.	Assignees	50
Section 11.6.	General Provisions	50

ARTICLE 12	ADMISSION OF PARTNERS	52

Section 12.1.	Admission of Successor General Partner	52

TABLE OF CONTENTS

(continued)

			Page

Section 12.2.		Admission of Additional Limited Partners	52
Section 12.3.		Amendment of Agreement and Certificate of Limited Partnership	53
Section 12.4.		Limit on Number of Partners	53
Section 12.5.		Admission	53

ARTICLE 13		DISSOLUTION, LIQUIDATION AND TERMINATION	53

Section 13.1.		Dissolution	53
Section 13.2.		Winding Up	54
Section 13.3.		Rights of Holders	55
Section 13.4.		Notice of Dissolution	55
Section 13.5.		Cancellation of Certificate of Limited Partnership	55
Section 13.6.		Reasonable Time for Winding-Up	55

ARTICLE 14		PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS	56

Section 14.1.		Procedures for Actions and Consents of Partners	56
Section 14.2.		Amendments	56
Section 14.3.		Actions and Consents of the Partners	56

ARTICLE 15		GENERAL PROVISIONS	57

Section 15.1.		Redemption Rights of Qualifying Parties	57
Section 15.2.		Addresses and Notice	60
Section 15.3.		Titles and Captions	60
Section 15.4.		Pronouns and Plurals	60
Section 15.5.		Further Action	61
Section 15.6.		Binding Effect	61
Section 15.7.		Waiver	61
Section 15.8.		Counterparts	61
Section 15.9.		Applicable Law; Consent to Jurisdiction; Waiver of Jury Trial	61
Section 15.10.		Entire Agreement	62
Section 15.11.		Invalidity of Provisions	62
Section 15.12.		Limitation to Preserve REIT Status	62
Section 15.13.		No Partition	63
Section 15.14.		No Third-Party Rights Created Hereby	63
Section 15.15.		No Rights as Stockholders	63

EXHIBIT A	PARTNERS AND PARTNERSHIP UNITS
EXHIBIT B	EXAMPLES REGARDING ADJUSTMENT FACTOR
EXHIBIT C	NOTICE OF REDEMPTION
EXHIBIT D	PARTNERSHIP UNIT DESIGNATION OF THE 10% CUMULATIVE REDEEMABLE PREFERRED UNITS OF SILVER BAY OPERATING PARTNERSHIP, L.P

iii

AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
SILVER BAY OPERATING PARTNERSHIP L.P.

THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF SILVER BAY OPERATING PARTNERSHIP L.P., dated as of , 2012, is made and entered into by and among SILVER BAY MANAGEMENT LLC, a Delaware limited liability company, as the General Partner, SILVER BAY REALTY TRUST CORP., a Maryland corporation, as the Special Limited Partner, the Persons whose names are set forth on Exhibit A attached hereto, as additional limited partners as of the date of this Agreement, and any Additional Limited Partner that is admitted from time to time to the Partnership and listed on Exhibit A attached hereto.

WHEREAS, a Certificate of Limited Partnership of the Partnership was filed with the Secretary of State of Delaware on October 29, 2012 (the “Formation Date”), and the General Partner and the Special Limited Partner entered into an original limited partnership agreement of the Partnership effective as of the Formation Date (the “Original Partnership Agreement”);

WHEREAS, the Persons (other than the Special Limited Partner) whose names are set forth on Exhibit A are being admitted as limited partners of the Partnership as of the date of this Agreement; and

WHEREAS, the Partners desire to amend and restate the Original Partnership Agreement in connection with the admission of the Persons (other than the Special Limited Partner) whose names are set forth on Exhibit A attached hereto as limited partners of the Partnership by entering into this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE 1
DEFINED TERMS

The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement:

“Act” means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time, and any successor to such statute.

“Actions” has the meaning set forth in Section 7.7 hereof.

“Additional Funds” has the meaning set forth in Section 4.3.A hereof.

“Additional Limited Partner” means a Person who is admitted to the Partnership as a limited partner pursuant to the Act and Section 4.2 and Section 12.2 hereof and who is shown as such on the books and records of the Partnership.

“Adjusted Capital Account” means, with respect to any Partner, the balance in such Partner’s Capital Account as of the end of the relevant Partnership Year or other applicable period, after giving effect to the following adjustments:

(i) increasing such Capital Account by any amounts that such Partner is obligated to restore pursuant to this Agreement upon liquidation of such Partner’s Partnership Interest or that such Person is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

(ii) decreasing such Capital Account by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

The foregoing definition of “Adjusted Capital Account” is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

“Adjusted Capital Account Deficit” means, with respect to any Partner, the deficit balance, if any, in such Partner’s Adjusted Capital Account as of the end of the relevant Partnership Year or other applicable period.

“Adjustment Factor” means 1.0; provided, however, that in the event that:

(i) the Special Limited Partner (a) declares or pays a dividend on its outstanding REIT Shares wholly or partly in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares wholly or partly in REIT Shares, (b) splits or subdivides its outstanding REIT Shares or (c) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (ii) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination;

(ii) the Special Limited Partner distributes any rights, options or warrants to all holders of its REIT Shares to subscribe for or to purchase or to otherwise acquire REIT Shares, or other securities or rights convertible into, exchangeable for or exercisable for REIT Shares (other than REIT Shares issuable pursuant to a Qualified DRIP/COPP), at a price per share less than the Value of a REIT Share on the record date for such distribution (each a “Distributed Right”), then, as of the distribution date of such Distributed Rights or, if later, the time such Distributed Rights become exercisable, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction (a) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date (or, if later, the date such Distributed Rights become exercisable) plus the maximum number of REIT Shares purchasable under such Distributed Rights and (b) the denominator of which shall be the number of REIT Shares issued and outstanding on the record date (or, if later, the date such Distributed Rights become exercisable) plus a fraction (1) the numerator of which is the maximum number of REIT Shares purchasable under such Distributed Rights times the minimum purchase price per REIT Share under such Distributed Rights and (2) the denominator of which is the Value of a REIT Share as of the record date (or, if later, the date such Distributed Rights become exercisable); provided, however, that, if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution of the Distributed Rights, to reflect a reduced maximum number of REIT Shares or any change in the minimum purchase price for the purposes of the above fraction; and

(iii) the Special Limited Partner shall, by dividend or otherwise, distribute to all holders of its REIT Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (i) or (ii) above), which evidences of indebtedness or assets relate to assets not received by the General Partner and/or the Special Limited Partner pursuant to a pro rata distribution by the Partnership, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business as of the record date by a fraction (a) the numerator of which shall be such Value of a REIT Share as of the record date and (b) the denominator of which shall be the Value of a REIT Share as of the record date less the then fair market value (as determined by the General Partner, whose determination shall be conclusive) of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share.

Notwithstanding the foregoing, no adjustments to the Adjustment Factor will be made for any class or series of Partnership Interests to the extent that the Partnership makes or effects any correlative distribution or payment to all of the Partners holding Partnership Interests of such class or series, or effects any correlative split or reverse split in respect of the Partnership Interests of such class or series. Any adjustments to the Adjustment Factor shall become effective immediately after such event, retroactive to the record date, if any, for such event. For illustrative purposes, examples of adjustments to the Adjustment Factor are set forth on Exhibit B attached hereto.

“Affiliate” means, with respect to any Person, any Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, “control” when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agreement” means this Amended and Restated Limited Partnership Agreement of Silver Bay Operating Partnership L.P., as now or hereafter amended, restated, modified, supplemented or replaced.

“Applicable Percentage” has the meaning set forth in Section 15.1.B hereof.

“Appraisal” means, with respect to any assets, the written opinion of an independent third party experienced in the valuation of similar assets, selected by the General Partner. Such opinion may be in the form of an opinion by such independent third party that the value for such property or asset as set by the General Partner is fair, from a financial point of view, to the Partnership.

“Assignee” means a Person to whom a Partnership Interest has been Transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5 hereof.

“Available Cash” means the amount of cash available for distribution to the Partners, as determined by the General Partner, in its discretion, taking into consideration necessary reserves for making investments and paying obligations of the Partnership and also taking into account that the Special Limited Partner, as a REIT, is obligated to make certain distributions so as to maintain its REIT status and to avoid corporate-level taxes.

“Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized by law to close.

“Capital Account” means, with respect to any Partner, the capital account maintained by the General Partner for such Partner on the Partnership’s books and records in accordance with the following provisions:

(i) To each Partner’s Capital Account, there shall be added such Partner’s Capital Contributions, such Partner’s distributive share of Net Income and any items in the nature of income or gain that are specially allocated pursuant to Section 6.3 hereof, and the amount of any Partnership liabilities assumed by such Partner or that are secured by any property distributed to such Partner.

(ii) From each Partner’s Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any Partnership property distributed to such Partner pursuant to any provision of this Agreement, such Partner’s distributive share of Net Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 6.3 hereof, and the amount of any liabilities of such Partner assumed by the Partnership or that are secured by any property contributed by such Partner to the Partnership (except to the extent already reflected in the amount of such Partner’s Capital Contribution).

(iii) In the event any interest in the Partnership is Transferred in accordance with the terms of this Agreement (which Transfer does not result in the termination of the Partnership for U.S. federal income tax purposes), the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Transferred interest.

(iv) In determining the amount of any liability for purposes of subsections (i) and (ii) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.

(v) The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations promulgated under Section 704 of the Code, and shall be interpreted and applied in a manner consistent with such Regulations. If the General Partner shall determine that it is necessary or prudent to modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, the General Partner may make such modification, provided that such modification is not likely to have any material effect on the amounts distributable to any Partner pursuant to Article 13 hereof upon the dissolution of the Partnership. The General Partner may, in its sole discretion, (a) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (b) make any appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.

“Capital Contribution” means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any Contributed Property that such Partner contributes or is deemed to contribute to the Partnership pursuant to Article 4 hereof.

“Capital Share” means a share of any class or series of stock of the Special Limited Partner now or hereafter authorized other than a REIT Share.

“Cash Amount” means an amount of cash equal to the product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount determined as of the applicable Valuation Date.

“Certificate” means the Certificate of Limited Partnership of the Partnership filed with the Delaware Secretary of State, as amended from time to time in accordance with the terms hereof and the Act.

“Charity” means an entity described in Section 501(c)(3) of the Code or any trust all the beneficiaries of which are such entities.

“Charter” means the charter of the Special Limited Partner, within the meaning of Section 1-101(e) of the Maryland General Corporation Law.

“Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.

“Consent” means the consent to, approval of, or vote in favor of a proposed action by a Partner given in accordance with Article 14 hereof. The terms “Consented” and “Consenting” have correlative meanings.

“Consent of the General Partner” means the Consent of the sole General Partner, which Consent, except as otherwise specifically required by this Agreement, may be obtained prior to or after the taking of any action for which it is required by this Agreement and may be given or withheld by the General Partner in its sole and absolute discretion.

“Consent of the Limited Partners” means the Consent of a Majority in Interest of the Limited Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by each Limited Partner in its sole and absolute discretion.

“Consent of the Partners” means the Consent of the General Partner and the Consent of the Limited Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by the General Partner or the Limited Partners in their sole and absolute discretion; provided, however, that, if any such action affects only certain classes or series of Partnership Interests, “Consent of the Partners” means the Consent of the General Partner and the Consent of a Majority in Interest of the Partners of the affected classes or series of Partnership Interests.

“Contributed Property” means each Property other than cash contributed or deemed contributed to the Partnership.

“Contribution Agreements” means the “Contribution Agreements” between the Partnership and other parties pursuant to which the Partnership will acquire a portfolio of single-family proprties concurrently with the Company’s initial public offering of REIT Shares.

“Controlled Entity” means, as to any Partner, (a) any corporation more than fifty percent (50%) of the outstanding voting stock of which is owned by such Partner or such Partner’s Family Members or Affiliates, (b) any trust, whether or not revocable, of which such Partner or such Partner’s Family Members or Affiliates are the sole beneficiaries, (c) any partnership of which such Partner or its Affiliates are the managing partners and in which such Partner, such Partner’s Family Members or Affiliates hold partnership interests representing at least twenty-five percent (25%) of such partnership’s capital and profits and (d) any limited liability company of which such Partner or its Affiliates are the managers and

in which such Partner, such Partner’s Family Members or Affiliates hold membership interests representing at least twenty-five percent (25%) of such limited liability company’s capital and profits.

“Cut-Off Date” means the third (3rd) Business Day after the General Partner’s receipt of a Notice of Redemption.

“Debt” means, as to any Person, as of any date of determination: (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; and (iii) lease obligations of such Person that, in accordance with generally accepted accounting principles, should be capitalized.

“Delaware Courts” has the meaning set forth in Section 15.9.B hereof.

“Depreciation” means, for each Partnership Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner.

“Disregarded Entity” means, with respect to any Person, (i) any “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)) of such Person, (ii) any entity treated as a disregarded entity for federal income tax purposes with respect to such Person, or (iii) any grantor trust if the sole owner of the assets of such trust for federal income tax purposes is such Person.

“Distributed Right” has the meaning set forth in the definition of “Adjustment Factor.”

“Equity Plan” means any stock or equity purchase plan, restricted stock or equity plan or other similar equity compensation plan now or hereafter adopted by the Partnership or the Special Limited Partner.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.

“Family Members” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption or step-descendants by marriage), brothers and sisters, nieces and nephews and inter vivos or testamentary trusts (whether revocable or irrevocable) of which only such Person and his or her spouse, ancestors, descendants (whether by blood or by adoption or step-descendants by marriage), brothers and sisters and nieces and nephews are beneficiaries.

“Final Adjustment” has the meaning set forth in Section 10.3.B(2) hereof.

“Flow-Through Partners” has the meaning set forth in Section 11.6.D hereof.

“Flow-Through Entity” has the meaning set forth in Section 11.6.D hereof.

“Formation Date” has the meaning set forth in the Recitals.

“Funding Debt” means any Debt incurred by or on behalf of the General Partner or the Special Limited Partner for the purpose of providing funds to the Partnership.

“General Partner” means Silver Bay Management LLC and its successors and assigns as a general partner of the Partnership, in each case, that is admitted from time to time to the Partnership as a general partner pursuant to the Act and this Agreement and is listed as a general partner on Exhibit A, as such Exhibit A may be amended from time to time, in such Person’s capacity as a general partner of the Partnership.

“General Partner Interest” means the entire Partnership Interest held by a General Partner, which Partnership Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or any other Partnership Units.

“Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

(a) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset on the date of contribution, as determined by the General Partner and agreed to by the contributing Partner.

(b) The Gross Asset Values of all Partnership assets immediately prior to the occurrence of any event described in clauses (i) through (v) below shall be adjusted to equal their respective gross fair market values, as determined by the General Partner using such reasonable method of valuation as it may adopt, as of the following times:

(i) the acquisition of an additional interest in the Partnership (other than in connection with the execution of this Agreement but including, without limitation, acquisitions pursuant to Section 4.2 hereof or contributions or deemed contributions by the General Partner pursuant to Section 4.2 hereof) by a new or existing Partner in exchange for more than a de minimis Capital Contribution, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;

(ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;

(iii) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);

(iv) the grant of an interest in the Partnership (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Partnership by an existing Partner acting in a partner capacity, or by a new Partner acting in a partner capacity or in anticipation of becoming a Partner of the Partnership, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; and

(v) at such other times as the General Partner shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2.

(c) The Gross Asset Value of any Partnership asset distributed to a Partner shall be the gross fair market value of such asset on the date of distribution, as determined by the distributee and the General Partner; provided, however, that if the distributee is the General Partner or if the distributee and the General Partner cannot agree on such a determination, such gross fair market value shall be determined by Appraisal.

(d) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the General Partner reasonably determines that an adjustment pursuant to subsection (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d).

(e) If the Gross Asset Value of a Partnership asset has been determined or adjusted pursuant to subsection (a), subsection (b) or subsection (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Losses.

“Hart-Scott-Rodino Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Holder” means either (a) a Partner or (b) an Assignee owning a Partnership Interest.

“Incapacity” or “Incapacitated” means: (i) as to any Partner who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her person or his or her estate; (ii) as to any Partner that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter; (iii) as to any Partner that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) as to any Partner that is an estate, the distribution by the fiduciary of the estate’s entire interest in the Partnership; (v) as to any trustee of a trust that is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief of such Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and non-appealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner’s creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner’s properties, (f) any proceeding seeking liquidation, reorganization or other relief of or against a Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Partner’s consent or acquiescence of a trustee, receiver or liquidator if the appointment has not been vacated or stayed within ninety (90) days of such

appointment, or (h) an appointment referred to in clause (g) above is not vacated within ninety (90) days after the expiration of any stay of such appointment.

“Indemnitee” means (i) any Person made, or threatened to be made, a party to a proceeding by reason of its status as (a) the General Partner or the Special Limited Partner or (b) a director of the General Partner or the Special Limited Partner or an officer or employee of the Partnership, the General Partner or the Special Limited Partner and (ii) such other Persons (including Affiliates of the General Partner, the Special Limited Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.

“IRS” means the United States Internal Revenue Service.

“Limited Partner” means the Original Limited Partners and any other Person that is admitted from time to time to the Partnership as a limited partner pursuant to the Act and this Agreement and is listed as a limited partner on Exhibit A attached hereto, as such Exhibit A may be amended from time to time, including any Substituted Limited Partner or Additional Limited Partner, in such Person’s capacity as a limited partner of the Partnership.

“Limited Partner Interest” means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such holder to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or other Partnership Units.

“Liquidating Event” has the meaning set forth in Section 13.1 hereof.

“Liquidator” has the meaning set forth in Section 13.2.A hereof.

“Majority in Interest of the Limited Partners” means Limited Partners (other than the Special Limited Partner and any Limited Partner fifty percent (50%) or more of whose equity is owned, directly or indirectly, by the General Partner or the Special Limited Partner unless they are the only Limited Partners) holding in the aggregate Percentage Interests that are greater than fifty percent (50%) of the aggregate Percentage Interests of all such Limited Partners entitled to Consent to or withhold Consent from a proposed action.

“Majority in Interest of the Partners” means Partners holding in the aggregate Percentage Interests that are greater than fifty percent (50%) of the aggregate Percentage Interests of all Partners entitled to Consent to or withhold Consent from a proposed action.

“Market Price” has the meaning set forth in the definition of “Value.”

“Merger Agreements” means the “Merger Agreements” between the Partnership and other parties pursuant to which the Partnership will acquire a portfolio of single-family properties concurrently with the Company’s initial public offering of REIT Shares.

“Net Income” or “Net Loss” means, for each Partnership Year or other applicable period, an amount equal to the Partnership’s taxable income or loss for such year or other applicable period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of “Net Income” or “Net Loss” shall be added to (or subtracted from, as the case may be) such taxable income (or loss);

(b) Any expenditure of the Partnership described in Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of “Net Income” or “Net Loss,” shall be subtracted from (or added to, as the case may be) such taxable income (or loss);

(c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) or subsection (c) of the definition of “Gross Asset Value,” the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;

(d) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

(e) In lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Partnership Year or other applicable period;

(f) To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner’s interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and

(g) Notwithstanding any other provision of this definition of “Net Income” or “Net Loss,” any item that is specially allocated pursuant to Section 6.3 hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Section 6.3 hereof shall be determined by applying rules analogous to those set forth in this definition of “Net Income” or “Net Loss.”

“New Securities” means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase REIT Shares or Preferred Shares, excluding grants under the Stock Option Plans, or (ii) any Debt issued by the Special Limited Partner that provides any of the rights described in clause (i).

“Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).

“Nonrecourse Liability” has the meaning set forth in Regulations Sections 1.704-2(b)(3) and 1.752-1(a)(2).

“Notice of Redemption” means the Notice of Redemption substantially in the form of Exhibit C attached to this Agreement.

“Optionee” means a Person to whom a stock option is granted under any Stock Option Plan.

“Original Limited Partner” means any Person that is a Limited Partner as of the close of business on the date of the closing of the issuance of REIT Shares pursuant to the initial public offering of REIT Shares, and does not include any Assignee or other transferee, including, without limitation, any Substituted Limited Partner succeeding to all or any part of the Partnership Interest of any such Person.

“Ownership Limit” means the restriction or restrictions on the ownership and transfer of stock of the Special Limited Partner imposed under the Charter.

“Partner” means the General Partner or a Limited Partner, and “Partners” means the General Partner and the Limited Partners.

“Partner Minimum Gain” means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).

“Partner Nonrecourse Debt” has the meaning set forth in Regulations Section 1.704-2(b)(4).

“Partner Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(i)(1), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2).

“Partnership” means the limited partnership formed and continued under the Act and continued pursuant to this Agreement, and any successor thereto.

“Partnership Common Unit” or “Common Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2 hereof, but does not include any Partnership Preferred Unit or any other Partnership Unit specified in a Partnership Unit Designation as being other than a Partnership Common Unit; provided that the General Partner Interest and the Limited Partner Interests shall have the differences in rights and privileges as specified in this Agreement.

“Partnership Employee” means an employee or other service provider of the Partnership or of a Subsidiary of the Partnership, if any, acting in such capacity.

“Partnership Equivalent Units” has the meaning set forth in Section 4.7.A hereof.

“Partnership Interest” means an ownership interest in the Partnership held by either a Limited Partner or a General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. There may be one or more classes or series of Partnership Interests. A Partnership Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or other Partnership Units.

“Partnership Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).

“Partnership Preferred Unit” means a fractional, undivided share of the Partnership Interests that the General Partner has authorized and caused the Partnership to issue pursuant to Section 4.1, 4.2 or 4.3 hereof that has distribution rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the Partnership Common Units, including the Partnership Preferred Units issued to the Special Limited Partner pursuant to Section 4.1.

“Partnership Record Date” means the record date established by the General Partner for a distribution pursuant to Section 5.1 hereof, which record date shall generally be the same as the record date established by the Special Limited Partner for a distribution to its stockholders of some or all of its portion of such distribution.

“Partnership Unit” means a Partnership Common Unit, a Partnership Preferred Unit or any other unit of the fractional, undivided share of the Partnership Interests that the General Partner has authorized and caused the Partnership to issue pursuant to this Agreement; provided, however, that Partnership Units comprising a General Partner Interest or a Limited Partner Interest shall have the differences in rights and privileges as specified in this Agreement.

“Partnership Unit Designation” means (i) with respect to the Partnership Preferred Units issued to the Special Limited Partner pursuant to Section 4.1, the description of the terms of such Partnership Preferred Units as set forth in Exhibit D and (ii) with respect to Partnership Preferred Units issued after the date of this Agreement, a description of the terms of such Partnership Preferred Units as described in and referred to as a “Preferred Unit Designation” in Section 4.2.A. The terms set forth in a Preferred Unit Designation with respect to a particular Partnership Preferred Unit shall determine the special rights, privileges and obligations of such Partnership Preferred Unit.

“Partnership Year” has the meaning set forth in Section 9.2.

“Percentage Interest” means, with respect to each Partner, the fraction, expressed as a percentage, the numerator of which is the aggregate number of Partnership Units of all classes and series held by such Partner and the denominator of which is the total number of Partnership Units of all classes and series held by all Partners; provided, however, that, to the extent applicable in context, the term “Percentage Interest” means, with respect to a Partner, the fraction, expressed as a percentage, the numerator of which is the aggregate number of Partnership Units of a specified class or series (or specified group of classes and/or series) held by such Partner and the denominator of which is the total number of Partnership Units of such specified class or series (or specified group of classes and/or series) held by all Partners.

“Permitted Transfer” has the meaning set forth in Section 11.3.A hereof.

“Person” means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity.

“Pledge” has the meaning set forth in Section 11.3.A hereof.

“Preferred Share” means a share of stock of the Special Limited Partner of any class or series now or hereafter authorized or reclassified that has dividend rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the REIT Shares. Preferred Shares shall include the “Cumulative Redeemable Preferred Stock” issued by the Special Limited Partner to Two Harbors Operating Company LLC pursuant to the Contribution Agreement between the Special Limited Partner, Two Harbors Investment Corp., Two Harbors Operating Company LLC and the Partnership in partial consideration for a contribution of limited liability company interests in Two Harbors Property Investment LLC to the Special Limited Partner.

“Properties” means any assets and property of the Partnership such as, but not limited to, interests in real property and personal property, including, without limitation, fee interests, interests in ground leases, easements and rights of way, interests in limited liability companies, joint ventures or partnerships, interests in mortgages, and Debt instruments as the Partnership may hold from time to time and “Property” means any one such asset or property.

“Qualified DRIP/COPP” means a dividend reinvestment plan or a cash option purchase plan of the Special Limited Partner that permits participants to acquire REIT Shares using the proceeds of dividends paid by the Special Limited Partner or cash of the participant, respectively; provided, however, that if such shares are offered at a discount, such discount must (i) be designed to pass along to the stockholders of the Special Limited Partner the savings enjoyed by the Special Limited Partner in connection with the avoidance of stock issuance costs and (ii) not exceed 5% of the value of each REIT Share purchased, as computed under the terms of such plan.

“Qualified Transferee” means an “accredited investor” as defined in Rule 501 promulgated under the Securities Act.

“Qualifying Party” means (a) a Limited Partner, (b) an Assignee or (c) a Person, including a lending institution as the pledgee of a Pledge, who is the transferee of a Limited Partner Interest in a Permitted Transfer; provided, however, that a Qualifying Party shall not include the Special Limited Partner.

“Redemption” has the meaning set forth in Section 15.1.A hereof.

“Regulations” means the income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

“Regulatory Allocations” has the meaning set forth in Section 6.3.A(viii) hereof.

“REIT” means a real estate investment trust qualifying under Code Section 856.

“REIT Partner” means (a) the Special Limited Partner or any Affiliate of the Special Limited Partner to the extent such Person has in place an election to qualify as a REIT and, (b) any Disregarded Entity with respect to any such Person.

“REIT Payment” has the meaning set forth in Section 15.12 hereof.

“REIT Requirements” has the meaning set forth in Section 5.1 hereof.

“REIT Share” means a share of common stock of the Special Limited Partner, par value $0.01 per share (but shall not include any additional series or class of the Special Limited Partner’s common stock created after the date of this Agreement).

“REIT Shares Amount” means a number of REIT Shares equal to the product of (a) the number of Tendered Units and (b) the Adjustment Factor; provided, however, that, in the event that the Special Limited Partner issues to all holders of REIT Shares as of a certain record date rights, options, warrants or convertible or exchangeable securities entitling the Special Limited Partner’s stockholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the “Rights”), with the record date for such Rights issuance falling within the period starting on the date of the Notice of Redemption and ending on the day immediately preceding the Specified Redemption Date, which Rights will not be distributed before the relevant Specified Redemption Date, then the REIT Shares Amount

shall also include such Rights that a holder of that number of REIT Shares would be entitled to receive, expressed, where relevant hereunder, in a number of REIT Shares determined by the Special Limited Partner.

“Related Party” means, with respect to any Person, any other Person whose ownership of shares of the Special Limited Partner’s capital stock would be attributed to the first such Person under Code Section 544 (as modified by Code Section 856(h)(1)(B)) or Code Section 318(a) (as modified by Code Section 856(d)(5)).

“Rights” has the meaning set forth in the definition of “REIT Shares Amount.”

“Safe Harbors” has the meaning set forth in Section 11.3.C hereof.

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.

“Special Limited Partner” means Silver Bay Realty Trust Corp., a Maryland corporation.

“Special Redemption” has the meaning set forth in Section 15.1.A hereof.

“Specified Redemption Date” means the last Business Day of a calendar month during which the General Partner receives a Notice of Redemption from a Limited Partner; provided, however, that no Specified Redemption Date shall occur during the first Twelve-Month Period (except pursuant to a Special Redemption).

