Seeking Alpha
, IPOpremium (659 clicks)
Value, IPOs, long only
Profile| Send Message|
( followers)  

Based in Scottsdale, AZ, American Residential Properties (ARPI) scheduled a $303 million IPO with a market capitalization of $707 million at a price range mid-point of $22, for Thursday, May 9, 2013.

Nine other IPOs were scheduled for the week of May 6th. The full IPO calendar is here.

  • S-11A filed April 26, 2013
  • Manager, Joint Managers: Morgan; BofA Merrill Lynch; FBR; Jefferies
  • Co Managers: Raymond James; Zelman Partners

SUMMARY
ARPI is a late entrant into the single family home REIT business. The bankers are trying to price ARPI compared with Silver Bay RealtyTrust (SBY), which IPO'd December 13, 2012, at $18.50 and is up 3%.

The apparent publicly held leader in the field, however, is Spirit Realty Capital (SRC), which IPO'd September 19, 2012, at $15 and is up 42%.

The problem with pricing in comparison with SBY vs SRC is that in the last month SRC is up 19% compared with SBY, which is down.

SRC is further ahead of both ARPI and SBY, as you can see below, and SRC is selling at a higher price-to-book probably because it bought properties earlier in the cycle. ARPI plans on selling 43% of itself on the IPO.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Cap (MM)

Sales

Earnings

BookValue

TangibleBV

American Residential Properties

$730

208.7

-104.3

1.2

1.2

Silver Bay Realty Trust

$757

209.1

-137.1

1.1

1.1

Spirit Realty Capital

$1,830

6.6

-26.1

1.5

1.7

Glossary

CONCLUSION
Pass on the ARPI IPO. It's priced in line with Silver Bay Realty Trust which has declined in value 8% in the last month.

BUSINESS

ARPI is a single family home REIT, incorporated in March 2012 and commenced investment activities in May 2012.

ARPI believes it is an early entrant in an emerging industry.

However, ARPI is not an early entrant. Large institutional investors have been in the single family home market for several years. API is a late entry. It's not a new category, if you include large institutions and hedge funds that have been active for several years.

INDUSTRY BACKGROUND
Large-scale institutional investment in single-family residential homes as investment properties for rent is a relatively recent phenomenon that has emerged out of the mortgage and housing crisis that began in late 2007.

Prior to that time, single-family homes were generally not viewed as a viable asset for investment on a large scale by institutional investors. Consequently, the long-term viability of single-family residential investment strategies at an institutional scale has not yet been proven.

RISK
ARPI is subject to the risk that single-family rental homes may not prove to be a viable long-term business strategy for a permanent capital vehicle at an institutional scale.

Also, ARPI is late a late entrant into the game.

ORGANIZATIONAL STRUCTURE = convoluted = not good for the public investor

COMPETITION
Recently, several institutional investors have begun acquiring single-family homes on a large scale. Traditionally, foreclosed properties and loans secured by properties in pre-foreclosure were sold individually to private home buyers and small-scale investors.

The sale of these assets in portfolios and the entry into this market of large, well-capitalized institutional investors are relatively recent trends.

Other REITs and investment funds have recently deployed, or are expected to deploy in the near future, significant amounts of capital in the single-family housing sector and will have investment objectives that overlap with ARPI's.

In acquiring target assets, ARPI will compete with a variety of well-capitalized real estate investors, including pension funds, individual home buyers, banks, insurance companies, public and private real estate investors, such as REITs, real estate limited partnerships and other entities engaged in real estate investment activities.

RECECENT IPOs
in the single family home REIT business

(1) Spirit Realty Capital
SRC IPO'd September 19, 2012 at $15 and is up 42%.

(2) Silver Bay RealtyTrust
SBY IPO'd December 13, 2012 at $18.50 and is up 3%

In the last month SRC is up 11% and SBY is down 8%, for a 19% spread.

USE OF PROCEEDS
ARPI expects to net $277 million from its IPO.

APRI will contribute the net proceeds from this offering to the operating partnership, and ARPI expects to cause the operating partnership to use these net proceeds to acquire, restore, lease and manage single-family homes as rental properties, to provide short-term private mortgage financing secured by interests in single-family homes, repay amounts outstanding under the senior secured revolving credit facility and for general business purposes.

Disclaimer: This ARPI IPO report is based on a reading and analysis of ARPI's S-11A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: American Residential Properties