“Stock Option Plans” means any equity option plan now or hereafter adopted by the Partnership or the Special Limited Partner.

“Subsidiary” means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person; provided, however, that, with respect to the Partnership, “Subsidiary” means solely a partnership or limited liability company (taxed, for federal income tax purposes, as a partnership or as a Disregarded Entity and not as an association or publicly traded partnership taxable as a corporation) of which the Partnership is a member or any “taxable REIT subsidiary” of the Special Limited Partner in which the Partnership owns shares of stock, unless the ownership of shares of stock of a corporation or other entity (other than a “taxable REIT subsidiary”) will not jeopardize the Special Limited Partner’s status as a REIT or any Special Limited Partner Affiliate’s status as a “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)), in which event the term “Subsidiary” shall include such corporation or other entity.

“Substituted Limited Partner” means a Person who is admitted as a Limited Partner to the Partnership pursuant to (i) Section 11.4 hereof or (ii) any Partnership Unit Designation.

“Surviving Partnership” has the meaning set forth in Section 11.3.B(ii) hereof.

“Tax Items” has the meaning set forth in Section 6.4.A hereof.

“Tendered Units” has the meaning set forth in Section 15.1.A hereof.

“Tendering Party” has the meaning set forth in Section 15.1.A hereof.

“Termination Transaction” has the meaning set forth in Section 11.3.B hereof.

“Transfer” means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), Pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary, involuntary or by operation of law; provided, however, that when the term is used in Article 11 hereof, except as otherwise expressly provided, “Transfer” does not include (a) any Redemption of Partnership Common Units by the Partnership, or acquisition of Tendered Units by the Special Limited Partner, pursuant to Section 15.1 hereof or (b) any redemption of Partnership Units pursuant to any Partnership Unit Designation. The terms “Transferred” and “Transferring” have correlative meanings.

“Twelve-Month Period” means (a) as to any Partnership Common Units held by an Original Limited Partner as of the date of this Agreement, or any Assignee of such Original Limited Partner that is a Qualifying Party, a twelve-month period ending on the day before the first anniversary of the date of this Agreement and (b) as to any other Partnership Common Units held by a Qualifying Party, a twelve-month period ending on the day before the first anniversary of such Qualifying Party’s first becoming a Holder of such Partnership Common Units; provided, however, that the General Partner may, in its sole and absolute discretion, by written agreement with a Qualifying Party, shorten or lengthen the Twelve-Month Period to a period of shorter or longer than twelve (12) months with respect to a Qualifying Party other than an Original Limited Partner or an Assignee of an Original Limited Partner.

“Valuation Date” means the date of receipt by the General Partner of a Notice of Redemption pursuant to Section 15.1 herein, or such other date as specified herein, or, if such date is not a Business Day, the immediately preceding Business Day.

“Value” means, on any Valuation Date with respect to a REIT Share, the average of the daily Market Prices for ten (10) consecutive trading days immediately preceding the Valuation Date (except that the Market Price for the trading day immediately preceding the date of exercise of a stock option under any Stock Option Plans shall be substituted for such average of daily market prices for purposes of Section 4.4 hereof). The term “Market Price” on any date means, with respect to any class or series of outstanding REIT Shares, the last sale price for such REIT Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such REIT Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such REIT Shares are not listed or admitted to trading on the New York Stock Exchange, the last sale price for such REIT Shares, regular way, or in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such REIT Shares are listed or admitted to trading unless that national securities exchange is the NASDAQ Stock Market, in which case “Market Price” means the last sale price for such REIT Shares, regular way, as reported on the consolidated transaction reporting system with respect to securities listed on the NASDAQ Stock Market, or in case no such sales takes place on such date, the average of the high closing bid and low closing asked prices or, if such REIT Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high closing bid and low closing asked prices in the over-the-counter market, as reported by the principal automated quotation system on which REIT Shares are quoted or, if such REIT Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such REIT Shares selected by the board of directors of the Special Limited Partner or, in the event that no trading price is available for such REIT Shares, the fair market value of the REIT Shares, as determined by the board of directors of the Special Limited Partner. In the event that the REIT Shares Amount includes Rights that a holder of REIT Shares would be entitled to receive, then the Value of such

Rights shall be determined by the Special Limited Partner on the basis of such quotations and other information as it considers appropriate.

“Vesting Date” has the meaning set forth in Section 4.4.C.2 hereof.

ARTICLE 2
ORGANIZATIONAL MATTERS

Section 2.1. Formation. The Partnership is a limited partnership heretofore formed and continued pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes.

Section 2.2. Name. The name of the Partnership is “Silver Bay Operating Partnership L.P.” The Partnership’s business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words “Limited Partnership,” “L.P.,” “Ltd.” or similar words or letters shall be included in the Partnership’s name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Partners of such change in the next regular communication to the Partners.

Section 2.3. Delaware Office and Resident Agent; Principal Office. The address of the registered office of the Partnership in the State of Delaware shall be located at such place within the State of Delaware as the General Partner may from time to time designate, and the resident agent of the Partnership in the State of Delaware shall be such resident of the State of Delaware as the General Partner may from time to time designate. The principal office of the Partnership is located at 601 Carlson Parkway, Suite 250, Minnetonka, Minnesota 55305 or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable.

Section 2.4. Power of Attorney.

A. Each Limited Partner and Assignee hereby irrevocably constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:

(1) execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices: (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the General Partner or any Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this

Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the distribution or exchange of assets of the Partnership pursuant to the terms of this Agreement; (e) all instruments relating to the admission, acceptance, withdrawal, removal or substitution of any Partner pursuant to the terms of this Agreement or the Capital Contribution of any Partner; and (f) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges relating to Partnership Interests; and

(2) execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement.

Nothing contained herein shall be construed as authorizing the General Partner or any Liquidator to amend this Agreement except in accordance with Section 14.2 hereof or as may be otherwise expressly provided for in this Agreement.

B. The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Limited Partners and Assignees will be relying upon the power of the General Partner or the Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of all or any portion of such Person’s Partnership Interest and shall extend to such Person’s heirs, successors, assigns and personal representatives. Each such Limited Partner and Assignee hereby agrees to be bound by any representation made by the General Partner or the Liquidator, acting in good faith pursuant to such power of attorney; and each such Limited Partner and Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the Liquidator, taken in good faith under such power of attorney. Each Limited Partner and Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partner’s or the Liquidator’s request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator (as the case may be) deems necessary to effectuate this Agreement and the purposes of the Partnership. Notwithstanding anything else set forth in this Section 2.4.B, no Limited Partner shall incur any personal liability for any action of the General Partner or the Liquidator taken under such power of attorney.

Section 2.5. Term. The term of the Partnership commenced on October 29, 2012, the date that the original Certificate was filed with the Delaware Secretary of State in accordance with the Act, and shall continue indefinitely unless the Partnership is dissolved sooner pursuant to the provisions of Article 13 hereof or as otherwise provided by law.

Section 2.6. Partnership Interests Are Securities. All Partnership Interests shall be securities within the meaning of, and governed by, (i) Article 8 of the Delaware Uniform Commercial Code and (ii) Article 8 of the Uniform Commercial Code of any other applicable jurisdiction.

Section 2.7. Certificates for Partnership Interests. The General Partner may, in its discretion, issue certificates to evidence the Partnership Interests. Any such certificates shall be executed by the General Partner and shall be in such form (and contain such legends) as determined by the General Partner.

ARTICLE 3
PURPOSE

Section 3.1. Purpose and Business. The purpose and nature of the Partnership is to conduct any business, enterprise or activity permitted by or under the Act, including, without limitation, (i) to conduct the business of acquisition, ownership, construction, reconstruction, development, redevelopment, alteration, improvement, maintenance, operation, sale, leasing, transfer, encumbrance, conveyance and exchange of the Properties, (ii) to acquire and invest in any securities and/or loans relating to the Properties, (iii) to enter into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Act, or to own interests in any entity, including any Subsidiary, engaged in any business permitted by or under the Act, and (iv) to do anything necessary or incidental to the foregoing.

Section 3.2. Powers.

A. The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership including, without limitation, full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, to borrow and lend money and to issue evidence of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, to acquire, own, manage, improve and develop real property and lease, sell, transfer and dispose of real property.

B. Notwithstanding any other provision in this Agreement, the General Partner shall cause the Partnership not to take, or to refrain from taking, any action that, in the judgment of the Special Limited Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the Special Limited Partner to continue to qualify as a REIT, (ii) could subject the Special Limited Partner to any taxes under Code Section 857 or Code Section 4981 or any other related or successor provision under the Code, (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over the Special Limited Partner, its securities or the Partnership or (iv) could cause the Special Limited Partner not to be in compliance in all material respects with any covenants, conditions or restrictions now or hereafter placed upon the Special Limited Partner pursuant to an agreement to which it is a party, unless, in any such case, such action (or inaction) under clause (i), clause (ii), clause (iii) or clause (iv) above shall have been specifically Consented to by the Special Limited Partner.

Section 3.3. Partnership Only for Purposes Specified. The Partnership shall be a limited partnership only for the purposes specified in Section 3.1 hereof, and this Agreement shall not be deemed to create a company, venture or partnership between or among the Partners or any other Persons with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall the Partnership be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act.

Section 3.4. Authority; Obligations. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its Properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall

the Partnership be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred by such Partner pursuant to and as limited by the terms of this Agreement and the Act.

ARTICLE 4
CAPITAL CONTRIBUTIONS

Section 4.1. Admission and Capital Contributions of the Partners. The Persons listed on Exhibit A attached hereto (other than the Special Limited Partner) are hereby admitted as Limited Partners of the Partnership. Such Limited Partners and the Special Limited Partner are making (or are deemed to be making) Capital Contributions of interests in limited liability companies (and the assets owned directly or indirectly by such entities) to the Partnership and are being issued Partnership Common Units and, in the case of the Special Limited Partner, Preferred Partnership Units, as specified in the Contribution Agreements and Merger Agreements. In addition, the Special Limited Partner is contributing the cash proceeds of its initial public offering as an additional Capital Contribution in exchange for additional Partnership Common Units. In addition, because the cash proceeds of such offering are less than the gross proceeds as a result of the underwriter’s discount and other expenses paid or incurred in connection with such issuance, the Special Limited Partner is deemed to have made an additional Capital Contribution to the Partnership in the amount of such discount and expenses, as set forth on Exhibit A. The Special Limited Partner is contributing a number of Common Units equal to 1% of the total Common Units outstanding to the General Partner. These Partnership Common Units contributed to the General Partner shall constitute the initial General Partner Interest of the General Partner. After the completion of all of the foregoing contributions, each Partner will own Partnership Units in the amount set forth for such Partner on Exhibit A, as the same may be amended from time to time by the General Partner to the extent necessary to reflect accurately sales, exchanges or other Transfers, redemptions, Capital Contributions, the issuance of additional Partnership Units, or similar events having an effect on a Partner’s ownership of Partnership Units. Except as provided by law or in Section 4.2, 4.3, or 10.4 hereof, the Partners shall have no obligation or, except with the prior Consent of the General Partner, right to make any additional Capital Contributions or loans to the Partnership.

Section 4.2. Issuances of Additional Partnership Interests. Subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation:

A. General. The General Partner is hereby authorized to cause the Partnership to issue additional Partnership Interests, in the form of Partnership Units, for any Partnership purpose, at any time or from time to time, to the Partners (including the General Partner) or to other Persons, and to admit such Persons as Additional Limited Partners, for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partner. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units (i) upon the conversion, redemption or exchange of any Debt, Partnership Units or other securities issued by the Partnership, (ii) for less than fair market value, (iii) in connection with any merger of any other Person with the Partnership or a Subsidiary of the Partnership and (iv) in consideration for services rendered to or for the benefit of the Partnership. Any additional Partnership Interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption (including, without limitation, terms that may be senior or otherwise entitled to preference over existing Partnership Units) as shall be determined by the General Partner, in its sole and absolute discretion without the approval of any Limited Partner, and set forth in a Partnership Unit Designation thereafter attached to and made an exhibit to this Agreement, which Partnership Unit Designation shall be an amendment to this Agreement and

shall be incorporated herein by this reference. Without limiting the generality of the foregoing, the General Partner shall have authority to specify: (a) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (b) the right of each such class or series of Partnership Interests to share (on a pari passu, junior or preferred basis) in Partnership distributions; (c) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; (d) the voting rights, if any, of each such class or series of Partnership Interests; (e) the conversion, redemption or exchange rights applicable to each such class or series of Partnership Interests; and (f) any vesting conditions applicable to such class or series of Partnership Interests. In connection with the acquisition of properties from persons to whom the Partnership issues Partnership Interests as part of the purchase price, in order to preserve such persons’ tax deferral, the Partnership may contractually agree not to sell or otherwise transfer the properties for a specified period of time, or in some instances, not to sell or otherwise transfer the properties without compensating the sellers of the properties for their loss of the tax deferral. Upon the issuance of any additional Partnership Interest, the General Partner shall amend Exhibit A and the books and records of the Partnership as appropriate to reflect such issuance.

B. Issuances to the General Partner or the Special Limited Partner. No additional Partnership Units shall be issued to the General Partner or the Special Limited Partner unless (i) the additional Partnership Units are issued to all Partners in proportion to their respective Percentage Interests, (ii)(a) the additional Partnership Units are (x) Partnership Common Units issued in connection with an issuance of REIT Shares, or (y) Partnership Equivalent Units (other than Partnership Common Units) issued in connection with an issuance of Capital Shares, New Securities or other interests in the Special Limited Partner (other than REIT Shares), and (b) the General Partner or the Special Limited Partner, as the case may be, contributes to the Partnership the cash proceeds or any other consideration received in connection with the issuance of such REIT Shares, Capital Shares, New Securities or other interests in the Special Limited Partner, (iii) the additional Partnership Units are issued upon the conversion, redemption or exchange of Debt, Partnership Units or other securities issued by the Partnership or (iv) the additional Partnership Units are issued pursuant to Section 4.3.B, Section 4.3.E, Section 4.4 or Section 4.5.

C. No Preemptive Rights. No Person, including, without limitation, any Partner or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Partnership Interest.

D. Acquisition of Limited Partner Interests by General Partner. Any Limited Partner Interests acquired by the General Partner shall be automatically converted into a General Partner Interest comprised of an identical number of Partnership Units with the same terms as the class or series so acquired. Any Affiliates of the General Partner may acquire Limited Partner Interests and shall, except as expressly provided in this Agreement, be entitled to exercise all rights of a Limited Partner relating to such Limited Partner Interests.

Section 4.3. Additional Funds and Capital Contributions.

A. General. The General Partner may, at any time and from time to time, determine that the Partnership requires additional funds (“Additional Funds”) for the acquisition or development of additional Properties, for the redemption of Partnership Units or for such other purposes as the General Partner may determine, in its sole and absolute discretion. Additional Funds may be obtained by the Partnership, at the election of the General Partner, in any manner provided in, and in accordance with, the terms of this Section 4.3 without the approval of any Limited Partner.

B. Additional Capital Contributions. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by accepting Capital Contributions from any Partners or other Persons.

In connection with any such Capital Contribution (of cash or property), the General Partner is hereby authorized to cause the Partnership from time to time to issue additional Partnership Units (as set forth in Section 4.2 above) in consideration therefor and the Percentage Interests of the General Partner and the Limited Partners shall be adjusted to reflect the issuance of such additional Partnership Units.

C. Loans by Third Parties. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt to any Person (other than the General Partner or the Special Limited Partner) upon such terms as the General Partner determines appropriate, including making such Debt convertible, redeemable or exchangeable for Partnership Units or REIT Shares; provided, however, that the Partnership shall not incur any such Debt if any Partner would be personally liable for the repayment of such Debt (unless such Partner otherwise agrees).

D. General Partner and Special Limited Partner Loans. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt to the General Partner and/or the Special Limited Partner if (i) such Debt is, to the extent permitted by law, on substantially the same terms and conditions (including interest rate, repayment schedule, and conversion, redemption, repurchase and exchange rights) as Funding Debt incurred by the General Partner or the Special Limited Partner, the net proceeds of which are loaned to the Partnership to provide such Additional Funds, or (ii) such Debt is on terms and conditions no less favorable to the Partnership than would be available to the Partnership from any third party; provided, however, that the Partnership shall not incur any such Debt if any Partner would be personally liable for the repayment of such Debt (unless such Partner otherwise agrees).

E. Issuance of Securities by the Special Limited Partner. The Special Limited Partner shall not issue any additional REIT Shares, Capital Shares or New Securities unless the Special Limited Partner contributes the cash proceeds or any other consideration received from the issuance of such additional REIT Shares, Capital Shares or New Securities (as the case may be) and from the exercise of the rights contained in any such additional Capital Shares or New Securities to the Partnership in exchange for (x) in the case of an issuance of REIT Shares, Partnership Common Units, or (y) in the case of an issuance of Capital Shares or New Securities, Partnership Units with designations, preferences and other rights, terms and provisions that are substantially the same as those of such Capital Shares or New Securities; provided, however, that notwithstanding the foregoing, the General Partner may issue REIT Shares, Capital Shares or New Securities (a) pursuant to Section 4.4 or Section 15.1.B hereof, (b) pursuant to a dividend or distribution (including any stock split) of REIT Shares, Capital Shares or New Securities to all of the holders of REIT Shares, Capital Shares or New Securities (as the case may be), (c) upon a conversion, redemption or exchange of Capital Shares, (d) upon a conversion, redemption, exchange or exercise of New Securities, or (e) in connection with an acquisition of Partnership Units or a property or other asset to be owned, directly or indirectly, by the Special Limited Partner. In the event of any issuance of additional REIT Shares, Capital Shares or New Securities by the Special Limited Partner, and the contribution to the Partnership, by the Special Limited Partner, of the cash proceeds or any other consideration received from such issuance (or property acquired with such proceeds), if any, if the cash proceeds actually received by the Special Limited Partner are less than the gross proceeds of such issuance as a result of any underwriter’s discount or other expenses paid or incurred in connection with such issuance, then the Special Limited Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount equal to the sum of the cash proceeds of such issuance plus the amount of such underwriter’s discount and other expenses paid by the Special Limited Partner (which discount and expense shall be treated as an expense for the benefit of the Partnership for purposes of Section 7.4). In the event that the Special Limited Partner issues any additional REIT Shares, Capital Shares or New Securities and contributes the cash proceeds or other consideration received from the issuance thereof to the Partnership, the Partnership is expressly authorized to issue a number of Partnership Common Units or Partnership Equivalent Units to the Special Limited Partner equal to the number of REIT Shares,

Capital Shares or New Securities so issued, divided by the Adjustment Factor then in effect (and taking into account any underwriter’s discount or other expenses in accordance with the preceding sentence), in accordance with this Section 4.3.E without any further act, approval or vote of any Partner.

Section 4.4. Stock Option Plans and Equity Plans.

A. Options Granted to Persons other than Partnership Employees. If at any time or from time to time, in connection with any Stock Option Plan, a stock option granted for REIT Shares to a Person other than a Partnership Employee is duly exercised:

(1) The Special Limited Partner, shall, as soon as practicable after such exercise, make a Capital Contribution to the Partnership in an amount equal to the exercise price paid to the Special Limited Partner by such exercising party in connection with the exercise of such stock option.

(2) Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 4.4.A(1) hereof, the Special Limited Partner shall be deemed to have contributed to the Partnership as a Capital Contribution, in lieu of the Capital Contribution actually made, in consideration of additional Partnership Common Units, an amount equal to the Value of a REIT Share as of the date of exercise multiplied by the number of REIT Shares then being issued in connection with the exercise of such stock option.

(3) The Special Limited Partner shall be issued a number of Common Units in consideration of the deemed Capital Contribution as described in Section 4.4.A(2) hereof equal to the number of REIT Shares then being issued divided by the Adjustment Factor then in effect.

B. Options Granted to Partnership Employees. If at any time or from time to time, in connection with any Stock Option Plan, a stock option granted for REIT Shares to a Partnership Employee is duly exercised:

(1) The Special Limited Partner shall sell to the Optionee, and the Optionee shall purchase from the Special Limited Partner, a number of REIT Shares equal to the number of REIT Shares the Optionee is entitled to receive pursuant to the exercise of the stock option multiplied by (a) the exercise price payable by the Optionee in connection with the exercise of such stock option divided by (b) the Value of the REIT Shares that the Optionee is entitled to receive. The purchase price per REIT Share for such sale of REIT Shares to the Optionee shall be the Value of a REIT Share as of the date of exercise of such stock option.

(2) The Special Limited Partner shall sell to the Partnership (or if the Optionee is an employee or other service provider of a Subsidiary of the Partnership, the Special Limited Partner shall sell to such Subsidiary of the Partnership), and the Partnership (or such Subsidiary, as applicable) shall purchase from the Special Limited Partner, a number of REIT Shares equal to (a) the number of REIT Shares as to which such stock option is being exercised less (b) the number of REIT Shares sold pursuant to Section 4.4.B(1) hereof. The purchase price per REIT Share for such sale of REIT Shares to the Partnership (or such subsidiary) shall be the Value of a REIT Share as of the date of exercise of such stock option.

(3) The Partnership shall transfer to the Optionee (or if the Optionee is an employee or other service provider of a Subsidiary of the Partnership, the Partnership shall transfer to such Subsidiary and such Subsidiary shall transfer to the Optionee) at no additional cost, as additional compensation, the number of REIT Shares described in Section 4.4.B(2) hereof.

(4) The Special Limited Partner shall, as soon as practicable after such exercise, make a Capital Contribution to the Partnership of an amount equal to all proceeds received (from whatever source, but excluding any payment in respect of payroll taxes or other withholdings) by the Special Limited Partner in connection with the exercise of such stock option. In consideration of such Capital Contribution, the Special Limited Partner shall be issued a number of Common Units equal to the total number of REIT Shares described in Sections 4.4.B(1) and 4.4.B(2) divided by the Adjustment Factor then in effect.

C. Stock Granted to Persons other than Partnership Employees. If at any time or from time to time, in connection with any Equity Plan (other than a Stock Option Plan), any REIT Shares are issued to a Person other than a Partnership Employee in consideration for services performed for the Special Limited Partner:

(1) The Special Limited Partner shall issue such number of REIT Shares as are to be issued to such Person in accordance with the Equity Plan; and

(2) On the date that the Value of such shares is includible in taxable income of such Person or such other date as determined by the General Partner (the “Vesting Date”), the following events shall be deemed to have occurred: (a) the Special Limited Partner shall be deemed to have contributed the Value of such REIT Shares to the Partnership as a Capital Contribution, and (b) the Partnership shall issue to the Special Limited Partner on the Vesting Date a number of Common Units equal to the number of newly issued REIT Shares divided by the Adjustment Factor then in effect.

D. Stock Granted to Partnership Employees. If at any time or from time to time, in connection with any Equity Plan (other than a Stock Option Plan), any REIT Shares are issued to a Partnership Employee (including any REIT Shares that are subject to forfeiture in the event such Partnership Employee terminates his employment by the Partnership or the Partnership Subsidiaries) in consideration for services performed for the Partnership or the Partnership Subsidiaries:

(1) The Special Limited Partner shall issue such number of REIT Shares as are to be issued to the Partnership Employee in accordance with the Equity Plan;

(2) On the Vesting Date, the following events shall be deemed to have occurred: (a) the Special Limited Partner shall be deemed to have sold such REIT Shares to the Partnership (or if the Partnership Employee is an employee or other service provider of a Subsidiary of the Partnership, to such Subsidiary) for a purchase price equal to the Value of such REIT Shares, (b) the Partnership (or such Subsidiary) shall be deemed to have delivered the REIT Shares to the Partnership Employee, (c) the Special Limited Partner shall be deemed to have contributed the purchase price to the Partnership as a Capital Contribution, and (d) in the case where the Partnership Employee is an employee of a Subsidiary of the Partnership, the Partnership shall be deemed to have contributed such amount to the capital of such Subsidiary; and

(3) The Partnership shall issue to the Special Limited Partner on the Vesting Date a number of Common Units equal to the number of newly issued REIT Shares divided by the Adjustment Factor then in effect in consideration for the Capital Contribution described in Section 4.4.D(2)(c) above.

E. Future Stock Incentive Plans. Nothing in this Agreement shall be construed or applied to preclude or restrain the Partnership or the Special Limited Partner from adopting, modifying or terminating stock incentive plans for the benefit of employees, directors or other business associates of the Special Limited Partner, the Partnership or any of their Affiliates. The Partners acknowledge and

agree that, in the event that any such plan is adopted, modified or terminated by the Partnership or the Special Limited Partner, amendments to this Section 4.4 may become necessary or advisable and that any approval or Consent to any such amendments requested by the General Partner shall be deemed granted by the Limited Partners.

F. Issuance of Partnership Units. The Partnership is expressly authorized to issue Partnership Units in accordance with any duly authorized Stock Option Plan or Equity Plan pursuant to this Section 4.4 without any further act, approval or vote of any Partner. Such Stock Option Plan or Equity Plan may contain, in the General Partner’s discretion, such vesting provisions and terms relating to the rights of the participants in such Plans to participate in allocations of Net Income and Net Loss and distributions (including, in the General Partner’s discretion, provisions designed to assure that grants under the Plans constitute “profits interests” for federal income tax purposes).

Section 4.5. Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan. Except as may otherwise be provided in this Article 4, all amounts received by the Special Limited Partner in respect of any new REIT Shares issued pursuant to any dividend reinvestment plan, cash option purchase plan, stock incentive or other stock or subscription plan or agreement shall be contributed by the Special Limited Partner to the Partnership in exchange for additional Partnership Common Units. Upon such contribution, the Partnership will issue to the Special Limited Partner a number of Partnership Common Units equal to the quotient of (i) the new REIT Shares so issued, divided by (ii) the Adjustment Factor then in effect.

Section 4.6. No Interest; No Return. No Partner shall be entitled to interest on its Capital Contribution or on such Partner’s Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership.

Section 4.7. Conversion or Redemption of Capital Shares.

A. Conversion of Capital Shares. If, at any time, any of the Capital Shares are converted into REIT Shares, in whole or in part, then a number of Partnership Units with preferences, conversion and other rights, restrictions (other than restrictions on transfer), rights and limitations as to distributions and qualifications that are substantially the same as those of such Capital Shares (“Partnership Equivalent Units”) (for the avoidance of doubt, Partnership Equivalent Units need not have voting rights, redemption rights or restrictions on transfer that are substantially similar to such Capital Shares) equal to the number of Capital Shares so converted shall automatically be converted into a number of Partnership Common Units equal to the quotient of (i) the number of REIT Shares issued upon such conversion divided by (ii) the Adjustment Factor then in effect, and the Percentage Interests of the General Partner and the Limited Partners shall be adjusted to reflect such conversion.

B. Redemption of Capital Shares or REIT Shares. Except as otherwise provided in this Agreement, if, at any time, any Capital Shares are redeemed or otherwise repurchased (whether by exercise of a put or call, automatically or by means of another arrangement) by the Special Limited Partner for cash, the Partnership shall, immediately prior to such redemption or repurchase of Capital Shares, redeem or repurchase an equal number of Partnership Equivalent Units held by the Special Limited Partner upon the same terms and for the same price per Partnership Equivalent Unit as the terms and price in respect of the Capital Shares that are redeemed or repurchased.

Section 4.8. Other Contribution Provisions. In the event that any Partner is admitted to the Partnership and is given a Capital Account in exchange for services rendered to the Partnership, such transaction shall be treated by the Partnership and the affected Partner as if the Partnership had compensated such Partner in cash and such Partner had contributed the cash that the Partner would have received as a Capital Contribution to the Partnership. In addition, with the Consent of the General Partner,

one or more Partners may enter into contribution agreements with the Partnership which have the effect of providing a guarantee of certain obligations of the Partnership (and/or a wholly-owned Subsidiary of the Partnership).

ARTICLE 5
DISTRIBUTIONS

Section 5.1. Requirement and Characterization of Distributions. Subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner may cause the Partnership to distribute such amounts, at such times, as the General Partner may, in its sole and absolute discretion, determine, to the Holders as of any Partnership Record Date: (i) first, with respect to any class(es) of Partnership Units that are entitled to any preference in distribution, in accordance with the rights of Holders of such class(es) of Partnership Units (and, within each such class, among the Holders of each such class, pro rata in proportion to their respective Percentage Interests of such class on such Partnership Record Date); and (ii) second, with respect to any class(es) of Partnership Units that are not entitled to any preference in distribution, in accordance with the rights of Holders of such class(es) of Partnership Units, as applicable (and, within each such class, among the Holders of each such class, pro rata in proportion to their respective Percentage Interests of such class on such Partnership Record Date). The General Partner may, in its discretion and by means of a Partnership Unit Designation, prorate distributions in respect of additional Percentage Interests that were not outstanding during the entire period in respect of which any distribution is made. The General Partner shall make such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the Special Limited Partner’s qualification as a REIT, to cause the Partnership to distribute sufficient amounts to enable the Special Limited Partner, for so long as the Special Limited Partner has determined to qualify as a REIT, to pay stockholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations (the “REIT Requirements”) and (b) except to the extent otherwise determined by the Special Limited Partner, eliminate any U.S. federal income or excise tax liability of the Special Limited Partner.

Section 5.2. Distributions in Kind. Except as expressly provided herein, no right is given to any Holder to demand and receive a distribution of property other than cash as provided in this Agreement. The General Partner may determine, in its sole and absolute discretion, to make a distribution in kind of Partnership assets to the Holders, and such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles 5, 6 and 13 hereof; provided, however, that the General Partner shall not make a distribution in kind to any Holder unless the Holder has been given ninety (90) days prior written notice of such distribution.

Section 5.3. Amounts Withheld. All amounts withheld pursuant to the Code or any provisions of any state, local or non-United States tax law and Section 10.4 hereof with respect to any allocation, payment or distribution to any Holder shall be treated as amounts paid or distributed to such Holder pursuant to Section 5.1 hereof for all purposes under this Agreement.

Section 5.4. Distributions to Reflect Additional Partnership Units. In the event that the Partnership issues additional Partnership Units pursuant to the provisions of Article 4 hereof, subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner is hereby authorized to make such revisions to this Article 5 and other provisions of this Agreement as it determines are necessary or desirable to reflect the issuance of such additional Partnership Units, including, without limitation, making preferential distributions to Holders of certain classes of Partnership Units.

Section 5.5. Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, neither the Partnership nor the General Partner, on behalf of the Partnership, shall make a distribution to any Holder if such distribution would violate the Act or other applicable law.

ARTICLE 6
ALLOCATIONS

Section 6.1. Timing and Amount of Allocations of Net Income and Net Loss. Net Income and Net Loss of the Partnership shall be determined and allocated with respect to each Partnership Year as of the end of each such year, provided that the General Partner may in its discretion allocate Net Income and Net Loss for a shorter period as of the end of such period (and, for purposes of this Article 6, references to the term “Partnership Year” may include such shorter periods). Except as otherwise provided in this Article 6, and subject to Section 11.6.C hereof, an allocation to a Holder of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss.

Section 6.2. General Allocations. Except as otherwise provided in this Article 6, Net Income and Net Loss for any Partnership Year shall be allocated among the Holders so that their Capital Accounts as of the end of such Partnership Year are, as nearly as possible, equal to the amounts of distributions to which they would be entitled if the Partnership had sold all of its assets for their Gross Asset Values and paid all of its liabilities (limited, with respect to each Nonrecourse Liability of the Partnership, to the Gross Asset Value of the asset or assets securing such Nonrecourse Liability) as of the end of such Partnership Year, and then distributed the proceeds to the Partners in accordance with this Agreement, less with respect to each Holder, the following amounts calculated as of the end of such Partnership Year: (i) the sum of (x) such Holder’s share of Partnership Minimum Gain and Partner Minimum Gain immediately prior to such deemed sale of the Partnership’s assets and (y) the amount, if any, which such Holder is obligated to contribute to the capital of the Company as of the last day of such Partnership Year.

Section 6.3. Regulatory Allocation Provisions. Notwithstanding the foregoing provisions of this Article 6:

A. Regulatory Allocations.

(i) Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 hereof, or any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain during any Partnership Year, each Holder shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder’s share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3.A(i) is intended to qualify as a “minimum gain chargeback” within the meaning of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

(ii) Partner Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4) or in Section 6.3.A(i) hereof, if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership Year, each Holder who has a share of the Partner Minimum Gain attributable

to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder’s share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3.A(ii) is intended to qualify as a “chargeback of partner nonrecourse debt minimum gain” within the meaning of Regulations Section 1.704-2(i) and shall be interpreted consistently therewith.

(iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Holders in accordance with their respective Percentage Interests. Any Partner Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Holder(s) who bear(s) the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i).

(iv) Qualified Income Offset. If any Holder unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be specially allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of such Holder as quickly as possible, provided that an allocation pursuant to this Section 6.3.A(iv) shall be made if and only to the extent that such Holder would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3.A(iv) were not in the Agreement. It is intended that this Section 6.3.A(iv) qualify and be construed as a “qualified income offset” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

(v) Gross Income Allocation. In the event that any Holder has a deficit Capital Account at the end of any Partnership Year that is in excess of the sum of (1) the amount (if any) that such Holder is obligated to restore to the Partnership upon complete liquidation of such Holder’s Partnership Interest and (2) the amount that such Holder is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially allocated items of Partnership income and gain in the amount of such excess to eliminate such deficit as quickly as possible, provided that an allocation pursuant to this Section 6.3.A(v) shall be made if and only to the extent that such Holder would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3.A(v) and Section 6.3.A(iv) hereof were not in the Agreement.

(vi) Limitation on Allocation of Net Loss. To the extent that any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Holder, such allocation of Net Loss shall be reallocated among the other Holders in a manner determined by the General Partner, subject to the limitations of this Section 6.3.A(vi).

(vii) Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Holder in complete liquidation of its interest in the Partnership, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Holders in accordance with their respective Percentage Interests in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Holder(s) to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

(viii) Curative Allocations. The allocations set forth in Sections 6.3.A(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the “Regulatory Allocations”) are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Sections 6.1 and 6.2 hereof, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Holders so that to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Holder shall be equal to the net amount that would have been allocated to each such Holder if the Regulatory Allocations had not occurred.

B. Allocation of Excess Nonrecourse Liabilities. For purposes of determining a Holder’s proportional share of the “excess nonrecourse liabilities” of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), each Holder’s respective interest in Partnership profits shall be equal to such Holder’s Percentage Interest, except as otherwise determined by the General Partner.

Section 6.4. Tax Allocations.

A. In General. Except as otherwise provided in this Section 6.4, for income tax purposes under the Code and the Regulations, each Partnership item of income, gain, loss and deduction (collectively, “Tax Items”) shall be allocated among the Holders in the same manner as its correlative item of “book” income, gain, loss or expense is allocated pursuant to Sections 6.2 and 6.3 hereof.

B. Section 704(c) Allocations. Notwithstanding Section 6.4.A hereof, Tax Items with respect to Property that is contributed to the Partnership with an initial Gross Asset Value that varies from its basis in the hands of the contributing Partner immediately preceding the contribution shall be allocated among the Holders for income tax purposes in such manner as determined by the General Partner consistent with the Regulations promulgated under Code Section 704(c) so as to take into account such variation. In the event that the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) of the definition of “Gross Asset Value,” subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Regulations and using the method chosen by the General Partner. Allocations pursuant to this Section 6.4.B are solely for purposes of federal, state and local income taxes and shall not affect, or in any way be taken into account in computing, any Partner’s Capital Account or share of Net Income, Net Loss, or any other items or distributions pursuant to any provision of this Agreement.

ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS

Section 7.1. Management.

A. Except as otherwise expressly provided in this Agreement, including any Partnership Unit Designation, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Partners, with or without cause, except with the Consent of the General Partner. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or that are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to the other provisions hereof including, without limitation, Section 3.2 and Section 7.3, and the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, shall have full and exclusive power and authority, without the consent or approval of any Limited Partner, to do or authorize all things deemed necessary or desirable by it to conduct the business and affairs of the Partnership, to exercise or direct the exercise of all of the powers of the Partnership and the General Partner under the Act and this Agreement and to effectuate the purposes of the Partnership including, without limitation:

(1) the making of any expenditures, the lending or borrowing of money or selling of assets (including, without limitation, making prepayments on loans and borrowing money to enable the Partnership to make distributions to the Holders in such amounts as will permit the Special Limited Partner (so long as the Special Limited Partner qualifies as a REIT) to make distributions to its stockholders sufficient to prevent the imposition of any federal income tax on the Special Limited Partner (including, for this purpose, any excise tax pursuant to Code Section 4981) and to enable the Special Limited Partner to maintain REIT status and otherwise to satisfy the REIT Requirements), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Partnership’s assets) and the incurring of any obligations that the General Partner deems necessary or advisable for the conduct of the activities of the Partnership;

(2) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership;

(3) the taking of any and all acts necessary or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” under Code Section 7704;

(4) the acquisition, sale, transfer, exchange or other disposition of any, all or substantially all of the assets (including the goodwill) of the Partnership (including, but not limited to, the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held or to be acquired by the Partnership) or the merger, consolidation, reorganization or other combination of the Partnership with or into another entity;

(5) the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership, the assignment of any assets of the Partnership in trust for creditors or on the promise of the assignee to pay the debts of the Partnership, the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms that the General Partner sees fit, including, without limitation, the

financing of the operations and activities of the General Partner, the Partnership or any of the Partnership’s Subsidiaries, the lending of funds to other Persons (including, without limitation, the General Partner and/or the Partnership’s Subsidiaries) and the repayment of obligations of the Partnership, its Subsidiaries and any other Person in which the Partnership has an equity investment, and the making of capital contributions to and equity investments in the Partnership’s Subsidiaries;

(6) the management, operation, leasing, landscaping, repair, alteration, demolition, replacement or improvement of any Property;

(7) the negotiation, execution and performance of any contracts, including leases (including ground leases), easements, management agreements, rights of way and other property-related agreements, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership’s operations or the implementation of the General Partner’s powers under this Agreement, including contracting with contractors, developers, consultants, governmental authorities, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation, as applicable, out of the Partnership’s assets;

(8) the distribution of Partnership cash or other Partnership assets in accordance with this Agreement, the holding, management, investment and reinvestment of cash and other assets of the Partnership, and the collection and receipt of revenues, rents and income of the Partnership;

(9) the selection and dismissal of employees of the Partnership (if any) or the General Partner (including, without limitation, employees having titles or offices such as “president,” “vice president,” “secretary” and “treasurer”), and agents, outside attorneys, accountants, consultants and contractors of the Partnership or the General Partner and the determination of their compensation and other terms of employment or hiring;

(10) the maintenance of such insurance (including, without limitation, directors and officers insurance) for the benefit of the Partnership and the Partners (including, without limitation, the General Partner, the Special Limited Partner and their directors and officers) as the General Partner deems necessary or appropriate;

(11) the formation of, or acquisition of an interest in, and the contribution of property to, any limited or general partnerships, limited liability companies, joint ventures or other relationships that the General Partner deems desirable; provided, however, that, as long as the Special Limited Partner has determined to continue to qualify as a REIT, the Partnership shall not engage in any such formation, acquisition or contribution that would cause the Special Limited Partner to fail to qualify as a REIT;

(12) the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment, of any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies relating to the Partnership’s activities to the extent permitted by law;

(13) the undertaking of any action in connection with the Partnership’s direct or indirect investment in any Subsidiary or any other Person (including, without limitation, the contribution or loan of funds by the Partnership to such Persons);

(14) the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as the General Partner may adopt; provided, however, that such methods are otherwise consistent with the requirements of this Agreement;

(15) the enforcement of any rights against any Partner pursuant to representations, warranties, covenants and indemnities relating to such Partner’s contribution of money or property to the Partnership;

(16) the exercise, directly or indirectly, or through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership;

(17) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person;

(18) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest, pursuant to contractual or other arrangements with such Person;

(19) the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases, confessions of judgment or any other legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement;

(20) the issuance of additional Partnership Units in connection with Capital Contributions by Additional Limited Partners and additional Capital Contributions by Partners pursuant to Article 4 hereof;

(21) an election to dissolve the Partnership pursuant to Section 13.1.B hereof;

(22) the distribution of cash to acquire Partnership Common Units held by a Limited Partner in connection with a Redemption under Section 15.1 hereof;

(23) an election to cause the Special Limited Partner to acquire Tendered Units for REIT Shares;

(24) the amendment and restatement of Exhibit A hereto to reflect accurately at all times the Capital Contributions and Percentage Interests of the Partners as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of Partnership Units, the admission of any Additional Limited Partner or any Substituted Limited Partner or otherwise, which amendment and restatement, notwithstanding anything in this Agreement to the contrary, shall not be deemed an amendment to this Agreement, as long as

the matter or event being reflected in Exhibit A hereto otherwise is authorized by this Agreement; and

(25) the registration of any class of securities of the Partnership under the Securities Act or the Exchange Act, and the listing of any debt securities of the Partnership on any exchange.

B. Each of the Limited Partners agrees that, except as provided in Section 7.3 hereof and subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner is authorized to execute and deliver any affidavit, agreement, certificate, consent, instrument, notice, power of attorney, waiver or other writing or document in the name and on behalf of the Partnership and to otherwise exercise any power of the General Partner under this Agreement and the Act on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of the Act or any applicable law, rule or regulation and, in the absence of any specific corporate action on the part of the General Partner to the contrary, the taking of any action or the execution of any such document or writing by an officer of the General Partner, in the name and on behalf of the General Partner, in its capacity as the general partner of the Partnership, shall conclusively evidence (1) the approval thereof by the General Partner, in its capacity as the general partner of the Partnership, (2) the General Partner’s determination that such action, document or writing is necessary or desirable to conduct the business and affairs of the Partnership, exercise the powers of the Partnership under this Agreement and the Act or effectuate the purposes of the Partnership, or any other determination by the General Partner required by this Agreement in connection with the taking of such action or execution of such document or writing, and (3) the authority of such officer with respect thereto.

C. At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the Properties and (ii) liability insurance for the Indemnitees hereunder.

D. At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital and other reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time.

E. In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner of any action taken (or not taken) by it. The General Partner, the Special Limited Partner and the Partnership shall not have liability to a Limited Partner under any circumstances as a result of any income tax liability incurred by such Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement.

F. The determination as to any of the following matters, made by or at the direction of the General Partner consistent with this Agreement and the Act, shall be final and conclusive and shall be binding upon the Partnership and every Limited Partner: the amount of assets at any time available for distribution or the redemption of Partnership Units; the amount and timing of any distribution; any determination to redeem Tendered Units; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); the amount of any Partner’s Capital Account, Adjusted Capital Account or Adjusted Capital Account Deficit; the amount of Net Income, Net Loss or Depreciation for any period; the Gross Asset Value of any Partnership asset; the Value of any REIT Share; any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or distributions, qualifications or terms or conditions of redemption of any class or series of Partnership Interest; the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any

asset owned or held by the Partnership or of any Partnership Interest; the number of authorized or outstanding Units of any class or series; any matter relating to the acquisition, holding and disposition of any assets by the Partnership; or any other matter relating to the business and affairs of the Partnership or required or permitted by applicable law, this Agreement or otherwise to be determined by the General Partner.

Section 7.2. Certificate of Limited Partnership. To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction, in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A hereof, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and any other state, or the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property.

Section 7.3. Restrictions on General Partner’s Authority.

A. The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the Consent of the Limited Partners, and may not, without limitation:

(1) take any action that would make it impossible to carry on the ordinary business of the Partnership, except as otherwise provided in this Agreement;

(2) perform any act that would subject a Limited Partner to liability as a general partner in any jurisdiction or any other liability except as provided herein or under the Act; or

(3) enter into any contract, mortgage, loan or other agreement that expressly prohibits or restricts (a) the General Partner or the Partnership from performing its specific obligations under Section 15.1 hereof in full or (b) a Limited Partner from exercising its rights under Section 15.1 hereof to effect a Redemption in full, except, in either case, with the Consent of each Limited Partner affected by the prohibition or restriction.

B. Except as provided in Section 7.3.C hereof, the General Partner shall not, without the prior Consent of the Partners, amend, modify or terminate this Agreement. Further, no amendment may alter the restrictions on the General Partner’s authority set forth elsewhere in this Agreement (including, without limitation, this Section 7.3) without the Consent specified therein and no amendment may alter Section 11.2 hereof without the Consent of the Limited Partners.

C. Notwithstanding Section 7.3.B and 14.2 hereof but subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner shall have the power, without the Consent of the Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes:

(1) to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners;

(2) to reflect the admission, substitution or withdrawal of Partners, the Transfer of any Partnership Interest or the termination of the Partnership in accordance with this Agreement and to amend Exhibit A in connection with such admission, substitution or withdrawal;

(3) to reflect a change that is of an inconsequential nature or does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement;

(4) to set forth or amend the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of the Holders of any additional Partnership Interests issued pursuant to Article 4;

(5) to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law;

(6) (a) to reflect such changes as are reasonably necessary for the Special Limited Partner to maintain its status as a REIT or to satisfy the REIT Requirements, or (b) to reflect the Transfer of all or any part of a Partnership Interest among the Special Limited Partner and any Disregarded Entity with respect to the Special Limited Partner;

(7) to modify either or both of the manner in which items of Net Income or Net Loss or taxable items are allocated pursuant to Article 6 or the manner in which Capital Accounts are adjusted, computed, or maintained (but in each case only to the extent otherwise provided in this Agreement and as may be permitted under applicable law);

(8) to reflect the issuance of additional Partnership Interests in accordance with Section 4.2; or

(9) to reflect any other modification to this Agreement as is reasonably necessary for the business or operations of the Partnership or the Special Limited Partner and which does not violate Section 7.3.D.

D. Notwithstanding Sections 7.3.B, 7.3.C and 14.2 hereof, this Agreement shall not be amended, and no action may be taken by the General Partner, without the Consent of each Partner adversely affected thereby, if such amendment or action would (i) convert a Limited Partner Interest in the Partnership into a General Partner Interest (except as a result of the General Partner acquiring such Partnership Interest), (ii) modify the limited liability of a Limited Partner, (iii) alter the rights of any Partner to receive the distributions to which such Partner is entitled pursuant to Article 5 or Section 13.2.A(4) hereof or alter the allocations specified in Article 6 hereof (except, in any case, as permitted pursuant to Sections 4.2, 4.3, 4.4, 5.4 and 7.3.C and Article 6 hereof), (iv) alter or modify the Redemption rights, Cash Amount or REIT Shares Amount as set forth in Section 15.1 hereof, or amend or modify any related definitions, (v) remove, alter or amend the powers and restrictions related to REIT Requirements or to taxes under Code Sections 857 or 4981 as set forth in Section 7.9.D or elsewhere in this Agreement, or (vi) amend this Section 7.3.D. Any such amendment or action Consented to by any Partner shall be effective as to that Partner, notwithstanding the absence of such Consent by any other Partner.

Section 7.4. Reimbursement of the General Partner and the Special Limited Partner.

A. The General Partner shall not be compensated for its services as General Partner of the Partnership except as provided in this Agreement (including the provisions of Articles 5 and 6 hereof regarding distributions, payments and allocations to which the General Partner may be entitled in its capacity as the General Partner).

B. Subject to Section 15.12 hereof and except as otherwise provided in any contract to which the Partnership is a party, the Partnership shall be responsible for and shall pay all expenses relating to the Partnership’s, the General Partner’s, the Special Limited Partner’s and any Subsidiary’s organization, business and operations. Subject to Section 15.12 hereof and except as otherwise provided in any contract to which the Partnership is a party, the Partnership shall be liable for, and shall reimburse the General Partner and the Special Limited Partner, as applicable, on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all sums expended by the General Partner or the Special Limited Partner or their Subsidiaries in connection with the Partnership’s, the General Partner’s, the Special Limited Partner’s or their Subsidiaries’ business, including, without limitation, (i) expenses relating to the ownership of interests in and management and operation of the Partnership, the General Partner, the Special Limited Partner and any Subsidiary, (ii) compensation of officers and employees of the Partnership, the General Partner, the Special Limited Partner or any Subsidiary, (iii) director fees and expenses of the General Partner, the Special Limited Partner or their Subsidiaries, (iv) any expenses incurred by the Special Limited Partner or the General Partner in connection with the redemption or other repurchase of REIT Shares or Capital Shares, (v) any expenses incurred by the Special Limited Partner or the General Partner in connection with an offering of REIT Shares, Capital Shares or New Securities (in lieu of being issued additional Common Units or Partnership Equivalent Units, in the discretion of the General Partner), (vi) any amounts paid by the General Partner, the Special Limited Partner or their Subsidiaries for accounting, administrative, legal, technical, management and other services rendered to the Partnership, the General Partner, the Special Limited Partner or their Subsidiaries, and (vii) all costs and expenses of the Special Limited Partner being a public company, including, without limitation, costs of filings with the SEC, reports and distributions to its stockholders. The Partners acknowledge that all such expenses of the General Partner, the Special Limited Partner and their Subsidiaries are deemed to be for the benefit of the Partnership. Such reimbursements shall be in addition to (without duplication of) any reimbursement of the General Partner, the Special Limited Partner or their Subsidiaries as a result of indemnification pursuant to Section 7.7 hereof.

C. To the extent practicable, Partnership expenses shall be billed directly to and paid by the Partnership and, subject to Section 15.12 hereof, if and to the extent any reimbursements to the General Partner, the Special Limited Partner or their Subsidiaries by the Partnership pursuant to this Section 7.4 constitute gross income to such Person (as opposed to the repayment of advances made by such Person on behalf of the Partnership), such amounts shall be treated as “guaranteed payments” within the meaning of Code Section 707(c) and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts.

Section 7.5. Outside Activities of the General Partner and the Special Limited Partner. Neither the General Partner nor the Special Limited Partner shall directly or indirectly enter into or conduct any business, other than in connection with, (a) with respect to the General Partner, the ownership, acquisition and disposition of Partnership Interests as the General Partner, (b) with respect to the General Partner, the management of the business and affairs of the Partnership, (c) with respect to the Special Limited Partner, the operation of the Special Limited Partner as a reporting company with a class (or classes) of securities registered under the Exchange Act, (d) with respect to the Special Limited Partner, its operations as a REIT, (e) with respect to the Special Limited Partner, the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests in the Special Limited Partner and the Partnership, (f) financing or refinancing of any type related to the Partnership, the General Partner, the

Special Limited Partner or their Subsidiaries, and (g) such activities as are incidental thereto; provided, however, that, except as otherwise provided herein, any funds raised by the Special Limited Partner pursuant to the preceding clauses (e) and (f) shall be made available to the Partnership, whether as Capital Contributions, loans or otherwise, as appropriate.

Section 7.6. Transactions with Affiliates.

A. The Partnership may lend or contribute funds or other assets to its Subsidiaries and other Persons in which the Partnership has a direct or indirect equity investment, and such Persons may borrow funds from the Partnership; provided that, except in the case of direct or indirect wholly owned Subsidiaries of the Partnership, such contribution or lending shall be on terms and conditions no less favorable to the Partnership in the aggregate than would be available from an unrelated third party, as determined by the General Partner in good faith. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person. It is expressly acknowledged and agreed by each Partner that the Special Limited Partner may, in the sole and absolute discretion of the General Partner, (i) borrow funds from the Partnership in order to redeem, at any time or from time to time, options or warrants issued by the Special Limited Partner, (ii) put to the Partnership, for cash, any rights, options, warrants or convertible or exchangeable securities that the Special Limited Partner may desire or be required to purchase or redeem or (iii) borrow funds from the Partnership to acquire assets that will be contributed to the Partnership for Partnership Units.

B. The Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner believes, in good faith, to be advisable; provided that in no event shall the Partnership own securities of any entity to the extent such ownership would be inconsistent with the REIT Requirements.

C. The General Partner, the Special Limited Partner and their Affiliates may sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, on terms and conditions established by the General Partner in its reasonable discretion.

D. The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership benefit plans (including plans provided for the issuance of Partnership Interests or options to purchase Partnership Interests) funded by the Partnership for the benefit of employees, directors or other service providers of or to the General Partner, the Partnership, the Special Limited Partner, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership.

Section 7.7. Indemnification.

A. To the fullest extent permitted by applicable law, the Partnership shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership, the General Partner or the Special Limited Partner (“Actions”) as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided, however, that the Partnership shall not indemnify an Indemnitee (i) if the act or omission of the Indemnitee was material to the matter giving rise to the Action and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) in the case of any criminal proceeding, if the Indemnitee had reasonable cause to believe that the act or omission was unlawful; or (iii) for any

transaction in which such Indemnitee actually received an improper personal benefit in violation or breach of any provision of this Agreement; and provided, further, that no payments pursuant to this Agreement shall be made by the Partnership to indemnify or advance funds to any Indemnitee (x) with respect to any Action initiated or brought voluntarily by such Indemnitee (and not by way of defense) unless (I) approved or authorized by the General Partner or (II) incurred to establish or enforce such Indemnitee’s right to indemnification under this Agreement, and (y) in connection with one or more Actions or claims brought by the Partnership or involving such Indemnitee if such Indemnitee is found liable to the Partnership on any portion of any claim in any such Action.

Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness.

It is the intention of this Section 7.7.A that the Partnership indemnify each Indemnitee to the fullest extent permitted by law and this Agreement. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A. The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of probation against an Indemnitee prior to judgment, does not create a presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.7.A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and neither the General Partner nor any other Holder shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7.

B. To the fullest extent permitted by law, expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Partnership as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in Section 7.7.A has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.

C. The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified.

D. The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.

E. Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Partnership, the General Partner or the Special Limited Partner (whether as a fiduciary or otherwise) in

connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the IRS, penalties assessed by the U.S. Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.7, unless such liabilities arise as a result of (i) an act or omission of such Indemnitee that was material to the matter giving rise to the Action and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) in the case of any criminal proceeding, an act or omission that the Indemnitee had reasonable cause to believe was unlawful, or (iii) any transaction in which such Indemnitee actually received an improper personal benefit in violation or breach of any provision of this Agreement or applicable law.

F. In no event may an Indemnitee subject any of the Holders to personal liability by reason of the indemnification provisions set forth in this Agreement.

G. An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

H. The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnership’s liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

I. It is the intent of the parties that any amounts paid by the Partnership to any Partner pursuant to this Section 7.7 shall be treated as “guaranteed payments” within the meaning of Code Section 707(c) and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts.

Section 7.8. Liability of the General Partner and the Special Limited Partner.

A. The Limited Partners agree that: (i) the General Partner and the Special Limited Partner (as sole owner of the General Partner) are acting on behalf and for the benefit of the Partnership, the Limited Partners and the Special Limited Partner’s stockholders collectively; (ii) in the event of a conflict between the interests of the Limited Partners (other than the Special Limited Partner), on the one hand, and the separate interests of the Special Limited Partner or its stockholders, on the other hand, neither the General Partner nor the Special Limited Partner is under an obligation to give priority to the interests of the Limited Partners, and any action or failure to act on the part of the General Partner or the Special Limited Partner or their respective directors or officers that gives priority to the separate interests of the Special Limited Partner or its stockholders that does not result in a violation of the contract rights of the Limited Partners under this Agreement does not violate the duty of loyalty owed by the General Partner or the Special Limited Partner to the Partnership and/or the Limited Partners; and (iii) neither the General Partner nor the Special Limited Partner shall be liable to the Partnership or to any Limited Partner for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Partnership or any Limited Partner as a result of errors in judgment or mistakes of fact or law or any acts or failure to act, provided that the General Partner and the Special Limited Partner acted in good faith.

B. Subject to its obligations and duties as General Partner set forth in this Agreement and applicable law, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or

agents or through the Special Limited Partner (subject to the supervision and control of the General Partner). Notwithstanding anything to the contrary herein, neither the General Partner nor the Special Limited Partner shall be responsible to the Partnership or any Partner for any misconduct or negligence on the part of any such employee or agent appointed by it in good faith.

C. Any obligation or liability whatsoever of the General Partner which may arise at any time under this Agreement or any other instrument, transaction, or undertaking contemplated hereby shall be satisfied, if at all, out of the assets of the General Partner or the Partnership only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, the Special Limited Partner or any of the General Partner’s or the Special Limited Partner’s directors, stockholders, officers, employees, or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. Notwithstanding anything to the contrary set forth in this Agreement, none of the directors or officers of the General Partner or the Special Limited Partner shall be liable or accountable in damages or otherwise to the Partnership, any Partners, or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission; provided that such directors or officers acted in good faith.

D. Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner’s, the Special Limited Partner’s and their respective officers’ and directors’ liability to the Partnership and the Limited Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

E. To the extent that, at law or in equity, the General Partner or the Special Limited Partner has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or the Limited Partners, neither the General Partner nor the Special Limited Partner shall be liable to the Partnership or to any other Partner for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict or modify the duties and liabilities of the General Partner and the Special Limited Partner under the Act or otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of such General Partner and the Special Limited Partner.

F. Whenever in this Agreement the General Partner is permitted or required to make a decision (i) in its “sole and absolute discretion,” “sole discretion” or “discretion” or under a grant of similar authority or latitude, the General Partner shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest or factors affecting the Partnership or the Partners or any of them, or (ii) in its “good faith” or under another expressed standard, the General Partner shall act under such express standard and shall not be subject to any other or different standards imposed by this Agreement or any other agreement contemplated herein or by relevant provisions of law or in equity or otherwise. If any question should arise with respect to the operation of the Partnership, which is not otherwise specifically provided for in this Agreement or the Act, or with respect to the interpretation of this Agreement, the General Partner is hereby authorized to make a final determination with respect to any such question and to interpret this Agreement in such a manner as it shall deem, in its sole discretion, to be fair and equitable, and its determination and interpretations so made shall be final and binding on all parties. The General Partner’s “sole and absolute discretion,” “sole discretion” and “discretion” under this Agreement shall be exercised consistently with the General Partner’s obligation of good faith and fair dealing under the Act.

Section 7.9. Other Matters Concerning the General Partner and the Special Limited Partner.

A. In its acts (or failures to act) on behalf of the Partnership, each of the General Partner and the Special Limited Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties.

B. Each of the General Partner and Special Limited Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it, and any act taken or omitted to be taken in respect of the Partnership in reliance upon the opinion of such Persons as to matters that the General Partner or the Special Limited Partner reasonably believes to be within such Person’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith.

C. The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers or agents or a duly appointed attorney or attorneys-in-fact. Each such officer, agent or attorney shall, to the extent authorized by the General Partner, have full power and authority to do and perform all and every act and duty that is permitted or required to be done by the General Partner hereunder.

D. Notwithstanding any other provision of this Agreement or the Act, any action of the General Partner or the Special Limited Partner on behalf of the Partnership or any decision of the General Partner or the Special Limited Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the Special Limited Partner to continue to qualify as a REIT, (ii) for the Special Limited Partner otherwise to satisfy the REIT Requirements, (iii) to avoid the Special Limited Partner incurring any taxes under Code Section 857 or Code Section 4981, or (iv) for any Affiliate of the Special Limited Partner to continue to qualify as a “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)), is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.

Section 7.10. Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively with other Partners or Persons, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner, the Special Limited Partner or one or more nominees, as the General Partner or the Special Limited Partner may determine, including Affiliates of the General Partner or the Special Limited Partner. The General Partner and Special Limited Partner hereby declare and warrant that any Partnership assets for which legal title is held in the name of the General Partner, the Special Limited Partner or any nominee or Affiliate of the General Partner or the Special Limited Partner shall be held by the General Partner, the Special Limited Partner or such nominee or Affiliate for the use and benefit of the Partnership in accordance with the provisions of this Agreement. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.

Section 7.11. Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without the consent or approval of any other Partner, or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership’s sole party in

interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.

ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

Section 8.1. Limitation of Liability. No Limited Partner shall have any liability under this Agreement except as expressly provided in this Agreement (including, without limitation, Section 10.4 hereof) or under the Act.

Section 8.2. Management of Business. Subject to the rights and powers of the Special Limited Partner hereunder, no Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent, representative or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Partnership’s business, transact any business in the Partnership’s name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent, representative, or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.

Section 8.3. Outside Activities of Limited Partners. Subject to any explicit limitation in this Agreement, any Limited Partner and any Assignee, officer, director, employee, agent, trustee, Affiliate, member or stockholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct or indirect competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partner shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. None of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person, and such Person shall have no obligation pursuant to this Agreement, to offer any interest in any such business ventures to the Partnership, any Limited Partner, or any such other Person, even if such opportunity is of a character that, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person.

Section 8.4. Return of Capital. Except pursuant to the rights of Redemption set forth in Section 15.1 hereof or in any Partnership Unit Designation, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. Except to the extent provided in Article 5 and Article 6 hereof or otherwise expressly provided in this Agreement or in any Partnership Unit

Designation, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions.

Section 8.5. Rights of Limited Partners Relating to the Partnership.

A. In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.C hereof, the General Partner shall deliver (by mailing or electronically) to each Limited Partner a copy of any information mailed or electronically delivered to all of the common stockholders of the General Partner as soon as practicable after such mailing or electronic delivery.

B. The Partnership shall notify any Limited Partner that is a Qualifying Party, on request, of the then current Adjustment Factor and any change made to the Adjustment Factor shall be set forth in the quarterly report required by Section 9.3.B hereof immediately following the date such change becomes effective.

C. Notwithstanding any other provision of this Section 8.5, the General Partner may keep confidential from the Limited Partners (or any of them), for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or the General Partner or (ii) the Partnership or the General Partner is required by law or by agreement to keep confidential.

Section 8.6. Partnership Right to Call Limited Partner Interests. Notwithstanding any other provision of this Agreement, on and after the date on which the aggregate Percentage Interests of the Limited Partners (other than the Special Limited Partner) are less than five percent (5%), the Partnership shall have the right, but not the obligation, from time to time and at any time to redeem any and all outstanding Limited Partner Interests (other than the Special Limited Partner’s Limited Partner Interests) by treating any such Limited Partner as a Tendering Party who has delivered a Notice of Redemption pursuant to Section 15.1 hereof for the number of Partnership Common Units to be specified by the General Partner, in its sole and absolute discretion, by notice to such Limited Partner that the Partnership has elected to exercise its rights under this Section 8.6. Such notice given by the General Partner to a Limited Partner pursuant to this Section 8.6 shall be treated as if it were a Notice of Redemption delivered to the General Partner by such Limited Partner. For purposes of this Section 8.6, (a) any Limited Partner (whether or not otherwise a Qualifying Party) may, in the General Partner’s sole and absolute discretion, be treated as a Qualifying Party that is a Tendering Party and (b) the provisions of Section 15.1 hereof shall apply, mutatis mutandis.

ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 9.1. Records and Accounting.

A. The General Partner shall keep or cause to be kept at the principal place of business of the Partnership those records and documents, if any, required to be maintained by the Act and any other books and records deemed by the General Partner to be appropriate with respect to the Partnership’s business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to this Agreement. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on any information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time.

B. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as the General Partner determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Partnership and the General Partner may operate with integrated or consolidated accounting records, operations and principles.

Section 9.2. Partnership Year. For purposes of this Agreement, “Partnership Year” means the fiscal year of the Partnership, which shall be the same as the tax year of the Partnership. The tax year shall be the calendar year unless otherwise required by the Code.

Section 9.3. Reports.

A. As soon as practicable, but in no event later than one hundred five (105) days after the close of each Partnership Year, the General Partner shall cause to be mailed to each Limited Partner of record as of the close of the Partnership Year, a report containing financial statements of the Partnership, or of the Special Limited Partner if such statements are prepared solely on a consolidated basis with the Special Limited Partner, for such Partnership Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner.

B. As soon as practicable, but in no event later than sixty (60) days after the close of each calendar quarter (except the last calendar quarter of each year), the General Partner shall cause to be mailed to each Limited Partner of record as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership for such calendar quarter, or of the Special Limited Partner if such statements are prepared solely on a consolidated basis with the Special Limited Partner, and such other information as may be required by applicable law or regulation or as the General Partner determines to be appropriate.

C. To the extent permissible under applicable law, the General Partner shall have satisfied its obligations under Section 9.3.A and Section 9.3.B by posting or making available the reports required by this Section 9.3 on the website maintained from time to time by the Partnership, the General Partner or the Special Limited Partner, provided that such reports are able to be printed or downloaded from such website.

D. At the request of any Limited Partner, the General Partner shall provide access to the books, records and work papers upon which the reports required by this Section 9.3 are based, to the extent required by the Act.

ARTICLE 10
TAX MATTERS

Section 10.1. Preparation of Tax Returns. The General Partner shall arrange for the preparation and timely filing of all federal, state and other income tax returns and shall use all reasonable efforts to furnish, within one hundred twenty (120) days of the close of each taxable year, the tax information reasonably required by Limited Partners for federal, state and other income tax reporting purposes. The Limited Partners shall promptly provide the General Partner with such information relating to the Contributed Properties as is readily available to the Limited Partners, including tax basis and other relevant information, as may be reasonably requested by the General Partner from time to time.

Section 10.2. Tax Elections. Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code,

including, but not limited to, the election under Code Section 754. The General Partner shall have the right to seek to revoke any such election (including, without limitation, any election under Code Section 754) upon the General Partner’s determination in its sole and absolute discretion that such revocation is in the best interests of the Partners.

Section 10.3. Tax Matters Partner.

A. The General Partner shall be the “tax matters partner” of the Partnership for federal (and applicable state and local) income tax purposes. The tax matters partner shall receive no compensation for its services. All third-party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist the tax matters partner in discharging its duties hereunder.

B. The tax matters partner is authorized, but not required:

(1) to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a “tax audit” and such judicial proceedings being referred to as “judicial review”), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner (as the case may be) or (ii) who is a “notice partner” (as defined in Code Section 6231) or a member of a “notice group” (as defined in Code Section 6223(b)(2));

(2) in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a “Final Adjustment”) is mailed to the tax matters partner, to seek judicial review of such Final Adjustment, including the filing of a petition for readjustment with the United States Tax Court or the United States Claims Court, or the filing of a complaint for refund with the appropriate District Court of the United States;

(3) to intervene in any action brought by any other Partner for judicial review of a final adjustment;

(4) to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request;

(5) to enter into an agreement with the IRS to extend the period for assessing any tax that is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and

(6) to take any other action on behalf of the Partners or any of them in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations.

The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion

of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 hereof shall be fully applicable to the tax matters partner in its capacity as such.

Section 10.4. Withholding. Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local or foreign taxes that the General Partner determines the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Code Section 1441, Code Section 1442, Code Section 1445 or Code Section 1446. Any amount withheld with respect to a Limited Partner pursuant to this Section 10.4 shall be treated as paid or distributed, as applicable, to such Limited Partner for all purposes under this Agreement. Any amount paid on behalf of or with respect to a Limited Partner in excess of any such withheld amount shall constitute a loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within thirty (30) days after the affected Limited Partner receives written notice from the General Partner that such payment must be made, provided that the Limited Partner shall not be required to repay such deemed loan if either (i) the Partnership withholds such payment from a distribution that would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the Available Cash of the Partnership that would, but for such payment, be distributed to the Limited Partner. Any amounts payable by a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal (but not higher than the maximum lawful rate) from the date such amount is due (i.e., thirty (30) days after the Limited Partner receives written notice of such amount) until such amount is paid in full.

Section 10.5. Organizational Expenses. The General Partner may cause the Partnership to elect to deduct expenses, if any, incurred by it in organizing the Partnership ratably over a one hundred eighty (180)-month period as provided in Section 709 of the Code.

ARTICLE 11
PARTNER TRANSFERS AND WITHDRAWALS

Section 11.1. Transfer.

A. No part of the interest of a Partner shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement.

B. No Partnership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. Any Transfer or purported Transfer of a Partnership Interest not made in accordance with this Article 11 shall be null and void ab initio.

C. Notwithstanding the other provisions of this Article 11 (other than Section 11.6.D hereof), the respective Partnership Interests of the General Partner and the Special Limited Partner may be Transferred, in whole (in the case of the General Partner) or in whole or in part (in the case of the Special Limited Partner), at any time or from time to time, to or among the General Partner, the Special Limited Partner and any other Person that is, at the time of such Transfer, an Affiliate of the Special Limited Partner, including any “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)). Any transferee of the entire General Partner Interest pursuant to this Section 11.1.C shall, upon compliance with Section 12.1 hereof, become, without further action or consent of any Partners, the sole General Partner of the Partnership, subject to all the rights, privileges, duties and obligations under this Agreement and the Act relating to a General Partner. Any transferee of a Special Limited Partner Interest pursuant to

this Section 11.1.C shall, upon its execution of a counterpart of this Agreement, become, without further action or consent of any Partner or any other Person, a Substituted Limited Partner (as a Special Limited Partner). Upon any Transfer of the General Partner’s entire General Partner Interest (other than a pledge, hypothecation, encumbrance or mortgage) permitted by this Section 11.1.C, the transferor Partner shall be relieved of all its obligations under this Agreement from and after the date of such Transfer. The provisions of Sections 11.2.B, 11.3, 11.4.A and 11.5 hereof shall not apply to any Transfer permitted by this Section 11.1.C.

D. No Transfer of any Partnership Interest may be made to a lender to the Partnership or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose loan constitutes a Nonrecourse Liability, without the Consent of the General Partner; provided, however, that, as a condition to such Consent, the lender may be required to enter into an arrangement with the Partnership and the General Partner to redeem or exchange for the REIT Shares Amount any Partnership Units in which a security interest is held by such lender simultaneously with the time at which such lender would be deemed to be a Partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code (provided that, for purpose of calculating the REIT Shares Amount in this Section 11.1.D, “Tendered Units” shall mean all such Partnership Units in which a security interest is held by such lender).

Section 11.2. Transfer of General Partner’s Partnership Interest.

A. The General Partner may not Transfer any of its General Partner Interest or withdraw from the Partnership except as provided in Sections 11.1.C, 11.2.B and 11.2.C hereof. The term “Transfer,” when used in this Section 11.2 with respect to the General Partner Interest, shall be deemed to include a Transfer of the General Partner Interest resulting from any merger, consolidation or other combination by the Special Limited Partner with or into another Person (other than a Subsidiary of the Special Limited Partner) or the sale of all or substantially all of the assets of the Special Limited Partner and its Subsidiaries, taken as a whole, but shall exclude transactions described in Section 11.3.B hereof.

B. Except as provided in Section 11.1.C, this Section 11.2.B and Section 11.2.C hereof, and subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner may not Transfer all or any portion of its Partnership Interest (whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise) without the Consent of the Limited Partners. It is a condition to any Transfer of a Partnership Interest of a General Partner otherwise permitted hereunder (including any Transfer permitted pursuant to this Section 11.2.B) that: (i) coincident with such Transfer, the transferee is admitted as a General Partner pursuant to Section 12.1 hereof; (ii) the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor General Partner under this Agreement with respect to such Transferred Partnership Interest; and (iii) the transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership Interest so acquired and the admission of such transferee as a General Partner.

C. The General Partner may, without the Consent of the Limited Partners, merge with another entity if immediately after such merger substantially all the assets of the surviving entity, other than the General Partner Interest held by the General Partner, are contributed to the Partnership as a Capital Contribution in exchange for Partnership Units.

D. Except in connection with Transfers permitted in this Article 11 and as otherwise provided in Section 12.1 in connection with the Transfer of the General Partner’s entire Partnership

Interest, the General Partner may not voluntarily withdraw as a general partner of the Partnership without the Consent of the Limited Partners.

Section 11.3. Limited Partners’ Rights to Transfer.

A. Prior to the end of the first Twelve-Month Period and except as otherwise specifically provided herein, no Limited Partner shall Transfer all or any portion of its Partnership Interest to any transferee without the Consent of the General Partner; provided, however, that any Limited Partner may, at any time, without the Consent or approval of the General Partner but subject to providing the General Partner with an opinion as described in subsection (3) below, (i) Transfer all or part of its Partnership Interest to any Family Member (including a Transfer by a Family Member that is an inter vivos or testamentary trust (whether revocable or irrevocable) to a Family Member that is a beneficiary of such trust), any Charity, any Controlled Entity or any Affiliate, or (ii) pledge (a “Pledge”) all or any portion of its Partnership Interest to a lending institution as collateral or security for a bona fide loan or other extension of credit, and Transfer such pledged Partnership Interest to such lending institution in connection with the exercise of remedies under such loan or extension of credit (any Transfer or Pledge permitted by this proviso is hereinafter referred to as a “Permitted Transfer”). After such first Twelve-Month Period, each Limited Partner, and each transferee of Partnership Units or Assignee pursuant to a Permitted Transfer, shall have the right to Transfer all or any portion of its Partnership Interest to any Person, without the Consent of the General Partner but subject to the provisions of Section 11.4 hereof and to satisfaction of each of the following conditions:

(1) The transferor Limited Partner (or the Partner’s estate in the event of the Partner’s death) shall give written notice of the proposed Transfer to the General Partner and the Special Limited Partner, which notice shall state (i) the identity and address of the proposed transferee and (ii) the amount and type of consideration proposed to be received for the Transferred Partnership Units. The Special Limited Partner shall have ten (10) Business Days upon which to give the transferor Limited Partner notice of its election to acquire the Partnership Units on the terms set forth in such notice. If it so elects, it shall purchase the Partnership Units on such terms within ten (10) Business Days after giving notice of such election; provided, however, that in the event that the proposed terms involve a purchase for cash, the Special Limited Partner may at its election deliver in lieu of all or any portion of such cash a note from the Special Limited Partner payable to the transferor Limited Partner at a date as soon as reasonably practicable, but in no event later than one hundred eighty (180) days after such purchase, and bearing interest at an annual rate equal to the total dividends declared with respect to one (1) REIT Share for the four (4) preceding fiscal quarters of the Special Limited Partner, divided by the Value of one (1) REIT share as of the closing of such purchase; and provided, further, that such closing may be deferred to the extent necessary to effect compliance with the Hart-Scott-Rodino Act, if applicable, and any other applicable requirements of law. If the Special Limited Partner does not so elect to purchase the Partnership Units, the transferor Limited Partner may Transfer such Partnership Units to a third party, on terms no more favorable to the transferee than the proposed terms, subject to the other conditions of this Section 11.3.

(2) Any Transfer of a Partnership Interest shall be made only to a single Qualified Transferee; provided, however, that, for such purposes, all Qualified Transferees that are Affiliates, or that comprise investment accounts or funds managed by a single Qualified Transferee and its Affiliates, shall be considered together to be a single Qualified Transferee; and provided, further, that each Transfer meeting the minimum Transfer restriction of Section 11.3.A(4) hereof may be to a separate Qualified Transferee.

(3) The transferor Limited Partner shall deliver or cause to be delivered to the General Partner an opinion of counsel reasonably satisfactory to it to the effect that the proposed

Transfer may be effected without registration under the Securities Act and will not otherwise violate the registration provisions of the Securities Act and the regulations promulgated thereunder or violate any state securities laws or regulations applicable to the Partnership or the Partnership Interests Transferred; provided, however, that the General Partner may, in its sole discretion, waive this condition upon the request of the transferor Limited Partner. If, in the opinion of such counsel, such Transfer would require the filing of a registration statement under the Securities Act or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Units, the General Partner may prohibit any Transfer of Partnership Units otherwise permitted under this Section 11.3 by a Limited Partner.

(4) Any Transferring Partner must Transfer not less than the lesser of (i) five hundred (500) Partnership Units or (ii) all of the remaining Partnership Units owned by such Transferring Partner, unless, in each case, otherwise agreed to by the General Partner; provided, however, that, for purposes of determining compliance with the foregoing restriction, all Partnership Units owned by Affiliates of a Limited Partner shall be considered to be owned by such Limited Partner.

(5) The conditions of Sections 11.3.A(1) and 11.3.A(4) hereof shall not apply in the case of a Permitted Transfer.

It is a condition to any Transfer otherwise permitted hereunder (whether or not such Transfer is effected during or after the first Twelve-Month Period) that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such Transferred Partnership Interest, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the Consent of the General Partner. Notwithstanding the foregoing, any transferee of any Transferred Partnership Interest shall be subject to any restrictions on ownership and transfer of stock of the Special Limited Partner contained in the Charter that may limit or restrict such transferee’s ability to exercise its Redemption rights, including, without limitation, the Ownership Limit. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.5 hereof.

B. Notwithstanding anything to the contrary in this Agreement, the Special Limited Partner may merge, consolidate or otherwise combine its assets with another entity or sell all or substantially all of its assets (each, a “Termination Transaction”) if:

(i) in connection with such Termination Transaction, all of the Limited Partners (other than the Special Limited Partner) will receive, or will have the right to elect to receive, for each Partnership Common Unit an amount of cash, securities or other property equal to the product of the Adjustment Factor and the greatest amount of cash, securities or other property paid to a holder of one REIT Share in consideration of one REIT Share pursuant to the terms of such Termination Transaction; provided, that if, in connection with such Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of the outstanding REIT Shares, each holder of Partnership Common Units (other than the Special Limited Partner) shall receive, or shall have the right to elect to receive, the greatest amount of cash, securities or other property which such holder of Partnership Common Units would have received had it exercised its right to Redemption pursuant to Article 15 hereof and received REIT Shares in exchange for its Partnership Common Units immediately prior to the expiration

of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer and then such Termination Transaction shall have been consummated; or

(ii) all of the following conditions are met: (w) substantially all of the assets that were owned directly or indirectly by the surviving entity (other than the Partnership Units owned by the Special Limited Partner) are owned directly or indirectly by the Partnership or another limited partnership or limited liability company which is the survivor of any merger, consolidation or combination of assets with the Partnership that is part of the Termination Transaction (in each case, the “Surviving Partnership”); (x) the holders of Partnership Units upon the consummation of such Termination Transaction own a percentage interest of the Surviving Partnership that represents the relative fair market value of the net assets of the Partnership and the other net assets of the Surviving Partnership immediately prior to the consummation of such transaction; (y) the rights, preferences and privileges of such holders in the Surviving Partnership are at least as favorable as those in effect immediately prior to the consummation of such transaction and as those applicable to any other limited partners or non-managing members of the Surviving Partnership; and (z) the rights of the Limited Partners holding Partnership Common Units include at least one of the following: (a) the right to redeem their interests in the Surviving Partnership for the consideration available to such Persons pursuant to Section 11.3.B(i) or (b) the right to redeem their interests in the Surviving Partnership for cash on terms substantially equivalent to those in effect with respect to their Partnership Common Units immediately prior to the consummation of such transaction, or, if the ultimate controlling Person of the Surviving Partnership has publicly traded common equity securities, for such common equity securities, with an exchange ratio based on the determination of relative fair market value of such securities and the REIT Shares.

C. If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner’s estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate, and such power as the Incapacitated Limited Partner possessed to Transfer all or any part of its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership.

Section 11.4. Admission of Substituted Limited Partners.

A. No Limited Partner shall have the right to substitute a transferee (including any transferees pursuant to Transfers permitted by Section 11.3 hereof) as a Limited Partner in its place. A transferee of a Limited Partner Interest may be admitted as a Substituted Limited Partner only with the Consent of the General Partner. The failure or refusal by the General Partner to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or the General Partner. Subject to the foregoing, an Assignee shall not be admitted as a Substituted Limited Partner until and unless it furnishes to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all the terms, conditions and applicable obligations of this Agreement, (ii) a counterpart signature page to this Agreement executed by such Assignee and (iii) such other documents and instruments as may be required or advisable, in the sole and absolute discretion of the General Partner, to effect such Assignee’s admission as a Substituted Limited Partner.

B. Concurrently with, and as evidence of, the admission of a Substituted Limited Partner, the General Partner shall amend Exhibit A and the books and records of the Partnership to reflect the name, address and number and class and/or series of Partnership Units of such Substituted Limited

Partner and to eliminate or adjust, as necessary, the name, address and number of Partnership Units of the predecessor of such Substituted Limited Partner.

C. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement.

Section 11.5. Assignees. If the General Partner does not Consent to the admission of any permitted transferee under Section 11.3 hereof as a Substituted Limited Partner, as described in Section 11.4 hereof, or in the event that any Partnership Interest is deemed to have been Transferred to a transferee notwithstanding the restrictions set forth in this Article 11, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the Partnership attributable to the Partnership Interest assigned to such transferee and the rights to Transfer the Partnership Interest provided in this Article 11, but shall not be deemed to be a holder of a Partnership Interest for any other purpose under this Agreement (other than as expressly provided in Section 15.1 hereof with respect to a Qualifying Party that becomes a Tendering Party), and shall not be entitled to effect a Consent or vote with respect to such Partnership Interest on any matter presented to the Partners for approval (such right to Consent or vote, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Limited Partner). In the event that any such transferee desires to make a further Transfer of any such Partnership Interest, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Limited Partner desiring to make a Transfer of a Limited Partner Interest.

Section 11.6. General Provisions.

A. No Limited Partner may withdraw from the Partnership other than as a result of: (i) a permitted Transfer of all of such Limited Partner’s Partnership Units in accordance with this Article 11 with respect to which the transferee becomes a Substituted Limited Partner or (ii) pursuant to a redemption (or acquisition by the Special Limited Partner) of all of its Partnership Units pursuant to a Redemption under Section 15.1 hereof and/or pursuant to any Partnership Unit Designation.

B. Any Limited Partner who shall Transfer all of its Partnership Units in a Transfer (i) permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Limited Partner or (ii) pursuant to the exercise of its rights to effect a redemption of all of its Partnership Units pursuant to a Redemption under Section 15.1 hereof and/or pursuant to any Partnership Unit Designation shall cease to be a Limited Partner.

C. If any Partnership Unit is Transferred in compliance with the provisions of this Article 11, or is redeemed by the Partnership, or acquired by the Special Limited Partner pursuant to Section 15.1 hereof, on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit attributable to such Partnership Unit for such Partnership Year shall be allocated to the transferor Partner or the Tendering Party (as the case may be) and, in the case of a Transfer other than a Redemption, to the transferee Partner, by taking into account their varying interests during the Partnership Year in accordance with Code Section 706(d), using the “interim closing of the books” method or another permissible method selected by the General Partner in its sole and absolute discretion. Solely for purposes of making such allocations, unless the General Partner decides in its sole and absolute discretion to use another method permitted under the Code, each of such items for the calendar month in which a Transfer occurs or in which a Partnership Unit is redeemed by the Partnership or is acquired by the Special Limited Partner pursuant to Section 15.1 hereof shall be allocated to the transferee Partner and none of such items

for the calendar month in which a Transfer, Redemption or acquisition by the Special Limited Partner occurs shall be allocated to the transferor Partner or the Tendering Party (as the case may be) if such Transfer, Redemption or acquisition occurs on or before the fifteenth (15th) day of the month, otherwise such items shall be allocated to the transferor or Tendering Party (as the case may be). All distributions of Available Cash attributable to such Partnership Unit with respect to which the Partnership Record Date is before the date of such Transfer, assignment or Redemption shall be made to the transferor Partner or the Tendering Party (as the case may be) and, in the case of a Transfer other than a Redemption, all distributions of Available Cash thereafter attributable to such Partnership Unit shall be made to the transferee Partner.

D. In addition to any other restrictions on Transfer herein contained, in no event may any Transfer of a Partnership Interest by any Partner (including any Redemption, any acquisition of Partnership Units by the Special Limited Partner or any other acquisition of Partnership Units by the Partnership) be made: (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) except with the Consent of the General Partner, of any component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) in the event that such Transfer could cause either the Special Limited Partner or any Affiliate of the Special Limited Partner to cease to comply with the REIT Requirements or to cease to qualify as a “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)); (v) except with the Consent of the General Partner, if such Transfer could, based on the advice of counsel to the Partnership or the General Partner, cause a termination of the Partnership for federal or state income tax purposes (except as a result of the Redemption (or acquisition by the Special Limited Partner) of all Partnership Common Units held by all Limited Partners); (vi) if such Transfer could, based on the advice of legal counsel to the Partnership or the General Partner, cause the Partnership to cease to be classified as a partnership for federal income tax purposes; (vii) if such Transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in ERISA Section 3(14)) or a “disqualified person” (as defined in Code Section 4975(c)); (viii) if such Transfer could, based on the advice of legal counsel to the Partnership or the General Partner, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.3-101; (ix) if such Transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (x) except with the Consent of the General Partner, if such Transfer (1) could be treated as effectuated through an “established securities market” or a “secondary market” (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code and the Regulations promulgated thereunder, (2) could cause the Partnership to become a “publicly traded partnership,” as such term is defined in Sections 469(k)(2) or 7704(b) of the Code, (3) could cause the Partnership at any time to have more than 100 Partners, including as Partners those Persons (“Flow-Through Partners”) indirectly owning an interest in the Partnership through an entity treated as a partnership, Disregarded Entity, S corporation or grantor trust (each such entity, a “Flow-Through Entity”), but only if substantially all of the value of such Person’s interest in the Flow-Through Entity is attributable to the Flow-Through Entity’s interest (direct or indirect) in the Partnership, or (4) could cause the Partnership to fail one or more of the “safe harbors” set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as “readily tradable on a secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code) (the “Safe Harbors”); (xi) if such Transfer causes the Partnership (as opposed to the General Partner) to become a reporting company under the Exchange Act; or (xii) if such Transfer could subject the Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended. The General Partner shall, in its sole discretion, be permitted to take all action necessary to prevent the Partnership from being classified as a “publicly traded partnership” under Code Section 7704.

E. Transfers pursuant to this Article 11 may only be made on the first day of a fiscal quarter of the Partnership, unless the General Partner otherwise Consents.

ARTICLE 12
ADMISSION OF PARTNERS

Section 12.1. Admission of Successor General Partner. A successor to all of the General Partner’s General Partner Interest pursuant to a Transfer permitted by Section 11.2 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective immediately upon such Transfer. Upon any such Transfer and the admission of any such transferee as a successor General Partner in accordance with this Section 12.1, the transferor General Partner shall be relieved of its obligations under this Agreement and shall cease to be a general partner of the Partnership without any separate Consent of the Limited Partners or the consent or approval of any other Partners. Any such successor General Partner shall carry on the business and affairs of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission of such Person as a General Partner. Upon any such Transfer, the transferee shall become the successor General Partner for all purposes herein, and shall be vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner. Concurrently with, and as evidence of, the admission of a successor General Partner, the General Partner shall amend Exhibit A and the books and records of the Partnership to reflect the name, address and number and classes and/or series of Partnership Units owned by such successor General Partner.

Section 12.2. Admission of Additional Limited Partners.

A. After the admission to the Partnership of the Original Limited Partners, a Person (other than an existing Partner) who makes a Capital Contribution to the Partnership in exchange for Partnership Units and in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to this Agreement executed by such Person and (iii) such other documents or instruments as may be required in the sole and absolute discretion of the General Partner in order to effect such Person’s admission as an Additional Limited Partner. Concurrently with, and as evidence of, the admission of an Additional Limited Partner, the General Partner shall amend Exhibit A and the books and records of the Partnership to reflect the name, address and number and classes and/or series of Partnership Units of such Additional Limited Partner.

B. Notwithstanding anything to the contrary in this Section 12.2, no Person shall be admitted as an Additional Limited Partner without the Consent of the General Partner. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the Consent of the General Partner to such admission and the satisfaction of all the conditions set forth in Section 12.2.A.

C. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Holders for such Partnership Year shall be allocated among such Additional Limited Partner and all other Holders by taking into account their varying interests during the Partnership Year in accordance with Code Section 706(d), using the “interim closing of the books” method or another permissible method selected by the General Partner. Solely for

purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among the Holders, including such Additional Limited Partner, in accordance with the principles described in Section 11.6.C hereof. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions of Available Cash thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner.

Section 12.3. Amendment of Agreement and Certificate of Limited Partnership. For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment of Exhibit A) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4 hereof.

Section 12.4. Limit on Number of Partners. Unless otherwise permitted by the General Partner in its sole and absolute discretion, no Person shall be admitted to the Partnership as an Additional Limited Partner if the effect of such admission would be to cause the Partnership to have a number of Partners that would cause the Partnership to become a reporting company under the Exchange Act.

Section 12.5. Admission. A Person shall be admitted to the Partnership as a limited partner of the Partnership or a general partner of the Partnership only upon strict compliance, and not upon substantial compliance, with the requirements set forth in this Agreement for admission to the Partnership as a Limited Partner or a General Partner.

ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION

Section 13.1. Dissolution. The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business and affairs of the Partnership without dissolution. However, the Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (each a “Liquidating Event”):

A. a withdrawal in violation of this Agreement by the General Partner or the bankruptcy of the General Partner unless, within ninety (90) days after such withdrawal or bankruptcy, a Majority in Interest of the Partners Consent to continue the Partnership and to the appointment, effective as of the date of such withdrawal or bankruptcy, of a successor General Partner;

B. an election to dissolve the Partnership made by the General Partner in its sole and absolute discretion, with or without the Consent of the Partners;

C. entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act;

D. any sale or other disposition of (other than the attachment of a lien or security interest in) all or substantially all of the assets of the Partnership outside the ordinary course of the Partnership’s business or a related series of transactions that, taken together, result in the sale or other disposition of (other than the attachment of a lien or security interest in) all or substantially all of the assets of the Partnership outside the ordinary course of the Partnership’s business; or

E. the Redemption or other acquisition by the Partnership or the Special Limited Partner of all Partnership Units other than Partnership Units held by the General Partner or the Special Limited Partner.

Section 13.2. Winding Up.

A. Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and the Holders. After the occurrence of a Liquidating Event, no Holder shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership’s business and affairs. The General Partner (or, in the event that there is no remaining General Partner or the General Partner has dissolved, become bankrupt within the meaning of the Act or ceased to operate, any Person elected by a Majority in Interest of the Partners (the General Partner or such other Person being referred to herein as the “Liquidator”)) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership’s liabilities and property, and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in the General Partner) shall be applied and distributed in the following order:

(1) First, to the satisfaction of all of the Partnership’s debts and liabilities to creditors other than the Holders (whether by payment or the making of reasonable provision for payment thereof);

(2) Second, to the satisfaction of all of the Partnership’s debts and liabilities to the General Partner and the Special Limited Partner (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under Section 7.4 hereof;

(3) Third, to the satisfaction of all of the Partnership’s debts and liabilities to the other Holders (whether by payment or the making of reasonable provision for payment thereof); and

(4) Fourth, to the Partners in accordance with Section 5.1.

The General Partner shall not receive any compensation for any services performed pursuant to this Article 13 other than reimbursement of its expenses as set forth in Section 7.4.

B. Notwithstanding the provisions of Section 13.2.A hereof that require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership, the Liquidator determines that an immediate sale of part or all of the Partnership’s assets would be impractical or would cause undue loss to the Holders, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Holders as creditors) and/or distribute to the Holders, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A hereof, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Holders, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.

C. If any Holder has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), except as otherwise agreed to by such Holder, such Holder shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever.

D. In the sole and absolute discretion of the General Partner or the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Holders pursuant to this Article 13 may be:

(1) distributed to a trust established for the benefit of the General Partner and the Holders for the purpose of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the General Partner arising out of or in connection with the Partnership and/or Partnership activities. The assets of any such trust shall be distributed to the Holders, from time to time, in the reasonable discretion of the General Partner, in the same proportions and amounts as would otherwise have been distributed to the Holders pursuant to this Agreement; or

(2) withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld or escrowed amounts shall be distributed in the manner and order of priority set forth in Section 13.2.A hereof as soon as practicable.

Section 13.3. Rights of Holders. Except as otherwise provided in this Agreement and subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, (a) each Holder shall look solely to the assets of the Partnership for the return of its Capital Contribution, (b) no Holder shall have the right or power to demand or receive property other than cash from the Partnership and (c) no Holder shall have priority over any other Holder as to the return of its Capital Contributions, distributions or allocations.

Section 13.4. Notice of Dissolution. In the event that a Liquidating Event occurs or an event occurs that would, but for an election or objection by one or more Partners pursuant to Section 13.1 hereof, result in a dissolution of the Partnership, the General Partner shall, within thirty (30) days thereafter, provide written notice thereof to each Holder and, in the General Partner’s sole and absolute discretion or as required by the Act, to all other parties with whom the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner), and the General Partner may, or, if required by the Act, shall, publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner).

Section 13.5. Cancellation of Certificate of Limited Partnership. Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.2 hereof, the Partnership shall be terminated, a certificate of cancellation shall be filed with the Delaware Secretary of State, all qualifications of the Partnership as a foreign limited partnership or association in jurisdictions other than the State of Delaware shall be cancelled, and such other actions as may be necessary to terminate the Partnership shall be taken.

Section 13.6. Reasonable Time for Winding-Up. A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between and among the Partners during the period of

liquidation; provided, however, the General Partner shall make reasonable efforts complete such winding-up within twenty-four (24) months after the adoption of a plan of liquidation of the Special Limited Partner, as provided in Section 562(b)(2)(B) of the Code, if the Special Limited Partner requests that the General Partner shall so complete such winding-up.

ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS;
AMENDMENTS; MEETINGS

Section 14.1. Procedures for Actions and Consents of Partners. The actions requiring Consent of any Partner or Partners pursuant to this Agreement or otherwise pursuant to applicable law are subject to the procedures set forth in this Article 14.

Section 14.2. Amendments. Amendments to this Agreement may be proposed by the General Partner or by Limited Partners holding twenty-five percent (25%) or more of the Partnership Interests held by Limited Partners (excluding Partnership Interests held by the Special Limited Partner) and, except as set forth in Section 7.3.B and Section 7.3.C and subject to Section 7.3.D and the rights of any Holder of Partnership Interest set forth in a Partnership Unit Designation, shall be approved by the Consent of the Partners. Following such proposal, the General Partner shall submit to the Partners entitled to vote thereon any proposed amendment that, pursuant to the terms of this Agreement, requires the consent, approval or vote of such Partners. The General Partner shall seek the consent, approval or vote of the Partners entitled to vote thereon on any such proposed amendment in accordance with Section 14.3.

Section 14.3. Actions and Consents of the Partners.

A. Meetings of the Partners may be called only by the General Partner to transact any business that the General Partner determines. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners entitled to act at the meeting not less than seven (7) days nor more than sixty (60) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Unless approval by a different number or proportion of the Partners is required by this Agreement, the affirmative vote of a Majority in Interest of the Partners shall be sufficient to approve such proposal at a meeting of the Partners. Whenever the Consent of Partners is permitted or required under this Agreement, Consent may be given at a meeting of Partners or in accordance with the procedure prescribed in Section 14.3.B hereof.

B. Any action requiring the Consent of any Partner or group of Partners pursuant to this Agreement or that is required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a Consent in writing or by electronic transmission setting forth the action so taken or Consented to is given by Partners whose affirmative vote would be sufficient to approve such action or provide such Consent at a meeting of the Partners. Such consent may be in one instrument or in several instruments, and shall have the same force and effect as the affirmative vote of such Partners at a meeting of the Partners. Such Consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date certified by the General Partner.

C. Each Partner entitled to act at a meeting of the Partners may authorize any Person or Persons to act for it by proxy on all matters in which a Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Each proxy must be signed by the Partner or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Partner executing it, such revocation to be effective upon the Partnership’s receipt of written notice of

such revocation from the Partner executing such proxy, unless such proxy states that it is irrevocable and is coupled with an interest.

D. Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate in its sole and absolute discretion. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the Special Limited Partner’s stockholders and may be held at the same time as, and as part of, the meetings of the Special Limited Partner’s stockholders.

ARTICLE 15
GENERAL PROVISIONS

Section 15.1. Redemption Rights of Qualifying Parties.

A. After the applicable Twelve-Month Period, a Qualifying Party shall have the right (subject to the terms and conditions set forth herein) to require the Partnership to redeem all (but not less than all) of the Partnership Common Units held by such Tendering Party (Partnership Common Units that have in fact been tendered for redemption being hereafter referred to as “Tendered Units”) in exchange (a “Redemption”) for the Cash Amount payable as provided below; provided that a Qualifying Party may only deliver a Notice of Redemption, as provided below, at least ten (10) Business Days before the last Business Day of a calendar month (with any late Notice of Redemption being null). The Partnership may, in the General Partner’s sole and absolute discretion, redeem Tendered Units at the request of the Holder thereof prior to the end of the applicable Twelve-Month Period (subject to the terms and conditions set forth herein) (a “Special Redemption”); provided, however, that the General Partner first receives a legal opinion to the same effect as the legal opinion described in Section 15.1.G(4) of this Agreement. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the General Partner and the Special Limited Partner by the Qualifying Party when exercising the Redemption right (the “Tendering Party”). The Partnership’s obligation to effect a Redemption, however, shall not arise or be binding against the Partnership until the earlier of (i) the date the General Partner, on behalf of the Partnership, notifies the Tendering Party that the Partnership declines to cause the Special Limited Partner to acquire some or all of the Tendered Units under Section 15.1.B hereof following receipt of a Notice of Redemption and (ii) the Business Day following the Cut-Off Date. In the event of a Redemption, the Cash Amount shall be paid by a check mailed to the Tendering Party or, in the General Partner’s sole and absolute discretion, by wire transfer, in each case, on or before the last Business Day of the month in which the General Partner receives a Notice of Redemption from the Tendering Party.

B. Notwithstanding the provisions of Section 15.1.A hereof, on or before the close of business on the Cut-Off Date, the Partnership may, in the General Partner’s sole and absolute discretion but subject to the Ownership Limit and the transfer restrictions and other limitations of the Charter, elect to cause the Special Limited Partner to acquire some or all of the Tendered Units from the Tendering Party in exchange for REIT Shares (the percentage of such Tendered Units to be acquired by the Special Limited Partner in exchange for REIT Shares being referred to as the “Applicable Percentage”). If the Partnership elects to cause the Special Limited Partner to acquire some or all of the Tendered Units pursuant to this Section 15.1.B, the General Partner, on behalf of the Partnership, shall give written notice thereof to the Special Limited Partner and the Tendering Party on or before the close of business on the Cut-Off Date. If the Partnership elects to cause the Special Limited Partner to acquire any of the Tendered Units for REIT Shares, the General Partner shall direct the Special Limited Partner to issue and deliver such REIT Shares to the Tendering Party pursuant to the terms of this Section 15.1.B, in which case (1) the Special Limited Partner’s issuance and delivery of the REIT Shares shall satisfy the Tendering Party’s Redemption right with respect to such Tendered Units and (2) such transaction shall be treated,

for federal income tax purposes, as a transfer by the Tendering Party of such Tendered Units to the Special Limited Partner in exchange for the REIT Shares Amount. If the Partnership so elects, on the Specified Redemption Date, the Tendering Party shall sell such number of the Tendered Units to the Special Limited Partner in exchange for a number of REIT Shares equal to the product of the REIT Shares Amount and the Applicable Percentage. The Tendering Party shall submit (i) such information, certification or affidavit as the Special Limited Partner may reasonably require in connection with the application of the Ownership Limit and other restrictions and limitations of the Charter to any such acquisition and (ii) such written representations, investment letters, legal opinions or other instruments necessary, in the Special Limited Partner’s view, to effect compliance with the Securities Act. In the event of a purchase of the Tendered Units by the Special Limited Partner pursuant to this Section 15.1.B, the Tendering Party shall no longer have the right to cause the Partnership to effect a Redemption of such Tendered Units and, upon notice to the Tendering Party by the General Partner given on or before the close of business on the Cut-Off Date that the Partnership has elected to cause the Special Limited Partner to acquire some or all of the Tendered Units pursuant to this Section 15.1.B, the obligation of the Partnership to effect a Redemption of the Tendered Units as to which the General Partner’s notice relates shall not accrue or arise. A number of REIT Shares equal to the product of the Applicable Percentage and the REIT Shares Amount, if applicable, shall be delivered by the Special Limited Partner as duly authorized, validly issued, fully paid and non-assessable REIT Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or restriction, other than the Ownership Limit and any other restrictions provided in the Charter, the Securities Act and relevant state securities or “blue sky” laws. None of any Tendering Party whose Tendered Units are acquired by the Special Limited Partner pursuant to this Section 15.1.B, any Partner, any Assignee or any other interested Person shall have any right to require or cause the Special Limited Partner to register, qualify or list any REIT Shares owned or held by such Person, whether or not such REIT Shares are issued pursuant to this Section 15.1.B, with the SEC under the Securities Act or the Exchange Act, with any stock exchange or with any state securities commissioner, department or agency; provided, however, that this limitation shall not be in derogation of any registration or similar rights granted pursuant to any other written agreement between the Special Limited Partner and any such Person. Notwithstanding any delay in delivery, the Tendering Party shall be deemed the owner of such REIT Shares and, if applicable, Rights for all purposes, including, without limitation, rights to vote or consent, receive dividends, and exercise rights, as of the Specified Redemption Date. REIT Shares issued upon an acquisition of the Tendered Units by the Special Limited Partner pursuant to this Section 15.1.B may contain such legends regarding restrictions under the Securities Act and applicable state securities laws as the Special Limited Partner determines to be necessary or advisable in order to ensure compliance with such laws.

C. Notwithstanding the provisions of Section 15.1.A and 15.1.B hereof, the Tendering Parties shall have no rights under this Agreement that would otherwise be prohibited by the Charter. To the extent that any attempted Redemption or acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof would be in violation of this Section 15.1.C, it shall be null and void ab initio, and the Tendering Party shall not acquire any rights or economic interests in REIT Shares otherwise issuable by the Special Limited Partner under Section 15.1.B hereof or cash otherwise payable under Section 15.1.A hereof.

D. If the Partnership does not exercise its right to cause the Special Limited Partner to acquire the Tendered Units pursuant to Section 15.1.B hereof:

(1) The Partnership may elect to raise funds for the payment of the Cash Amount either (a) by requiring the Special Limited Partner to contribute to the Partnership funds from the proceeds of a registered public offering by the Special Limited Partner of REIT Shares sufficient to purchase the Tendered Units or (b) from any other sources (including, but not limited to, the sale of any Property and the incurrence of additional Debt) available to the Partnership. The

Special Limited Partner shall make a Capital Contribution of any such amounts of offering proceeds it may receive to the Partnership for an additional Limited Partner Interest.

(2) If the Cash Amount is not paid on or before the first Business Day after the Specified Redemption Date, interest shall accrue with respect to the Cash Amount from the first Business Day after the Specified Redemption Date to and including the date on which the Cash Amount is paid at a rate equal to the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal (but not higher than the maximum lawful rate).

E. Notwithstanding the provisions of Section 15.1.B hereof, the General Partner shall not, under any circumstances, elect to cause the Special Limited Partner to acquire any Tendered Units in exchange for REIT Shares if such exchange would be prohibited under the Charter.

F. Notwithstanding anything herein to the contrary (but subject to Section 15.1.C hereof), with respect to any Redemption (or any tender of Partnership Common Units for Redemption if the Tendered Units are acquired by the Special Limited Partner pursuant to Section 15.1.B hereof) pursuant to this Section 15.1:

(1) All Partnership Common Units acquired by the Special Limited Partner pursuant to Section 15.1.B hereof shall automatically, and without further action required, be converted into and deemed to be a Special Limited Partner’s Partnership Interest comprised of the same number of Partnership Common Units.

(2) If (i) a Tendering Party surrenders its Tendered Units during the period after the Partnership Record Date with respect to a distribution and before the record date established by the Special Limited Partner for a distribution to its stockholders of some or all of its portion of such Partnership distribution, and (ii) the Partnership elects to cause the Special Limited Partner to acquire any of such Tendered Units in exchange for REIT Shares pursuant to Section 15.1.B, such Tendering Party shall pay to the General Partner on the Specified Redemption Date an amount in cash equal to the portion of the Partnership distribution in respect of the Tendered Units exchanged for REIT Shares that relates to the same period for which such Tendering Party would receive a distribution in respect of such REIT Shares.

(3) The consummation of such Redemption (or an acquisition of Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof, as the case may be) shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Act.

(4) The Tendering Party shall continue to own (subject, in the case of an Assignee, to the provisions of Section 11.5 hereof) all Partnership Common Units subject to any Redemption, and be treated as a Limited Partner or an Assignee, as applicable, with respect to such Partnership Common Units for all purposes of this Agreement until the Specified Redemption Date (and thereafter unless such Partnership Common Units are either paid for by the Partnership pursuant to Section 15.1.A hereof or transferred to the Special Limited Partner and paid for by the issuance of the REIT Shares pursuant to Section 15.1.B hereof). Until a Specified Redemption Date and an acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof, the Tendering Party shall have no rights as a stockholder of the Special Limited Partner with respect to the REIT Shares issuable in connection with such acquisition.

G. In connection with an exercise of Redemption rights pursuant to this Section 15.1, except as otherwise Consented to by the General Partner, the Tendering Party shall submit the following to the General Partner, in addition to the Notice of Redemption:

(1) A written affidavit, dated the same date as the Notice of Redemption, (a) disclosing the actual and constructive ownership, as determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such Tendering Party and (ii) to the best of its knowledge any Related Party and (b) representing that, after giving effect to the Redemption or an acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof, neither the Tendering Party nor to the best of its knowledge any Related Party will own REIT Shares in violation of the Ownership Limit;

(2) A written representation that neither the Tendering Party nor to the best of its knowledge any Related Party has any intention to acquire any additional REIT Shares prior to the closing of the Redemption or an acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof on the Specified Redemption Date; and

(3) An undertaking to certify, at and as a condition to the closing of (i) the Redemption or (ii) the acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof on the Specified Redemption Date, that either (a) the actual and constructive ownership of REIT Shares by the Tendering Party and to the best of its knowledge any Related Party remain unchanged from that disclosed in the affidavit required by Section 15.1.G(1) or (b) after giving effect to the Redemption or an acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof, neither the Tendering Party nor to the best of its knowledge any Related Party shall own REIT Shares in violation of the Ownership Limit.

(4) In connection with any Special Redemption, the Special Limited Partner shall have the right to receive an opinion of counsel reasonably satisfactory to it to the effect that the proposed Special Redemption will not cause the Partnership, the General Partner or the Special Limited Partner to violate any federal or state securities laws or regulations applicable to the Special Redemption, the issuance and sale of the Tendered Units to the Tendering Party or the issuance and sale of REIT Shares to the Tendering Party pursuant to Section 15.1.B of this Agreement.

Section 15.2. Addresses and Notice. Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written or electronic communication (including by telecopy, facsimile, electronic mail or commercial courier service) to the Partner, or Assignee at the address set forth in Exhibit A or such other address of which the Partner shall notify the General Partner in accordance with this Section 15.2.

Section 15.3. Titles and Captions. All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles” or “Sections” are to Articles and Sections of this Agreement.

Section 15.4. Pronouns and Plurals. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.

Section 15.5. Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

Section 15.6. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

Section 15.7. Waiver.

A. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.

B. The restrictions, conditions and other limitations on the rights and benefits of the Limited Partners contained in this Agreement, and the duties, covenants and other requirements of performance or notice by the Limited Partners, are for the benefit of the Partnership and, except for an obligation to pay money to the Partnership, may be waived or relinquished by the General Partner, in its sole and absolute discretion, on behalf of the Partnership in one or more instances from time to time and at any time; provided, however, that any such waiver or relinquishment may not be made if it would have the effect of (i) creating liability for any other Limited Partner, (ii) causing the Partnership to cease to qualify as a limited partnership, (iii) reducing the amount of cash otherwise distributable to the Limited Partners (other than any such reduction that affects all of the Limited Partners holding the same class or series of Partnership Units on a uniform or pro rata basis, if approved by a Majority in Interest of the Partners holding such class or series of Partnership Units), (iv) resulting in the classification of the Partnership as an association or publicly traded partnership taxable as a corporation or (v) violating the Securities Act, the Exchange Act or any state “blue sky” or other securities laws; and provided, further, that any waiver relating to compliance with the Ownership Limit or other restrictions in the Charter shall be made and shall be effective only as provided in the Charter.

Section 15.8. Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.

Section 15.9. Applicable Law; Consent to Jurisdiction; Waiver of Jury Trial.

A. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. In the event of a conflict between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence.

B. Each Partner hereby (i) submits to the non-exclusive jurisdiction of any state or federal court sitting in the State of Delaware (collectively, the “Delaware Courts”), with respect to any dispute arising out of this Agreement or any transaction contemplated hereby to the extent such courts would have subject matter jurisdiction with respect to such dispute, (ii) irrevocably waives, and agrees not to assert by way of motion, defense, or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of any of the Delaware Courts, that its property is exempt or immune from attachment or execution, that the action is brought in an inconvenient forum, or that the venue of the action is improper, (iii) agrees that notice or the service of process in any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be properly served or delivered if delivered to such Partner at such Partner’s last known address as set forth in the

Partnership’s books and records, and (iv) irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or related to this Agreement or the transactions contemplated hereby.

Section 15.10. Entire Agreement. This Agreement contains all of the understandings and agreements between and among the Partners with respect to the subject matter of this Agreement and the rights, interests and obligations of the Partners with respect to the Partnership. Notwithstanding the immediately preceding sentence, the Partners hereby acknowledge and agree that the General Partner, without the approval of any Limited Partner, may enter into side letters or similar written agreements with Limited Partners that are not Affiliates of the General Partner or the Special Limited Partner, executed contemporaneously with the admission of such Limited Partner to the Partnership, affecting the terms hereof, as negotiated with such Limited Partner and which the General Partner in its sole discretion deems necessary, desirable or appropriate. The parties hereto agree that any terms, conditions or provisions contained in such side letters or similar written agreements with a Limited Partner shall govern with respect to such Limited Partner notwithstanding the provisions of this Agreement.

Section 15.11. Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

Section 15.12. Limitation to Preserve REIT Status. Notwithstanding anything else in this Agreement, to the extent that the amount to be paid or credited by the Partnership to any REIT Partner or its officers, directors, employees or agents as a reimbursement, fee, expense or indemnity (a “REIT Payment”), would constitute gross income to the REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3), then, notwithstanding any other provision of this Agreement, the amount of such REIT Payments, as selected by the General Partner in its discretion from among items of potential reimbursements, fees, expenses and indemnities, shall be reduced for any Partnership Year so that the REIT Payments, as so reduced, for or with respect to such REIT Partner shall not exceed the lesser of:

(i) an amount equal to the excess, if any, of (a) four and nine-tenths percent (4.9%) of the REIT Partner’s total gross income (but excluding the amount of any REIT Payments and amounts excluded from gross income pursuant to Section 856(c)(5)(G) of the Code) for the Partnership Year that is described in subsections (A) through (I) of Code Section 856(c)(2) over (b) the amount of gross income (within the meaning of Code Section 856(c)(2)) derived by the REIT Partner from sources other than those described in subsections (A) through (I) of Code Section 856(c)(2) (but not including the amount of any REIT Payments and amounts excluded from gross income pursuant to Section 856(c)(5)(G) of the Code); or

(ii) an amount equal to the excess, if any, of (a) twenty-four percent (24%) of the REIT Partner’s total gross income (but excluding the amount of any REIT Payments and amounts excluded from gross income pursuant to Section 856(c)(5)(G) of the Code) for the Partnership Year that is described in subsections (A) through (I) of Code Section 856(c)(3) over (b) the amount of gross income (within the meaning of Code Section 856(c)(3)) derived by the REIT Partner from sources other than those described in subsections (A) through (I) of Code Section 856(c)(3) (but not including the amount of any REIT Payments and amounts excluded from gross income pursuant to Section 856(c)(5)(G) of the Code);

provided, however, that REIT Payments in excess of the amounts set forth in clauses (i) and (ii) above may be made if the General Partner, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts should not adversely affect the REIT Partner’s ability to qualify as a REIT. To the extent that REIT Payments may not be made in a Partnership Year as a consequence of the

limitations set forth in this Section 15.12, such REIT Payments shall carry over and shall be treated as arising in the following Partnership Year if such carry over does not adversely affect the REIT Partner’s ability to qualify as a REIT, provided, however, that any such REIT Payment shall not be carried over more than three Partnership Years, and any such remaining payments shall no longer be due and payable. The purpose of the limitations contained in this Section 15.12 is to prevent any REIT Partner from failing to qualify as a REIT under the Code by reason of such REIT Partner’s reimbursements, fees, expenses or indemnities, receivable directly or indirectly from the Partnership, and this Section 15.12 shall be interpreted and applied to effectuate such purpose.

Section 15.13. No Partition. No Partner nor any successor-in-interest to a Partner shall have the right while this Agreement remains in effect to have any property of the Partnership partitioned, or to file a complaint or institute any proceeding at law or in equity to have such property of the Partnership partitioned, and each Partner, on behalf of itself and its successors and assigns hereby waives any such right. It is the intention of the Partners that the rights of the parties hereto and their successors-in-interest to Partnership property, as among themselves, shall be governed by the terms of this Agreement, and that the rights of the Partners and their respective successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement.

Section 15.14. No Third-Party Rights Created Hereby. The provisions of this Agreement are solely for the purpose of defining the interests of the Holders, inter se; and no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans to the Partnership or to pursue any other right or remedy hereunder or at law or in equity. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may any such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or any of the Partners.

Section 15.15. No Rights as Stockholders. Nothing contained in this Agreement shall be construed as conferring upon the Holders of Partnership Units any rights whatsoever as stockholders of the Special Limited Partner, including without limitation any right to receive dividends or other distributions made to stockholders of the Special Limited Partner or to vote or to consent or receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Special Limited Partner or any other matter.

[Remainder of Page Left Blank Intentionally]

IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.


General Partner:	SILVER BAY MANAGEMENT LLC, a Delaware limited liability company


	By:

	Title:


Special Limited Partner:	SILVER BAY REALTY TRUST CORP., a Maryland corporation


	By:

	Title:

Other Limited Partners have been deemed to have executed this Agreement by the terms of the Contribution Agreements or the Merger Agreements.

EXHIBIT A

PARTNERS AND PARTNERSHIP UNITS

Name of Partners	Type of Partnership Units	Number of Units or Face Amount

*General Partner:*
Silver Bay Management LLC.	Common

*Special Limited Partner:*
Silver Bay Realty Trust Corp.	Common
	Preferred	$1 million

*Other Limited Partners:*
	Common

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EXHIBIT B

EXAMPLES REGARDING ADJUSTMENT FACTOR

For purposes of the following examples, it is assumed that the Adjustment Factor in effect initially and on the Partnership Record Date is 1.0 prior to the events described in the examples and that there are 100 REIT Shares issued and outstanding prior to such events.

Example 1

On the Partnership Record Date, the Special Limited Partner declares a dividend on its outstanding REIT Shares in REIT Shares. The amount of the dividend is one REIT Share paid in respect of each REIT Share owned. Pursuant to paragraph (i) of the definition of “Adjustment Factor,” the Adjustment Factor shall be adjusted on the Partnership Record Date, effective immediately after the stock dividend is declared, as follows:

1.0 * 200/100 = 2.0

Accordingly, the Adjustment Factor after the stock dividend is declared is 2.0.

Example 2

On the Partnership Record Date, the Special Limited Partner distributes options to purchase REIT Shares to all holders of its REIT Shares. The amount of the distribution is one option to acquire one REIT Share in respect of each REIT Share owned. The strike price is $4.00 a share. The Value of a REIT Share on the Partnership Record Date is $5.00 per share. Pursuant to paragraph (ii) of the definition of “Adjustment Factor,” the Adjustment Factor shall be adjusted on the Partnership Record Date, effective immediately after the options are distributed, as follows:

1.0 * (100 + 100)/(100 + [100 * $4.00/$5.00]) = 1.1111

Accordingly, the Adjustment Factor after the options are distributed is 1.1111. If the options expire or become no longer exercisable, then the retroactive adjustment specified in paragraph (ii) of the definition of “Adjustment Factor” shall apply.

Example 3

On the Partnership Record Date, the Special Limited Partner distributes assets to all holders of its REIT Shares. The amount of the distribution is one asset with a fair market value (as determined by the General Partner) of $1.00 in respect of each REIT Share owned. It is also assumed that the assets do not relate to assets received by the Special Limited Partner pursuant to a pro rata distribution by the Partnership. The Value of a REIT Share on the Partnership Record Date is $5.00 a share. Pursuant to paragraph (iii) of the definition of “Adjustment Factor,” the Adjustment Factor shall be adjusted on the Partnership Record Date, effective immediately after the assets are distributed, as follows:

1.0 * $5.00/($5.00 - $1.00) = 1.25

Accordingly, the Adjustment Factor after the assets are distributed is 1.25.

B-1

EXHIBIT C

NOTICE OF REDEMPTION

To: SILVER BAY MANAGEMENT LLC

SILVER BAY REALTY TRUST CORP.

The undersigned Limited Partner or Assignee hereby irrevocably tenders for Redemption Partnership Common Units of SILVER BAY OPERATING PARTNERSHIP L.P. in accordance with the terms of the Amended and Restated Limited Partnership Agreement of SILVER BAY OPERATING PARTNERSHIP L.P., dated as of , 20 as amended (the “Agreement”), and the Redemption rights referred to therein. The undersigned Limited Partner or Assignee:

(a) undertakes (i) to surrender such Partnership Common Units and any certificate therefor at the closing of the Redemption and (ii) to furnish to the General Partner, prior to the Specified Redemption Date, the documentation, instruments and information required under Section 15.1.G of the Agreement and any forms or certificates that may be required for tax purposes;

(b) directs that the check representing the Cash Amount, or the REIT Shares Amount, as applicable, deliverable upon the closing of such Redemption be delivered to the address specified below;

(i) the undersigned Limited Partner or Assignee is a Qualifying Party,

(ii) the undersigned Limited Partner or Assignee has, and at the closing of the Redemption will have, good, marketable and unencumbered title to such Partnership Common Units, free and clear of the rights or interests of any other person or entity,

(iii) the undersigned Limited Partner or Assignee has, and at the closing of the Redemption will have, the full right, power and authority to tender and surrender such Partnership Common Units as provided herein, and

(iv) the undersigned Limited Partner or Assignee has obtained the consent or approval of all persons and entities, if any, having the right to consent to or approve such tender and surrender; and

(d) acknowledges that the undersigned will continue to own such Partnership Common Units until and unless either (1) such Partnership Common Units are acquired by the Special Limited Partner pursuant to Section 15.1.B of the Agreement or (2) such redemption transaction closes.

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All capitalized terms used herein and not otherwise defined shall have the same meaning ascribed to them respectively in the Agreement.

Dated:	Name of Limited Partner or Assignee:




	(Signature of Limited Partner or Assignee)


	(Street Address)


	(City, State and Zip Code)


Issue check payable to:


Social Security or Federal Identification Number:

C-2

EXHIBIT D

Partnership Unit Designation of the 10% Cumulative
Redeemable Preferred Units of Silver Bay Operating Partnership, L.P.

1. Number of Units and Designation.

A class of Partnership Preferred Units is hereby designated as “10% Cumulative Redeemable Preferred Units,” and the number of Partnership Preferred Units constituting such class shall be one thousand (1,000).

2. Definitions.

For purposes of the 10% Cumulative Redeemable Preferred Units, the following terms shall have the meanings indicated in this Section 2, and capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Agreement:

“Agreement” shall mean the Amended and Restated Limited Partnership Agreement of the Partnership, dated , 2012.

“10% Cumulative Redeemable Preferred Unit” means a Partnership Preferred Unit with the participation, preferences, terms, options, rights, powers and duties as are set forth in this Exhibit D. It is the intention of the General Partner that each 10% Cumulative Redeemable Preferred Unit shall be substantially the economic equivalent of one share of 10% Cumulative Redeemable Preferred Stock.

“10% Cumulative Redeemable Preferred Stock” means the 10% Cumulative Redeemable Preferred Stock, par value $.01 per share, of the Special Limited Partner.

“Distribution Payment Date” shall mean any date on which cash dividends are paid on all outstanding shares of the 10% Cumulative Redeemable Preferred Stock.

“Junior Partnership Units” shall have the meaning set forth in paragraph (c) of Section 7 of this Exhibit D.

“Parity Partnership Units” shall have the meaning set forth in paragraph (b) of Section 7 of this Exhibit D.

“Partnership” shall mean Silver Bay Operating Partnership, L.P., a Delaware limited partnership.

“Senior Partnership Units” shall have the meaning set forth in paragraph (a) of Section 7 of this Exhibit D.

3. Distributions.

On every Distribution Payment Date, the holders of 10% Cumulative Redeemable Preferred Units shall be entitled to receive distributions payable in cash in an amount per 10% Cumulative Redeemable Preferred Unit equal to the per share dividend payable on the 10% Cumulative Redeemable Preferred Stock on such Distribution Payment Date. Each such distribution shall be payable to the holders of record of the 10% Cumulative Redeemable Preferred Units, as they appear on the records of the Partnership at the close of business on the record date for the dividend payable with respect to the 10% Cumulative Redeemable Preferred Stock on such Distribution Payment Date. Holders of 10% Cumulative

D-1

Redeemable Preferred Units shall not be entitled to any distributions on the 10% Cumulative Redeemable Preferred Units, whether payable in cash, property or stock, except as provided herein.

4. Liquidation Preference.

(a) In the event of any liquidation, dissolution or winding up of the Partnership, whether voluntary or involuntary, before any payment or distribution of the Partnership (whether capital, surplus or otherwise) shall be made to or set apart for the holders of Junior Partnership Units, the holders of 10% Cumulative Redeemable Preferred Units shall be entitled to receive one thousand dollars ($1,000.00) per 10% Cumulative Redeemable Preferred Unit (the “Liquidation Preference”), plus an amount per 10% Cumulative Redeemable Preferred Unit equal to all dividends (whether or not declared or earned) accumulated, accrued and unpaid on one share of 10% Cumulative Redeemable Preferred Stock to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. Until the holders of the 10% Cumulative Redeemable Preferred Units have been paid the Liquidation Preference in full, plus an amount equal to all dividends (whether or not declared or earned) accumulated, accrued and unpaid on the 10% Cumulative Redeemable Preferred Stock to the date of final distribution to such holders, no payment shall be made to any holder of Junior Partnership Units upon the liquidation, dissolution or winding up of the Partnership. If, upon any liquidation, dissolution or winding up of the Partnership, the assets of the Partnership, or proceeds thereof, distributable among the holders of 10% Cumulative Redeemable Preferred Units shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any Parity Partnership Units, then such assets, or the proceeds thereof, shall be distributed among the holders of 10% Cumulative Redeemable Preferred Units and any such Parity Partnership Units ratably in the same proportion as the respective amounts that would be payable on such 10% Cumulative Redeemable Preferred Units and any such other Parity Partnership Units if all amounts payable thereon were paid in full. For the purposes of this Section 4, (i) a consolidation or merger of the Partnership with one or more partnerships, or (ii) a sale or transfer of all or substantially all of the Partnership’s assets shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Partnership.

(b) Upon any liquidation, dissolution or winding up of the Partnership, after payment shall have been made in full to the holders of 10% Cumulative Redeemable Preferred Units and any Parity Partnership Units, as provided in this Section 4, any other series or class or classes of Junior Partnership Units shall, subject to the respective terms thereof, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the 10% Cumulative Redeemable Preferred Units and any Parity Partnership Units shall not be entitled to share therein.

5. Redemption.

10% Cumulative Redeemable Preferred Units shall be redeemable by the Partnership as follows:

(a) At any time that the Special Limited Partner exercises its right to redeem, or is obligated to redeem, all or any of the shares of 10% Cumulative Redeemable Preferred Stock, the General Partner shall cause the Partnership to redeem an equal number of 10% Cumulative Redeemable Preferred Units, at a redemption price per 10% Cumulative Redeemable Preferred Unit payable in cash and equal to the same price per share paid by the Special Limited Partner to redeem the 10% Cumulative Redeemable Preferred Stock. In the event of a redemption of 10% Cumulative Redeemable Preferred Units, if the redemption date occurs after a dividend record date for the 10% Cumulative Redeemable Preferred Stock and on or prior to the related Distribution Payment Date, the distribution payable on such Distribution Payment Date in respect of such 10% Cumulative Redeemable Preferred Units called for redemption shall be payable on such Distribution Payment Date to the holders of record of such 10% Cumulative Redeemable Preferred

D-2

Units on the applicable dividend record date, and shall not be payable as part of the redemption price for such 10% Cumulative Redeemable Preferred Units.

(b) If the Partnership shall redeem 10% Cumulative Redeemable Preferred Units pursuant to paragraph (a) of this Section 5, from and after the redemption date (unless the Partnership shall fail to make available the amount of cash necessary to effect such redemption), (i) except for payment of the redemption price, the Partnership shall not make any further distributions on the 10% Cumulative Redeemable Preferred Units so called for redemption, (ii) said 10% Cumulative Redeemable Preferred Units shall no longer be deemed to be outstanding, and (iii) all rights of the holders thereof as holders of 10% Cumulative Redeemable Preferred Units of the Partnership shall cease except the rights to receive the cash payable upon such redemption, without interest thereon; provided, however, that if the redemption date occurs after dividend record date for the 10% Cumulative Redeemable Preferred Stock and on or prior to the related Distribution Payment Date, the full distribution payable on such Distribution Payment Date in respect of such 10% Cumulative Redeemable Preferred Units called for redemption shall be payable on such Distribution Payment Date to the holders of record of such 10% Cumulative Redeemable Preferred Units on the applicable dividend record date notwithstanding the prior redemption of such 10% Cumulative Redeemable Preferred Units. No interest shall accrue for the benefit of the holders of the 10% Cumulative Redeemable Preferred Units to be redeemed on any cash set aside by the Partnership.

(c) If fewer than all the outstanding 10% Cumulative Redeemable Preferred Units are to be redeemed, the units to be redeemed shall be selected by the Partnership from outstanding 10% Cumulative Redeemable Preferred Units not previously called for redemption by any method determined by the General Partner in its discretion. Upon any such redemption, the General Partner shall amend Exhibit A to the Agreement as appropriate to reflect such redemption.

6. Status of Reacquired Units.

All 10% Cumulative Redeemable Preferred Units which shall have been issued and reacquired in any manner by the Partnership shall be deemed cancelled.

7. Ranking.

Any class or series of Partnership Units of the Partnership shall be deemed to rank:

(a) prior or senior to the 10% Cumulative Redeemable Preferred Units, as to the payment of distributions and as to distributions of assets upon liquidation, dissolution or winding up, if the holders of such class or series shall be entitled to the receipt of distributions and of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of 10% Cumulative Redeemable Preferred Units (“Senior Partnership Units”);

(b) on a parity with the 10% Cumulative Redeemable Preferred Units, as to the payment of distributions and as to distribution of assets upon liquidation, dissolution or winding up, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per unit or other denomination thereof be different from those of the 10% Cumulative Redeemable Preferred Units if the holders of such class or series of Partnership Units and the 10% Cumulative Redeemable Preferred Units shall be entitled to the receipt of distributions and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid distributions per unit or other denomination or liquidation preferences, without preference or priority one over the other (“Parity Partnership Units”); and

(c) junior to the 10% Cumulative Redeemable Preferred Units, as to the payment of distributions and as to the distribution of assets upon liquidation, dissolution or winding up, if (i) such class or series of

D-3

Partnership Units shall be Partnership Common Units, or (ii) the holders of 10% Cumulative Redeemable Preferred Units shall be entitled to receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of such class or series of Partnership Units (the Partnership Units referred to in clauses (i) and (ii) of this paragraph being referred to herein, collectively, as “Junior Partnership Units”).

8. Restrictions on Ownership.

The 10% Cumulative Redeemable Preferred Units shall be owned and held solely by the Special Limited Partner or a direct or indirect wholly owned subsidiary of the Special Limited Partner and shall not be transferred without the consent of the General Partner.

9. Voting Rights.

The 10% Cumulative Redeemable Preferred Units shall not have any voting rights.

10. General.

(a) The ownership of 10% Cumulative Redeemable Preferred Units may (but need not, in the sole and absolute discretion of the General Partner) be evidenced by one or more certificates. The General Partner shall amend Exhibit A to the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent redemption or any other event having an effect on the ownership of, 10% Cumulative Redeemable Preferred Units.

(b) The rights of the Special Limited Partner, in its capacity as holder of the 10% Cumulative Redeemable Preferred Units, are in addition to and not in limitation of any other rights or authority of the Special Limited Partner in any other capacity under the Agreement or applicable law. In addition, nothing contained herein shall be deemed to limit or otherwise restrict the authority of the Special Limited Partner under the Agreement, other than in its capacity as holder of the 10% Cumulative Redeemable Preferred Units.

D-4

EX-10.8 7 a2211900zex-10_8.htm EX-10.8

Exhibit 10.8

SILVER BAY REALTY TRUST CORP.
2012 EQUITY INCENTIVE PLAN

1. PURPOSE. The Plan is intended to provide incentives to key personnel, employees, officers, directors, advisors, consultants and others expected to provide significant services to the Company and its subsidiaries, including the personnel, employees, officers and directors of the other Participating Companies, to encourage a proprietary interest in the Company, to encourage such key personnel to remain in the service of the Company and the other Participating Companies, to attract new personnel with outstanding qualifications, and to afford additional incentive to others to increase their efforts in providing significant services to the Company and the other Participating Companies. In furtherance thereof, the Plan permits awards of equity-based incentives to key personnel, employees, officers and directors of, and certain other providers of services to, the Company or any other Participating Company.

2. DEFINITIONS. As used in this Plan, the following definitions apply:

“Act” shall mean the Securities Act of 1933, as amended.

“Agreement” shall mean a written agreement entered into between the Company and a Grantee pursuant to the Plan.

“Board” shall mean the Board of Directors of the Company.

“Cause” shall mean, unless otherwise provided in the Grantee’s Agreement, (i) engaging in (A) willful or gross misconduct or (B) willful or gross neglect, (ii) repeatedly failing to adhere to the directions of superiors or the Board or the written policies and practices of the Company, the Subsidiaries, the Manager or any of their respective affiliates, (iii) the commission of a felony or a crime of moral turpitude, or any crime involving the Company, the Subsidiaries, the Manager or any of their respective affiliates, (iv) fraud, misappropriation, embezzlement or material or repeated insubordination, (v) a material breach of the Grantee’s employment agreement (if any) with the Company, the Subsidiaries, the Manager or any of their respective affiliates (other than a termination of employment by the Grantee), or (vi) any illegal act detrimental to the Company; the Subsidiaries, the Manager or any of their respective affiliates, all as determined by the Committee.

“Code” shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

“Committee” shall mean the Compensation Committee of the Company as appointed by the Board in accordance with Section 4 of the Plan; provided, however, that the Committee shall at all times consist solely of persons who, at the time of their appointment, each qualified as a “Non-Employee Director” under Rule 16b-3(b)(3)(i) promulgated under the Exchange Act and, to the extent that relief from the limitation of Section 162(m) of the Code is sought, as an “Outside Director” under Section 1.162-27(e)(3)(i) of the Treasury Regulations.

“Common Stock” shall mean the Company’s common stock, par value $0.01 per share, either currently existing or authorized hereafter.

“Company” shall mean Silver Bay Realty Trust Corp., a Maryland corporation.

“DER” shall mean a right awarded under Section 12 of the Plan to receive (or have credited) the equivalent value (in cash or Shares) of dividends paid on Common Stock.

“Disability” shall mean, unless otherwise provided by the Committee in the Grantee’s Agreement, the occurrence of an event which would entitle the Grantee to the payment of disability income under one of the Company’s approved long-term disability income plan or a long-term disability as determined by the Committee in its absolute discretion pursuant to any other standard as may be adopted by the Committee. Notwithstanding the foregoing, no circumstances or condition shall constitute a Disability to the extent that, if it were, a 20% tax would be imposed under Section 409A of the Code; provided that, in such a case, the event or condition shall continue to constitute a Disability to the maximum extent possible (e.g., if applicable, in respect of vesting without an acceleration of distribution) without causing the imposition of such 20% tax.

“Eligible Persons” shall mean officers, directors, advisors, personnel and employees of the Participating Companies and other persons expected to provide significant services (of a type expressly approved by the Committee as covered services for these purposes) to one or more of the Participating Companies. For purposes of the Plan, a consultant, advisor, vendor, customer or other provider of significant services to the Company or any other Participating Company shall be deemed to be an Eligible Person, but will be eligible to receive Grants (but in no event Incentive Stock Options), only after a finding by the Committee in its discretion that the value of the services rendered or to be rendered to the Participating Company is at least equal to the value of the Grants being awarded.

“Employee” shall mean an individual, including an officer of a Participating Company, who is employed (within the meaning of Code Section 3401 and the regulations thereunder) by the Participating Company.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exercise Price” shall mean the price per Share of Common Stock, determined by the Board or the Committee, at which an Option may be exercised.

“Fair Market Value” shall mean the value of one share of Common Stock, determined as follows:

(i) If the Shares are then listed on a national stock exchange, the closing sales price per Share on the exchange for the last preceding date on which there was a sale of Shares on such exchange, as determined by the Committee.

(ii) If the Shares are not then listed on a national stock exchange but are then traded on an over-the-counter market, the average of the closing bid and asked prices for the Shares in such over-the-counter market for the last preceding date on which there was a sale of such Shares in such market, as determined by the Committee.

(iii) If neither (i) nor (ii) applies, such value as the Committee in its discretion may in good faith determine. Notwithstanding the foregoing, where the Shares are listed or traded, the Committee may make discretionary determinations in good faith where the Shares have not been traded for 10 trading days.

Notwithstanding the foregoing, with respect to any “stock right” within the meaning of Section 409A of the Code, Fair Market Value shall not be less than the “fair market value” of the Shares determined in accordance with Treasury Regulation 1.409A-1(b)(iv).

“Grant” shall mean the issuance of an Incentive Stock Option, Non-qualified Stock Option, Restricted Stock, Restricted Stock Units, Phantom Share, DER, or other equity-based grant as contemplated herein or any combination thereof as applicable to an Eligible Person. The Committee will determine the eligibility of personnel, employees, officers, directors and others expected to provide significant services to the Participating Companies based on, among other factors, the position and responsibilities of such individuals, the nature and value to the Participating Company of such individuals’ accomplishments and potential contribution to the success of the Participating Company whether directly or through its subsidiaries.

“Grantee” shall mean an Eligible Person to whom Options, Restricted Stock, Restricted Stock Units, Phantom Shares, DERs or other equity-based awards are granted hereunder.

“Incentive Stock Option” shall mean an Option of the type described in Section 422(b) of the Code issued to an Employee of (i) the Company, or (ii) a “subsidiary corporation” or a “parent corporation” as defined in Section 424(f) of the Code.

“Manager” shall mean PRCM Advisers LLC, the Company’s manager.

“Non-qualified Stock Option” shall mean an Option not described in Section 422(b) of the Code.

“Option” shall mean any option, whether an Incentive Stock Option or a Non-qualified Stock Option, to purchase, at a price and for the term fixed by the Committee in accordance with the Plan, and subject to such other limitations and restrictions in the Plan and the applicable Agreement, a number of Shares determined by the Committee.

“Optionee” shall mean any Eligible Person to whom an Option is granted, or the Successors of the Optionee, as the context so requires.

“Participating Companies” shall mean the Company, the Subsidiaries, the Manager and any of their respective affiliates, including any of the Company’s joint venture affiliates, which with the consent of the Board participates in the Plan.

“Phantom Share” shall mean a right, pursuant to the Plan, of the Grantee to payment of the Phantom Share Value.

“Phantom Share Value,” per Phantom Share, shall mean the Fair Market Value of a Share or, if so provided by the Committee, such Fair Market Value to the extent in excess of a base value established by the Committee at the time of grant.

“Plan” shall mean the Company’s 2012 Equity Incentive Plan, as set forth herein, and as the same may from time to time be amended.

“Purchase Price” shall mean the Exercise Price times the number of Shares with respect to which an Option is exercised.

“Restricted Stock” shall mean an award of Shares that are subject to restrictions hereunder.

“Restricted Stock Unit” shall mean a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 10. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

“Retirement” shall mean, unless otherwise provided by the Committee in the Grantee’s Agreement, the Termination of Service (other than for Cause) of a Grantee:

(i) on or after the Grantee’s attainment of age 65;

(ii) on or after the Grantee’s attainment of age 55 with five consecutive years of service with the Participating Companies; or

(iii) as determined by the Committee in its absolute discretion pursuant to such other standard as may be adopted by the Committee.

“Shares” shall mean shares of Common Stock of the Company, adjusted in accordance with Section 16 of the Plan (if applicable).

“Subsidiary” shall mean any corporation, partnership, limited liability company or other entity at least 50% of the economic interest in the equity of which is owned, directly or indirectly, by the Company or by another subsidiary.

“Successors of the Optionee” shall mean the legal representative of the estate of a deceased Optionee or the person or persons who shall acquire the right to exercise an Option by bequest or inheritance or by reason of the death of the Optionee.

“Termination of Service” shall mean the time when the employee-employer relationship or directorship, or other service relationship (sufficient to constitute service as an Eligible Person), between the Grantee and the Participating Companies is terminated for any reason, with or without Cause, including, but not limited to, any termination by resignation, discharge, death or Retirement; provided, however, Termination of Service shall not include a termination where there is a simultaneous continuation of service of the Grantee (sufficient to constitute service as an Eligible Person) for a Participating Company. The Committee, in its absolute discretion, shall determine the effects of all matters and questions relating to Termination of Service, including, but not limited to, the question of whether any Termination of Service was for Cause and all questions of whether particular leaves of absence constitute Terminations of Service. For this purpose, the service relationship shall be treated as continuing intact while the Grantee is on military leave, sick leave or other bona fide leave of absence (to be determined in the discretion of the Committee). Notwithstanding the foregoing, with respect to any Grant that is subject to Section 409A of the Code, Termination of Service shall be interpreted within the meaning of Section 409A of the Code and Treasury Regulation 1.409A-1(h).

3. EFFECTIVE DATE. The effective date of the Plan is December 4, 2012.

4. ADMINISTRATION.

(a) Membership on Committee. The Plan shall be administered by the Committee appointed by the Board. If no Committee is designated by the Board to act for those purposes, the full Board shall have the rights and responsibilities of the Committee hereunder and under the Agreements.

(b) Committee Meetings. The acts of a majority of the members present at any meeting of the Committee at which a quorum is present, or acts approved in writing by a majority of the entire Committee, shall be the acts of the Committee for purposes of the Plan. If and to the extent applicable, no member of the Committee may act as to matters under the Plan specifically relating to such member.

(i) The Committee shall from time to time at its discretion select the Eligible Persons who are to be issued Grants and determine the number and type of Grants to be issued under any Agreement to an Eligible Person. In particular, the Committee shall (A) determine the terms and conditions, not inconsistent with the terms of the Plan, of any Grants awarded hereunder (including, but not limited to the performance goals and periods applicable to the award of Grants); (B) determine the time or times when and the manner and condition in which each Option shall be exercisable and the duration of the exercise period; and (C) determine or impose other conditions to the Grant or exercise of Options under the Plan as it may deem appropriate. The Committee may establish such rules, regulations and procedures for the administration of the Plan as it deems appropriate (including, without limitation, establishing rules, regulations and procedures or creation of a sub-plan for the purpose of satisfying applicable foreign laws, for qualifying for favorable tax treatment under applicable foreign laws or facilitating compliances with foreign laws), determine the extent, if any, to which Options, Phantom Shares, Shares (whether or not Shares of Restricted Stock), Restricted Stock Units, DERs or other equity-based awards shall be forfeited (whether or not such forfeiture is expressly contemplated hereunder), and take any other actions and make any other determinations or decisions that it deems necessary or appropriate in connection with the Plan or the administration or interpretation thereof. The Committee shall also cause each Option to be designated as an Incentive Stock Option or a Non-qualified Stock Option, except that no Incentive Stock Options may be granted to an Eligible Person who is not an Employee of the Company or a “subsidiary corporation” or a “parent corporation” as defined in Section 424(f) of the Code. The Grantee shall take whatever additional actions and execute whatever additional documents the Committee may in its reasonable judgment deem necessary or advisable in order to carry or effect one or more of the obligations or restrictions imposed on the Grantee pursuant to the express provisions of the Plan and the Agreement. DERs will be exercisable separately or together with Options, and paid in cash or other consideration at such times and in accordance with such rules, as the Committee shall determine in its discretion. Unless expressly provided hereunder, the Committee, with respect to any Grant, may exercise its discretion hereunder at the time of the award or thereafter. The Committee shall have the right and responsibility to interpret the Plan and the interpretation and construction by the Committee of any provision of the Plan or of any Grant thereunder, including, without limitation, in the event of a dispute, shall be final and binding on all Grantees and other persons to the maximum extent permitted by law. Without limiting the generality of Section 24, no member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Grant hereunder.

(ii) Notwithstanding clause (i) of this Section 4(c), any award under the Plan to an Eligible Person who is a member of the Committee shall be made by the full Board, but for these purposes the directors of the Corporation who are on the Committee shall be required to be recused in respect of such awards and shall not be permitted to vote.

(d) Awards.

(i) Agreements. Grants to Eligible Persons shall be evidenced by written Agreements in such form as the Committee shall from time to time determine. Such Agreements shall comply with and be subject to the terms and conditions set forth below.

(ii) Number of Shares. Each Grant issued to an Eligible Person shall state the number of Shares to which it pertains or which otherwise underlie the Grant and shall provide for the adjustment thereof in accordance with the provisions of Section 16 hereof.

(iii) Grants. Subject to the terms and conditions of the Plan and consistent with the Company’s intention for the Committee to exercise the greatest permissible flexibility under Rule 16b-3 under the Exchange Act in awarding Grants, the Committee shall have the power:

(1) to determine from time to time the Grants to be issued to Eligible Persons under the Plan and to prescribe the terms and provisions (which need not be identical) of Grants issued under the Plan to such persons;

(2) to construe and interpret the Plan and the Grants thereunder and to establish, amend and revoke the rules, regulations and procedures established for the administration of the Plan. In this connection, the Committee may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, in any Agreement, or in any related agreements, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Participating Companies and the Grantees;

(3) to amend any outstanding Grant, subject to Section 19, and to accelerate or extend the vesting or exercisability of any Grant (in compliance with Section 409A of the Code, as applicable) and to waive conditions or restrictions on any Grants, to the extent it shall deem appropriate; and

(4) generally to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan.

5. PARTICIPATION.

(a) Eligibility. Only Eligible Persons shall be eligible to receive Grants under the Plan.

(b) Limitation of Ownership. No Grants shall be issued under the Plan to any person who after such Grant would beneficially own more than 9.8% by value or number of shares, whichever is more restrictive, of the outstanding shares of Common Stock of the Company, or 9.8% by value or number of shares, whichever is more restrictive, of the outstanding capital stock of the Company, unless the foregoing restriction is expressly and specifically waived by action of the independent directors of the Board.

(c) Stock Ownership. For purposes of Section 5(b) above, in determining stock ownership a Grantee shall be considered as owning the stock owned, directly or indirectly, by or for his brothers, sisters, spouses, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its stockholders, partners or beneficiaries. Stock with respect to which any person holds an Option shall be considered to be owned by such person.

(d) Outstanding Stock. For purposes of Section5(b) above, “outstanding shares” shall include all stock actually issued and outstanding immediately after the issue of the Grant to the Grantee. With respect to the stock ownership of any Grantee, “outstanding shares” shall include shares authorized for issue under outstanding Options and/or Restricted Stock Units held by such Grantee, but not Options or Restricted Stock Units held by any other person.

6. STOCK. Subject to adjustments pursuant to Section 16, Grants with respect to an aggregate of no more than 921,053 Shares may be granted under the Plan (all of which may be issued as Options). Subject to adjustments pursuant to Section 16, in the case of Grants intended to qualify for relief from the limitations of Section 162(m) of the Code, (i) the maximum number of Shares with respect to which any Options may be granted in any one year to any Grantee shall not exceed 92,100, and (ii) the maximum number of Shares that may underlie Grants, other than Grants of Options, in any one year to any Grantee shall not exceed 92,100. Notwithstanding the first sentence of this Section 6, (i) Shares that have been granted as Restricted Stock or that have been reserved for distribution in payment for Options, Restricted Stock Units or Phantom Shares but are later forfeited or for any other reason are not payable under the Plan; and (ii) Shares as to which an Option is granted under the Plan that remains unexercised at the expiration, forfeiture or other termination of such Option, may be the subject of the issue of further Grants. Shares of Common Stock issued hereunder may consist, in whole or in part, of authorized and unissued shares, treasury shares or previously issued Shares under the Plan. The certificates for Shares issued hereunder may include any legend which the Committee deems appropriate to reflect any restrictions on transfer hereunder or under the Agreement, or as the Committee may otherwise deem appropriate. Shares subject to DERs, other than DERs based directly on the dividends payable with respect to Shares subject to Options or the dividends payable on a number of Shares corresponding to the number of Phantom Shares awarded, shall be subject to the limitation of this Section 6. Notwithstanding the limitations above in this Section 6, except in the case of Grants intended to qualify for relief from the limitations of Section 162(m) of the Code, there shall be no limit on the number of Phantom Shares or DERs to the extent they are paid out in cash that may be granted under the Plan. If any Phantom Shares or DERs are paid out in cash, the underlying Shares may again be made the subject of Grants under the Plan, notwithstanding the first sentence of this Section 6.

7. TERMS AND CONDITIONS OF OPTIONS.

(a) Each Agreement with an Eligible Person shall state the Exercise Price. The Exercise Price for any Option shall not be less than the Fair Market Value on the date of Grant.

(b) Medium and Time of Payment. Except as may otherwise be provided below, the Purchase Price for each Option granted to an Eligible Person shall be payable in full in United States dollars upon the exercise of the Option. In the event the Company determines that it is required to withhold taxes as a result of the exercise of an Option, as a condition to the exercise thereof, an Employee may be required to make arrangements satisfactory to the Company to enable it to satisfy such withholding requirements in accordance with Section 21. If the applicable Agreement so provides, or the Committee otherwise so permits, the Purchase Price may be paid in one or a combination of the following:

(i) by a certified or bank cashier’s check;

(ii) by the surrender of shares of Common Stock in good form for transfer, owned by the person exercising the Option and having a Fair Market Value on the date of exercise equal to the Purchase Price, or in any combination of cash and shares of Common Stock, as long as the sum of the cash so paid and the Fair Market Value of the shares of Common Stock so surrendered equals the Purchase Price and provided that accepting such Common Stock will not result in any adverse accounting consequences to the Company as determined by the Committee in its sole discretion;

(iii) by cancellation of indebtedness owed by the Company to the Grantee;

(iv) subject to Section 18(e), by a loan or extension of credit from the Company evidenced by a full recourse promissory note executed by the Grantee. The interest rate and other terms and conditions of such note shall be determined by the Committee (in which case the Committee may require that the Grantee pledge his or her Shares to the Company for the purpose of securing the payment of such note, and in no event shall the stock certificate(s) representing such Shares be released to the Grantee until such note shall have been paid in full); or

(v) by any combination of such methods of payment or any other method acceptable to the Committee in its discretion.

Except in the case of Options exercised by certified or bank cashier’s check, the Committee may impose such limitations and prohibitions on the exercise of Options as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. Any fractional shares of Common Stock resulting from a Grantee’s election that are accepted by the Company shall in the discretion of the Committee be paid in cash.

(i) Each Option under this Section 7 shall state the time or times which all or part thereof becomes exercisable, subject to the following restrictions.

(ii) No Option shall be exercisable except by the Grantee or a transferee permitted hereunder.

(iii) No Option shall be assignable or transferable, except by will or the laws of descent and distribution of the state wherein the Grantee is domiciled at the time of his death; provided, however, that the Committee may (but need not) permit other transfers, where the Committee concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any Option intended to be an Incentive Stock Option to fail to be described in Section 422(b) of the Code and (iii) is otherwise appropriate and desirable.

(iv) No Option shall be exercisable until such time as set forth in the applicable Agreement (but in no event after the expiration of such Grant).

(v) The Committee may not modify, extend or renew any Option granted to any Eligible Person unless such modification, extension or renewal shall satisfy any and all applicable requirements of Rule 16b-3 under the Exchange Act. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted.

(d) Termination of Service, Other Than by Death, Retirement or Disability. Unless otherwise provided in the applicable Agreement, upon any Termination of Service for any reason other than his or her death, Retirement or Disability, an Optionee shall have the right, subject to the restrictions of Section 4(c) above, to exercise his or her Option at any time within three months after Termination of Service, but only to the extent that, at the date of Termination of Service, the Optionee’s right to exercise such Option had accrued pursuant to the terms of the applicable Agreement and had not previously been exercised; provided, however, that, unless otherwise provided in the applicable Agreement, if there occurs a Termination of Service by a Participating Company for Cause or a Termination of Service by the Optionee (other than on account of death, Retirement or Disability), any Option not exercised in full prior to such termination shall be canceled.

(e) Death of Optionee. Unless otherwise provided in the applicable Agreement, if the Optionee of an Option dies while an Eligible Person or within three months after any Termination of Service other than for Cause or a Termination of Service by the Optionee (other than on account of death, Retirement or Disability), and has not fully exercised the Option, then the Option may be exercised in full, subject to the restrictions of Section 4(c) above, at anytime within 12 months after the Optionee’s death, by the Successor of the Optionee, but only to the extent that, at the date of death, the Optionee’s right to exercise such Option had accrued and had not been forfeited pursuant to the terms of the Agreement and had not previously been exercised.

(f) Disability or Retirement of Optionee. Unless otherwise provided in the Agreement, upon any Termination of Service for reason of his or her Disability or Retirement, an Optionee shall have the right, subject to the restrictions of Section 4(c) above, to exercise the Option at any time within 24 months after Termination of Service, but only to the extent that, at the date of Termination of Service, the Optionee’s right to exercise such Option had accrued pursuant to the terms of the applicable Agreement and had not previously been exercised.

(g) Rights as a Stockholder. An Optionee, a Successor of the Optionee, or the holder of a DER shall have no rights as a stockholder with respect to any Shares covered by his or her Grant until, in the case of an Optionee, the date of the issuance of a stock certificate for such Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 16.

(h) Modification, Extension and Renewal of Option. Within the limitations of the Plan, and only with respect to Options granted to Eligible Persons, the Committee may modify, extend or renew outstanding Options or accept the cancellation of outstanding Options (to the extent not previously exercised) for the granting of new Options in substitution therefor (but not including repricings, in the absence of stockholder approval). The Committee may modify, extend or renew any Option granted to any Eligible Person, unless such modification, extension or renewal would not satisfy any applicable requirements of Rule 16b-3 under the Exchange Act. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted.

(i) Stock Appreciation Rights. The Committee, in its discretion, may (taking into account, without limitation, the application of Section 409A of the Code, as the Committee may deem appropriate) also permit the Optionee to elect to exercise an Option by receiving Shares, cash or a combination thereof, in the discretion of the Committee, with an aggregate Fair Market Value (or, to the extent of payment in cash, in an amount) equal to the excess of the Fair Market Value of the Shares with respect to which the Option is being exercised over the aggregate Purchase Price, as determined as of the day the Option is exercised.

(j) Deferral. The Committee may establish a program (taking into account, without limitation, the application of Section 409A of the Code, as the Committee may deem appropriate) under which Optionees will have Phantom Shares subject to Section 10 credited upon their exercise of Options, rather than receiving Shares at that time.

(k) Other Provisions. The Agreement authorized under the Plan may contain such other provisions not inconsistent with the terms of the Plan (including, without limitation, restrictions upon the exercise of the Option) as the Committee shall deem advisable.

8. SPECIAL RULES FOR INCENTIVE STOCK OPTIONS.

(a) Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Non-qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any parent corporation or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as Non-qualified Stock Options. For purposes of this Section 8(a), Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.

(b) In the case of an individual described in Section 422(b)(6) of the Code (relating to certain 10% owners), the Exercise Price with respect to an Incentive Stock Option shall not be less than 110% of the Fair Market Value of a Share on the day the Option is granted and the term of an Incentive Stock Option shall be no more than five years from the date of grant.

(c) If Shares acquired upon exercise of an Incentive Stock Option are disposed of in a disqualifying disposition within the meaning of Section 422 of the Code by an Optionee prior to the expiration of either two years from the date of grant of such Option or one year from the transfer of Shares to the Optionee pursuant to the exercise of such Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Optionee shall notify the Company in writing as soon as practicable thereafter of the date and terms of such disposition and, if the Company thereupon has a tax-withholding obligation, shall pay to the Company an amount equal to any withholding tax the Company is required to pay as a result of the disqualifying disposition.

9. PROVISIONS APPLICABLE TO RESTRICTED STOCK.

(a) Vesting Periods. In connection with the grant of Restricted Stock, whether or not Performance Goals apply thereto, the Committee shall establish one or more vesting periods with respect to the shares of Restricted Stock granted, the length of which shall be determined in the discretion of the Committee. Subject to the provisions of this Section 9, the applicable Agreement and the other provisions of the Plan, restrictions on Restricted Stock shall lapse if the Grantee satisfies all applicable employment or other service requirements through the end of the applicable vesting period.

(b) Grant of Restricted Stock. Subject to the other terms of the Plan, the Committee may, in its discretion as reflected by the terms of the applicable Agreement: (i) authorize the granting of Restricted Stock to Eligible Persons; (ii) provide a specified purchase price for the Restricted Stock (whether or not the payment of a purchase price is required by any state law applicable to the Company); (iii) determine the restrictions applicable to Restricted Stock and (iv) determine or impose other conditions to the grant of Restricted Stock under the Plan as it may deem appropriate.

(i) Each Grantee of Restricted Stock shall be issued a stock certificate in respect of Shares of Restricted Stock awarded under the Plan. Such certificate shall be registered in the name of the Grantee. Without limiting the generality of Section 6, in addition to any legend that might otherwise be required by the Board or the Company’s charter, bylaws or other applicable documents, the certificates for Shares of Restricted Stock issued hereunder may include any legend which the Committee deems appropriate to reflect any restrictions on transfer hereunder or under the applicable Agreement, or as the Committee may otherwise deem appropriate, and, without limiting the generality of the foregoing, shall bear a legend referring to the terms, conditions, and restrictions applicable to such Grant, substantially in the following form:

THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE TWO HARBORS INVESTMENT CORP. 2009 EQUITY INCENTIVE PLAN, AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND SILVER BAY REALTY TRUST CORP. COPIES OF SUCH PLAN AND AWARD AGREEMENT ARE ON FILE IN THE OFFICES OF SILVER BAY REALTY TRUST CORP. AT 601 CARLSON PARKWAY, SUITE 250, MINNETONKA, MN, 55305.

(ii) The Committee shall require that the stock certificates evidencing such Shares be held in custody by the Company until the restrictions hereunder shall have lapsed and that, as a condition of any grant of Restricted Stock, the Grantee shall have delivered a stock power, endorsed in blank, relating to the stock covered by such Grant. If and when such restrictions so lapse, the stock certificates shall be delivered by the Company to the Grantee or his or her designee as provided in Section 9(d).

(d) Restrictions and Conditions. Unless otherwise provided by the Committee in an Agreement, the Shares of Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions and conditions:

(i) Subject to the provisions of the Plan and the applicable Agreement, during a period commencing with the date of such Grant and ending on the date the period of forfeiture with respect to such Shares lapses, the Grantee shall not be permitted voluntarily or involuntarily to sell, transfer, pledge, anticipate, alienate, encumber or assign Shares of Restricted Stock awarded under the Plan (or have such Shares attached or garnished). Subject to the provisions of the applicable Agreement and clauses (iii) and (iv) below, the period of forfeiture with respect to Shares granted hereunder shall lapse as provided in the applicable Agreement.

Notwithstanding the foregoing, unless otherwise expressly provided by the Committee, the period of forfeiture with respect to such Shares shall only lapse as to whole Shares.

(ii) Except as provided in the foregoing clause (i) or in Section 16, the Grantee shall have, in respect of the Shares of Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the Shares; provided, however, that cash dividends on such Shares shall, unless otherwise provided by the Committee in the applicable Agreement, be held by the Company (unsegregated as a part of its general assets) until the period of forfeiture lapses (and forfeited if the underlying Shares are forfeited), and paid over to the Grantee as soon as practicable after such period lapses (if not forfeited). Certificates for Shares (not subject to restrictions hereunder) shall be delivered to the Grantee or his or her designee (or where permitted, transferee) promptly after, and only after, the period of forfeiture shall lapse without forfeiture in respect of such Shares of Restricted Stock.

(iii) Termination of Service, Except by Death, Retirement or Disability. Unless otherwise provided in the applicable Agreement, and subject to clause (iv) below, if the Grantee has a Termination of Service for Cause or by the Grantee for any reason other than his or her death, Retirement or Disability, during the applicable period of forfeiture, then (A) all Restricted Stock still subject to restriction shall thereupon, and with no further action, be forfeited by the Grantee, and (B) the Company shall pay to the Grantee as soon as practicable (and in no event more than 30 days) after such termination an amount equal to the lesser of (x) the amount paid by the Grantee for such forfeited Restricted Stock as contemplated by Section 9(b), and (y) the Fair Market Value on the date of termination of the forfeited Restricted Stock.

(iv) Death, Disability or Retirement of Grantee. Unless otherwise provided in the applicable Agreement, in the event the Grantee has a Termination of Service on account of his or her death, Disability or Retirement, or the Grantee has a Termination of Service by the Company for any reason other than Cause, during the applicable period of forfeiture, then restrictions under the Plan will immediately lapse on all Restricted Stock granted to the applicable Grantee.

10. PROVISIONS APPLICABLE TO RESTRICTED STOCK UNITS.

(a) Grant of Restricted Stock Units. Subject to the other terms of the Plan, the Committee may, in its discretion as reflected by the terms of the applicable Agreement: (i) authorize the granting of Restricted Stock Units to Eligible Persons; and (ii) determine or impose other conditions to the grant of Restricted Stock Units under the Plan as it may deem appropriate

(b) Vesting.

(i) In connection with the grant of Restricted Stock Units, whether or not Performance Goals apply thereto, the Committee shall establish one or more vesting periods with respect to the Restricted Stock Units, the length of which shall be determined in the discretion of the Committee.

(ii) Subject to the provisions of this Section 10, the applicable Agreement and the other provisions of the Plan, Restricted Stock Units shall vest as provided in the applicable Agreement.

(iii) Unless otherwise determined by the Committee in an applicable Agreement, the Restricted Stock Units granted pursuant to the Plan shall be subject to the following vesting conditions:

(1) Termination of Service for Cause. Unless otherwise provided in the applicable Agreement and subject to clause (2) below, if the Grantee has a Termination of Service for Cause, all of the Grantee’s Restricted Stock Units shall thereupon, and with no further action, be forfeited by the Grantee and cease to be outstanding, and no payments shall be made with respect to such forfeited Restricted Stock Units.

(2) Termination of Service for Death, Disability or Retirement of Grantee or by the Company for Any Reason Other than Cause. Unless otherwise provided in the applicable Agreement, in the event the Grantee has a Termination of Service on account of his or her death, Disability or Retirement, or the Grantee has a Termination of Service by the Company for any reason other than Cause, all outstanding Restricted Stock Units granted to such Grantee shall become immediately vested.

(3) Except as contemplated above, in the event that a Grantee has a Termination of Service, any and all of the Grantee’s Phantom Shares which have not vested prior to or as of such termination shall thereupon, and with no further action, be forfeited and cease to be outstanding, and the Grantee’s vested Phantom Shares shall be settled as set forth in Section 10(d)11(d).

(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Grantee will be entitled to receive a payout as determined by the committee. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Committee, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.

(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made upon the date(s) determined by the Committee and set forth in the applicable Agreement. The Committee, in its sole discretion, may only settled earned Restricted Stock Units in cash, Shares or a combination of both.

(e) Cancellation. On the date set forth in the applicable Agreement, all unearned Restricted Stock Units will be forfeited to the Company.

(f) Other Restricted Stock Unit Provisions.

(i) The Committee may establish a program (taking into account, without limitation, the possible application of Section 409A of the Code, as the Committee may deem appropriate) under which settlement of Restricted Stock Units may be deferred for periods in addition to those otherwise contemplated by the foregoing provisions of this Section 10.

(ii) Rights to payments with respect to Restricted Stock Units granted under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, levy, execution, or other legal or equitable process, either voluntary or involuntary; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, attach or garnish, or levy or execute on any right to payments or other benefits payable hereunder, shall be void.

11. PROVISIONS APPLICABLE TO PHANTOM SHARES.

(a) Grant of Phantom Shares. Subject to the other terms of the Plan, the Committee shall, in its discretion as reflected by the terms of the applicable Agreement: (i) authorize the Granting of Phantom Shares to Eligible Persons and (ii) determine or impose other conditions to the grant of Phantom Shares under the Plan as it may deem appropriate.

(b) Term. The Committee may provide in an Agreement that any particular Phantom Share shall expire at the end of a specified term.

(i) Subject to the provisions of the applicable Agreement and Section 11(c)(ii), Phantom Shares shall vest as provided in the applicable Agreement.

(ii) Unless otherwise determined by the Committee in an applicable Agreement, the Phantom Shares granted pursuant to the Plan shall be subject to the following vesting conditions:

(1) Termination of Service for Cause. Unless otherwise provided in the applicable Agreement and subject to clause (2) below, if the Grantee has a Termination of Service for Cause, all of the Grantee’s Phantom Shares (whether or not such Phantom Shares are otherwise vested) shall thereupon, and with no further action, be forfeited by the Grantee and cease to be outstanding, and no payments shall be made with respect to such forfeited Phantom Shares.

(2) Termination of Service for Death, Disability or Retirement of Grantee or by the Company for Any Reason Other than Cause. Unless otherwise provided in the applicable Agreement, in the event the Grantee has a Termination of Service on account of his or her death, Disability or Retirement, or the Grantee has a Termination of Service by the Company for any reason other than Cause, all outstanding Phantom Shares granted to such Grantee shall become immediately vested.

(d) Settlement of Phantom Shares.

(i) Each vested and outstanding Phantom Share shall be settled by the transfer to the Grantee of one Share; provided, however, that, the Committee at the time of grant (or, in the appropriate case, as determined by the Committee, thereafter) may provide that a Phantom Share may be settled (A) in cash at the applicable Phantom Share Value, (B) in cash or by transfer of Shares as elected by the Grantee in accordance with procedures established by the Committee or (C) in cash or by transfer of Shares as elected by the Company.

(ii) Each Phantom Share shall be settled with a single-sum payment by the Company; provided, however, that, with respect to Phantom Shares of a Grantee which have a common Settlement Date (as defined below), the Committee may permit the Grantee to elect in accordance with procedures established by the Committee (taking into account, without limitation, Section 409A of the Code, as the Committee may deem appropriate) to receive installment payments over a period not to exceed 10 years. If the Grantee’s Phantom Shares are paid out in installment payments, such installment payments shall be treated as a series of separate payments for purposes of Section 409A of the Code.

(iii) (1) The settlement date with respect to a Grantee is the first day of the month to follow the Grantee’s Termination of Service (“Settlement Date”); provided, however, that a Grantee may elect, in accordance with procedures to be adopted by the Committee, that such Settlement Date will be deferred as elected by the Grantee to a time permitted by the Committee under procedures to be established by the Committee. Notwithstanding the prior sentence, all initial elections to defer the Settlement Date shall be made in accordance with the requirements of `Section 409A of the Code. In addition, unless otherwise determined by the Committee, any subsequent elections under this Section 11(d)(iii)(1) must, except as may otherwise be permitted under the rules applicable under Section 409A of the Code, (A) not be effective for at least one year after they are made, or, in the case of payments to commence at a specific time, be made at least one year before the first scheduled payment and (B) defer the commencement of distributions (and each affected distribution) for at least five years.

(2) Notwithstanding Section 11(d)(iii)(1), the Committee may provide that distributions of Phantom Shares can be elected at any time in those cases in which the Phantom Share Value is determined by reference to Fair Market Value to the extent in excess of a base value, rather than by reference to unreduced Fair Market Value.

(3) Notwithstanding the foregoing, the Settlement Date, if not earlier pursuant to this Section 11(d)(iii), is the date of the Grantee’s death.

(iv) Notwithstanding any other provision of the Plan, a Grantee may receive any amounts to be paid in installments as provided in Section 11(d)(ii) or deferred by the Grantee as provided in Section 11(d)(iii) in the event of an “Unforeseeable Emergency.” For these purposes, an “Unforeseeable Emergency,” as determined by the Committee in its sole discretion, is a severe financial hardship to the

Grantee resulting from a sudden and unexpected illness or accident of the Grantee or “dependent,” as defined in Section 152(a) of the Code, of the Grantee, loss of the Grantee’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Grantee. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved:

(1) through reimbursement or compensation by insurance or otherwise;

(2) by liquidation of the Grantee’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or

(3) by future cessation of the making of additional deferrals under Sections 11(d)(ii) and 11(d)(iii).

Without limitation, the need to send a Grantee’s child to college or the desire to purchase a home shall not constitute an Unforeseeable Emergency. Distributions of amounts because of an Unforeseeable Emergency shall be permitted to the extent reasonably needed to satisfy the emergency need.

(e) Other Phantom Share Provisions.

(i) Rights to payments with respect to Phantom Shares granted under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, levy, execution, or other legal or equitable process, either voluntary or involuntary; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, attach or garnish, or levy or execute on any right to payments or other benefits payable hereunder, shall be void.

(ii) A Grantee may designate in writing, on forms to be prescribed by the Committee, a beneficiary or beneficiaries to receive any payments payable after his or her death and may amend or revoke such designation at any time. If no beneficiary designation is in effect at the time of a Grantee’s death, payments hereunder shall be made to the Grantee’s estate. If a Grantee with a vested Phantom Share dies, such Phantom Share shall be settled and the Phantom Share Value in respect of such Phantom Shares paid, and any payments deferred pursuant to an election under Section 11(d)(iii) shall be accelerated and paid, as soon as practicable (but no later than 60 days) after the date of death to such Grantee’s beneficiary or estate, as applicable.

(iii) The Committee may establish a program (taking into account, without limitation, the possible application of Section 409A of the Code, as the Committee may deem appropriate) under which distributions with respect to Phantom Shares may be deferred for periods in addition to those otherwise contemplated by the foregoing provisions of this Section 10. Such program may include, without limitation, provisions for the crediting of earnings and losses on unpaid amounts and, if permitted by the Committee, provisions under which Grantees may select from among hypothetical investment alternatives for such deferred amounts in accordance with procedures established by the Committee.

(iv) Notwithstanding any other provision of this Section 10, any fractional Phantom Share will be paid out in cash at the Phantom Share Value as of the Settlement Date.

(v) No Phantom Share shall give any Grantee any rights with respect to Shares or any ownership interest in the Company. Except as may be provided in accordance with Section 12, no provision of the Plan shall be interpreted to confer upon any Grantee of a Phantom Share any voting, dividend or derivative or other similar rights with respect to any Phantom Share.

(f) Claims Procedures.

(i) The Grantee, or his beneficiary hereunder or authorized representative, may file a claim for payments with respect to Phantom Shares under the Plan by written communication to the Committee or its designee. A claim is not considered filed until such communication is actually received. Within 90 days (or, if special circumstances require an extension of time for processing, 180 days, in which case notice of such special circumstances should be provided within the initial 90-day period) after the filing of the claim, the Committee will either:

(1) approve the claim and take appropriate steps for satisfaction of the claim; or

(2) if the claim is wholly or partially denied, advise the claimant of such denial by furnishing to him or her a written notice of such denial setting forth (A) the specific reason or reasons for the denial; (B) specific reference to pertinent provisions of the Plan on which the denial is based and, if the denial is based in whole or in part on any rule of construction or interpretation adopted by the Committee, a reference to such rule, a copy of which shall be provided to the claimant; (C) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of the reasons why such material or information is necessary; and (D) a reference to this Section 11(f) as the provision setting forth the claims procedure under the Plan.

(ii) The claimant may request a review of any denial of his or her claim by written application to the Committee within 60 days after receipt of the notice of denial of such claim. Within 60 days (or, if special circumstances require an extension of time for processing, 120 days, in which case notice of such special circumstances should be provided within the initial 60-day period) after receipt of written application for review, the Committee will provide the claimant with its decision in writing, including, if the claimant’s claim is not approved, specific reasons for the decision and specific references to the Plan provisions on which the decision is based.

12. PROVISIONS APPLICABLE TO DIVIDEND EQUIVALENT RIGHTS.

(a) Grant of DERs. Subject to the other terms of the Plan, the Committee shall, in its discretion as reflected by the terms of the Agreements, authorize the granting of DERs to Eligible Persons based on the dividends declared on Common Stock, to be credited as of the dividend payment dates, during the period between the date a Grant is issued, and the date such Grant is exercised, vests or expires,

as determined by the Committee. Such DERs shall be converted to cash or additional Shares by such formula and at such time and subject to such limitation as may be determined by the Committee. With respect to DERs granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Code, such DERs shall be payable regardless of whether such Option is exercised. If a DER is granted in respect of another Grant hereunder, then, unless otherwise stated in the Agreement, or, in the appropriate case, as determined by the Committee, in no event shall the DER be in effect for a period beyond the time during which the applicable related portion of the underlying Grant has been exercised or otherwise settled, or has expired, been forfeited or otherwise lapsed, as applicable.

(b) Certain Terms.

(i) The term of a DER shall be set by the Committee in its discretion.

(ii) Payment of the amount determined in accordance with Section 12(a) shall be in cash, in Common Stock or a combination of the both, as determined by the Committee at the time of grant.

(c) Other Types of DERs. The Committee may establish a program under which DERs of a type whether or not described in the foregoing provisions of this Section 12 may be granted to Eligible Persons. For example, without limitation, the Committee may grant a DER in respect of each Share subject to an Option or with respect to a Phantom Share, which right would consist of the right (subject to Section 12(d)) to receive a cash payment in an amount equal to the dividend distributions paid on a Share from time to time.

(d) Deferral.

(i) The Committee may (taking into account, without limitation, the possible application of Section 409A of the Code, as the Committee may deem appropriate) establish a program under which Grantees (i) will have Phantom Shares credited, subject to the terms of Sections 11(d) and 11(e) as though directly applicable with respect thereto, upon the granting of DERs, or (ii) will have payments with respect to DERs deferred.

(ii) The Committee may establish a program under which distributions with respect to DERs may be deferred. Such program may include, without limitation, provisions for the crediting of earnings and losses on unpaid amounts, and, if permitted by the Committee, provisions under which Grantees may select from among hypothetical investment alternatives for such deferred amounts in accordance with procedures established by the Committee.

13. OTHER EQUITY-BASED AWARDS. The Board shall have the right to issue other Grants based upon the Common Stock having such terms and conditions as the Board may determine, including, without limitation, the grant of Shares based upon certain conditions and the grant of securities convertible into Common Stock.

14. PERFORMANCE GOALS. The Committee, in its discretion, shall in the case of Grants (including, in particular, Grants other than Options) intended to qualify for an exception from the limitation imposed by Section 162(m) of the Code (“Performance-Based Grants”) (i) establish one or more performance goals (“Performance Goals”) as a precondition to the issue of Grants, and (ii) provide, in connection with the establishment of the Performance Goals, for predetermined Grants to those

Grantees (who continue to meet all applicable eligibility requirements) with respect to whom the applicable Performance Goals are satisfied. The Performance Goals shall be based upon the criteria set forth in Exhibit A hereto which is hereby incorporated herein by reference as though set forth in full. The Performance Goals shall be established in a timely fashion such that they are considered preestablished for purposes of the rules governing performance-based compensation under Section 162(m) of the Code. Prior to the award of Restricted Stock or Restricted Stock Units hereunder, the Committee shall have certified that any applicable Performance Goals, and other material terms of the Grant, have been satisfied. Performance Goals which do not satisfy the foregoing provisions of this Section 14 may be established by the Committee with respect to Grants not intended to qualify for an exception from the limitations imposed by Section 162(m) of the Code.

15. TERM OF PLAN. Grants may be granted pursuant to the Plan until the expiration of 10 years from the effective date of the Plan.

16. RECAPITALIZATION AND CHANGES OF CONTROL.

(a) Subject to any required action by stockholders and to the specific provisions of Section 17, if (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or a transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization or other similar change in the capital structure of the Company, or any distribution to holders of Common Stock other than cash dividends, shall occur or (iii) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Grants, then:

(i) the maximum aggregate number of Shares which may be made subject to Options and DERs under the Plan, the maximum aggregate number and kind of Shares of Restricted Stock and Restricted Stock Units that may be granted under the Plan, the maximum aggregate number of Phantom Shares and other Grants which may be granted under the Plan may be appropriately adjusted by the Committee in its discretion; and

(ii) the Committee shall take any such action as in its discretion shall be necessary to maintain each Grantees’ rights hereunder (including under their applicable Agreements) so that they are, in their respective Options, Phantom Shares and DERs (and, as appropriate, other Grants under Section 13), substantially proportionate to the rights existing in such Options, Phantom Shares and DERs (and other Grants under Section 13) prior to such event, including, without limitation, adjustments in (A) the number of Options, Phantom Shares and DERs (and other Grants under Section 13) granted, (B) the number and kind of shares or other property to be distributed in respect of Options, Phantom Shares and DERs (and other Grants under Section 13, as applicable, (C) the Exercise Price, Purchase Price and Phantom Share Value, and (D) performance-based criteria established in connection with Grants (to the extent consistent with Section 162(m) of the Code, as applicable); provided that, in the discretion of the Committee, the foregoing clause (D) may also be applied in the case of any event relating to a Subsidiary if the event would have been covered under this Section 16(a) had the event related to the Company.

To the extent that such action shall include an increase or decrease in the number of Shares (or units of other property then available) subject to all outstanding Grants, the number of Shares (or units) available under Section 6 above shall be increased or decreased, as the case may be, proportionately.

(b) Any Shares or other securities distributed to a Grantee with respect to Restricted Stock or otherwise issued in substitution of Restricted Stock pursuant to this Section 16 shall be subject to the restrictions and requirements imposed by Section 9, including depositing the certificates therefor with the Company together with a stock power and bearing a legend as provided in Section 9(c)(i).

(c) If the Company shall be consolidated or merged with another corporation or other entity, each Grantee who has received Restricted Stock that is then subject to restrictions imposed by Section 9(d) may be required to deposit with the successor corporation the certificates for the stock or securities or the other property that the Grantee is entitled to receive by reason of ownership of Restricted Stock in a manner consistent with Section 9(c)(ii), and such stock, securities or other property shall become subject to the restrictions and requirements imposed by Section 9(d), and the certificates therefor or other evidence thereof shall bear a legend similar in form and substance to the legend set forth in Section 9(c)(i).

(d) The judgment of the Committee with respect to any matter referred to in this Section 16 shall be conclusive and binding upon each Grantee without the need for any amendment to the Plan.

(e) Subject to any required action by stockholders, if the Company is the surviving corporation in any merger or consolidation, the rights under any outstanding Grant shall pertain and apply to the securities to which a holder of the number of Shares subject to the Grant would have been entitled. In the event of a merger or consolidation in which the Company is not the surviving corporation, the date of exercisability of each outstanding Option and settling of each Phantom Share or, as applicable, other Grant under Section 13, shall be accelerated to a date prior to such merger or consolidation, unless the agreement of merger or consolidation provides for the assumption of the Grant by the successor to the Company.

(f) To the extent that the foregoing adjustment related to securities of the Company, such adjustments shall be made by the Committee, whose determination shall be conclusive and binding on all persons.

(g) Except as expressly provided in this Section 16 , a Grantee shall have no rights by reason of subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation, and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to a Grant or the Exercise Price of Shares subject to an Option.

(h) Grants made pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business assets.

(i) Unless otherwise provided in the Agreement, upon the occurrence of a Change of Control:

(i) The Committee as constituted immediately before the Change of Control may make such adjustments as it, in its discretion, determines are necessary or appropriate in light of the Change of Control (including, without limitation, the substitution of stock other than stock of the Company as the stock optioned hereunder, and the acceleration of the exercisability of the Options and settling of each Phantom Share or, as applicable, other Grant under Section 13), provided that the Committee determines that such adjustments do not have a substantial adverse economic impact on the Grantee as determined at the time of the adjustments.

(ii) All restrictions and conditions on each DER shall automatically lapse and all Grants under the Plan shall be deemed fully vested.

(iii) Notwithstanding the provisions of Section 10 (taking into account, without limitation, the application of Section 409A of the Code, as the Committee may deem appropriate), the Settlement Date for Phantom Shares shall be the date of such Change of Control and all amounts due with respect to Phantom Shares to a Grantee hereunder shall be paid as soon as practicable (but in no event more than 30 days) after such Change of Control, unless such Grantee elects otherwise in accordance with procedures established by the Committee.

(j) “Change of Control” shall mean the occurrence of any one of the following events:

(i) any “person,” including a “group,” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding the Company or the Manager, any entity controlling, controlled by or under common control with the Company or the Manager, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or the Manager or any such entity, and, with respect to any particular Eligible Employee, the Eligible Employee and any “group,” (as such term is used in Section 13(d)(3) of the Exchange Act) of which the Eligible Employee is a member), is or becomes the “beneficial owner,” (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of either (A) the combined voting power of the Company’s then outstanding securities or (B) the then outstanding Shares; or

(ii) members of the Board at the beginning of any consecutive 12-calendar-month period (the “Incumbent Directors”) cease for any reason other than due to death to constitute at least a majority of the members of the Board; provided that any Director whose election, or nomination for election by the Company’s stockholders, was approved or ratified by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such 12-calendar-month period, shall be deemed to be an Incumbent Director; or

(iii) there shall occur (A) any consolidation or merger of the Company or any Subsidiary where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or

merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the voting securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company.

Notwithstanding the foregoing, no event or condition described in clauses (i) through (iii) above shall constitute a Change of Control if it results from a transaction between the Company and the Manager, or an affiliate of the Manager.

Notwithstanding the foregoing, a “Change of Control” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of Shares or other voting securities outstanding, increases (x) the proportionate number of Shares beneficially owned by any person to 50% or more of the Shares then outstanding or (y) the proportionate voting power represented by the voting securities beneficially owned by any person to 50% or more of the combined voting power of all then outstanding voting securities; provided, however, that, if any person referred to in clause (x) or (y) of this sentence shall thereafter become the beneficial owner of any additional Shares or other voting securities (other than pursuant to a stock split, stock dividend, or similar transaction), then a “Change of Control” shall be deemed to have occurred for purposes of this subsection (j).

Notwithstanding the foregoing, no event or condition shall constitute a Change of Control to the extent that, if it were, a 20% tax would be imposed upon or with respect to any Grant under Section 409A of the Code; provided that, in such a case, the event or condition shall continue to constitute a Change of Control to the maximum extent possible (e.g., if applicable, in respect of vesting without an acceleration of distribution) without causing the imposition of such 20% tax.

17. EFFECT OF CERTAIN TRANSACTIONS. In the case of (i) the dissolution or liquidation of the Company, (ii) a merger, consolidation, reorganization or other business combination in which the Company is acquired by another entity or in which the Company is not the surviving entity, or (iii) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company, the Plan and the Grants issued hereunder shall terminate upon the effectiveness of any such transaction or event, unless provision is made in connection with such transaction for the assumption of Grants theretofore granted, or the substitution for such Grants of new Grants, by the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and the per share exercise prices, as provided in Section 16. In the event of such termination, all outstanding Options and Grants shall be exercisable in full for at least fifteen days prior to the date of such termination whether or not otherwise exercisable during such period.

18. SECURITIES LAW REQUIREMENTS.

(a) Legality of Issuance. The issuance of any Shares pursuant to Grants under the Plan and the issuance of any Grant shall be contingent upon the following:

(i) the obligation of the Company to sell Shares with respect to Grants issued under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such

approvals by governmental agencies as may be deemed necessary or appropriate by the Committee;

(ii) the Committee may make such changes to the Plan as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain tax benefits applicable to stock options; and

(iii) each grant of Options, Restricted Stock, Restricted Stock Units, Phantom Shares (or issuance of Shares in respect thereof) or DERs (or issuance of Shares in respect thereof), or other Grant under Section 13 (or issuance of Shares in respect thereof), is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of Options, Shares of Restricted Stock, Restricted Stock Units, Phantom Shares, DERs, other Grants or other Shares, no payment shall be made, or Phantom Shares or Shares issued or grant of Restricted Stock or other Grant made, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions in a manner acceptable to the Committee.

(b) Restrictions on Transfer. Regardless of whether the offering and sale of Shares under the Plan has been registered under the Act or has been registered or qualified under the securities laws of any state, the Company may impose restrictions on the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Act, the securities laws of any state or any other law. In the event that the sale of Shares under the Plan is not registered under the Act but an exemption is available which requires an investment representation or other representation, each Grantee shall be required to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 18 shall be conclusive and binding on all persons. Without limiting the generality of Section 6, stock certificates evidencing Shares acquired under the Plan pursuant to an unregistered transaction shall bear a restrictive legend, substantially in the following form, and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law:

“THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”). ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT.”

(c) Registration or Qualification of Securities. The Company may, but shall not be obligated to, register or qualify the issuance of Grants and/or the sale of Shares under the Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the issuance of Grants or the sale of Shares under the Plan to comply with any law.

(d) Exchange of Certificates. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under the Plan is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.

(e) Certain Loans. Notwithstanding any other provision of the Plan, the Company shall not be required to take or permit any action under the Plan or any Agreement which, in the good-faith determination of the Company, would result in a material risk of a violation by the Company of Section 13(k) of the Exchange Act.

19. AMENDMENT OF THE PLAN. The Board may from time to time, with respect to any Shares at the time not subject to Grants, suspend or discontinue the Plan or revise or amend it in any respect whatsoever. The Board may amend the Plan as it shall deem advisable, except that no amendment may adversely affect a Grantee with respect to Grants previously granted unless such amendments are in connection with compliance with applicable laws; provided, however, that the Plan may not be amended without stockholder approval (a) to increase the total number of Shares that may be subject to Awards set forth in Section 6 (other than through an adjustment as provided otherwise in the Plan), (b) to change the class of Eligible Persons, (c) to reprice any awards under the Plan, or (d) in any other manner that in the absence of stockholder approval would cause the Plan to fail to comply with any applicable legal requirement or applicable exchange or similar state law requirements.

20. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of an Option, the sale of Restricted Stock or in connection with other Grants under the Plan will be used for general corporate purposes.

21. TAX WITHHOLDING. Each Grantee shall, no later than the date as of which the value of any Grant first becomes includable in the gross income of the Grantee for federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Company regarding payment of any federal, state or local taxes of any kind that are required by law to be withheld with respect to such income. A Grantee may elect to have such tax withholding satisfied, in whole or in part, by (i) authorizing the Company to withhold a number of Shares to be issued pursuant to a Grant equal to the Fair Market Value as of the date withholding is effected that would satisfy the withholding amount due, (ii) transferring to the Company Shares owned by the Grantee with a Fair Market Value equal to the amount of the required withholding tax, or (iii) in the case of a Grantee who is an Employee of the Company at the time such withholding is effected, by withholding from the Grantee’s cash compensation. Notwithstanding anything contained in the Plan to the contrary, the Grantee’s satisfaction of any tax-withholding requirements imposed by the Committee shall be a condition precedent to the Company’s obligation as may otherwise by provided hereunder to provide Shares to the Grantee, and the failure of the Grantee to satisfy such requirements with respect to a Grant shall cause such Grant to be forfeited.

22. NOTICES. All notices under the Plan shall be in writing, and if to the Company, shall be delivered to the Board or mailed to its principal office, addressed to the attention of the Board; and if to the Grantee, shall be delivered personally or mailed to the Grantee at the address appearing in the records of the Participating Company. Such addresses may be changed at any time by written notice to the other party given in accordance with this Section 22.

23. RIGHTS TO EMPLOYMENT OR OTHER SERVICE. Nothing in the Plan or in any Grant issued pursuant to the Plan shall confer on any individual any right to continue in the employ or other service of the Participating Company (if applicable) or interfere in any way with the right of the Participating Company and its stockholders to terminate the individual’s employment or other service at any time.

24. EXCULPATION AND INDEMNIFICATION. To the maximum extent permitted by law, the Company shall indemnify and hold harmless the members of the Board and the members of the Committee from and against any and all liabilities, costs and expenses incurred by such persons as a result of any act or omission to act in connection with the performance of such person’s duties, responsibilities and obligations under the Plan, other than such liabilities, costs and expenses as may result from the gross negligence, bad faith, willful misconduct or criminal acts of such persons.

25. COMPLIANCE WITH SECTION 409A OF THE CODE.

(a) Any Agreement issued under the Plan that is subject to Section 409A of the Code shall include such additional terms and conditions as may be required to satisfy the requirements of Section 409A of the Code.

(b) With respect to any Grant issued under the Plan that is subject to Section 409A of the Code, and with respect to which a payment or distribution is to be made upon a Termination of Service, if the Grantee is determined by the Company to be a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code and any of the Company’s stock is publicly traded on an established securities market or otherwise, such payment or distribution may not be made before the date which is six months after the date of Termination of Service (to the extent required under Section 409A of the Code). Any payments or distributions delayed in accordance with the prior sentence shall be paid to the Grantee on the first day of the seventh month following the Grantee’s Termination of Service.

(c) Notwithstanding any other provision of the Plan, the Board and the Committee shall administer the Plan, and exercise authority and discretion under the Plan, to satisfy the requirements of Section 409A of the Code or any exemption thereto.

26. NO FUND CREATED. Any and all payments hereunder to any Grantee under the Plan shall be made from the general funds of the Company (or, if applicable, a Participating Company), no special or separate fund shall be established or other segregation of assets made to assure such payments, and the Phantom Shares (including for purposes of this Section 26 any accounts established to facilitate the implementation of Section 11(d)(iii)) and any other similar devices issued hereunder to account for Plan obligations do not constitute Common Stock and shall not be treated as (or as giving rise to) property or as a trust fund of any kind; provided, however, that the Company (or a Participating Company) may establish a mere bookkeeping reserve to meet its obligations hereunder or a trust or other funding vehicle that would not cause the Plan to be deemed to be funded for tax purposes or for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. The obligations of the Company (or, if applicable, a Participating Company) under the Plan are unsecured and constitute a mere promise by the Company (or, if applicable, a Participating Company) to make benefit payments in the future and, to the extent that any person acquires a right to receive payments under the Plan from the Company (or, if applicable, a Participating Company), such right shall be no greater than the right of a general unsecured creditor of the Company (or, if applicable, a Participating Company). Without limiting the foregoing, Phantom Shares and any other similar devices issued hereunder to account for Plan obligations are solely a device for the measurement and determination of the amounts to be paid to a Grantee under the Plan, and each Grantee’s right in the Phantom Shares and any such other devices is limited to the right to receive payment, if any, as may herein be provided.

27. NO FIDUCIARY RELATIONSHIP. Nothing contained in the Plan (including without limitation Section 11(e)(iii)), and no action taken pursuant to the provisions of the Plan, shall create or shall be construed to create a trust of any kind, or a fiduciary relationship between the Company, the Participating Companies, or their officers or the Committee, on the one hand, and the Grantee, the Company, the Participating Companies or any other person or entity, on the other.

28. CAPTIONS. The use of captions in the Plan is for convenience. The captions are not intended to provide substantive rights.

29. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY THE LAWS OF MARYLAND, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.

30. EXECUTION. The Company has caused the Plan to be executed in the name and on behalf of the Company by an officer of the Company thereunto duly authorized as of this 4th day of December, 2012.

	SILVER BAY REALTY TRUST CORP.,
	a Maryland corporation


	By:	/s/ David Miller
		Name: David Miller
		Title: President and Chief Executive Officer

EXHIBIT A

PERFORMANCE CRITERIA

Performance-Based Grants intended to qualify as “performance based” compensation under Section 162(m) of the Code, may be payable upon the attainment of objective performance goals that are established by the Committee and relate to one or more Performance Criteria, in each case on specified date or over any period, up to 10 years, as determined by the Committee. Performance Criteria may be based on the achievement of the specified levels of performance under one or more of the measures set out below relative to the performance of one or more other corporations or indices.

“Performance Criteria” means the following business criteria (or any combination thereof) with respect to one or more of the Company, any Participating Company or any division or operating unit thereof:

i) pre-tax income,

ii) after-tax income,

iii) net income (meaning net income as reflected in the Company’s financial reports for the applicable period, on an aggregate, diluted and/or per share basis),

iv) operating income,

v) cash flow,

vi) earnings per share,

vii) return on equity,

viii) return on invested capital or assets,

ix) cash and/or funds available for distribution,

x) appreciation in the fair market value of the Common Stock,

xi) return on investment,

xii) total return to stockholders (meaning the aggregate Common Stock price appreciation and dividends paid (assuming full reinvestment of dividends) during the applicable period),

xiii) net earnings growth,

xiv) stock appreciation (meaning an increase in the price or value of the Common Stock after the date of grant of an award and during the applicable period),

xv) related return ratios,

xvi) increase in revenues,

A-1

xvii) the Company’s published ranking against its peer group of real estate investment trusts based on total stockholder return,

xviii) net earnings,

xix) changes (or the absence of changes) in the per share or aggregate market price of the Company’s Common Stock,

xx) number of securities sold,

xxi) earnings before any one or more of the following items: interest, taxes, depreciation or amortization for the applicable period, as reflected in the Company’s financial reports for the applicable period, and

xxii) total revenue growth (meaning the increase in total revenues after the date of grant of an award and during the applicable period, as reflected in the Company’s financial reports for the applicable period).

Except as otherwise expressly provided, all financial terms are used as defined under Generally Accepted Accounting Principles (“GAAP”) and all determinations shall be made in accordance with GAAP, as applied by the Company in the preparation of its periodic reports to stockholders.

To the extent permitted by Section 162(m) of the Code, unless the Committee provides otherwise at the time of establishing the performance goals, for each fiscal year of the Company, the Committee may provide for objectively determinable adjustments, as determined in accordance with GAAP, to any of the Performance Criteria described above for one or more of the items of gain, loss, profit or expense: (A) determined to be extraordinary or unusual in nature or infrequent in occurrence, (B) related to the disposal of a segment of a business, (C) related to a change in accounting principle under GAAP, (D) related to discontinued operations that do not qualify as a segment of a business under GAAP, and (E) attributable to the business operations of any entity acquired by the Company during the fiscal year.

A-2

EX-23.1 8 a2210969zex-23_1.htm EX-23.1
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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption "Experts" and to the use of our report dated September 10, 2012 for the balance sheet of Silver Bay Realty Trust Corp., our report dated November 9, 2012 for the consolidated financial statements of Two Harbors Property Investment LLC and our report dated September 10, 2012 for the combined statements of revenues and certain operating expenses of the Provident Entities, in the Amendment No. 4 to the Registration Statement (Form S-11 No. 333-183838) and related Prospectus of Silver Bay Realty Trust Corp.


/s/ ERNST & YOUNG LLP Minneapolis, Minnesota

December 3, 2012

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm
EX-99.7 9 a2211979zex-99_7.htm EX-99.7
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Exhibit 99.7

CONSENT TO BE NAMED DIRECTOR

Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to being named in the Registration Statement on Form S-11, together with any and all amendments or supplements thereto, of Silver Bay Realty Trust Corp., a Maryland corporation (the "Company"), as a nominee to the board of directors of the Company and the inclusion of my biographical information in the Registration Statement. I also consent to the filing of this consent as an exhibit to the Registration Statement.

Dated: November 20, 2012


/s/ THOMAS W. BROCK Thomas W. Brock

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Exhibit 99.7

CONSENT TO BE NAMED DIRECTOR
EX-99.8 10 a2211979zex-99_8.htm EX-99.8
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Exhibit 99.8

CONSENT TO BE NAMED DIRECTOR

Dated: December 3, 2012


/s/ RONALD WEISER Ron Weiser

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Exhibit 99.8

CONSENT TO BE NAMED DIRECTOR
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