American Residential Shares' Unlocking Event Provides Shorting Play

| About: American Residential (ARPI)
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American Residential Properties (NYSE:ARPI) joined a number of real estate investment trusts that issued an IPO this year. The company is involved in the aggregation and management of rental properties for a specific niche; single-family homes.

ARPI is approaching the sixth month anniversary of its May IPO led by Morgan Stanley (NYSE:MS). As disclosed in the company's S-11A filed 5/7/2013 filed with the SEC, the official unlocking of shares held by officers and directors will occur in early November. The unlocking places the ARPI share price in some potential jeopardy and may present aggressive oriented investors with a shorting opportunity.

Share prices often move down before insider share unlockings, as investors anticipate the possible sales that could occur on the unlocking date from the institutional investors, directors and company executives who may be selling for diversification and tax planning reasons. The stock sales could increase the supply of ARPI stock in a market still leery of housing related stocks due to rising rates and the still-fresh memories of the housing bubble collapse.

American Residential Properties, Inc. was founded in 2008 at the onset of the financial crisis that devastated the mortgage industry. As people lost their homes in foreclosure, many property buyers saw the market niche for rental properties widen. Single-family homes become one of the most desirable properties to rent. As these buyers swept in to pick up the inventory of foreclosed properties at low market prices and turned them into rental homes.

ARPI was formed to acquire and manage these properties in a highly structured way to create maximum profit. The company, based in Scottsdale, Arizona, issued an IPO in May of 2013 that raised $287.7 million. It owns properties in California, Arizona, Nevada, Florida, Georgia, Texas, North Carolina and South Carolina.

The lock-up period was designed to prevent wide fluctuations in the stock price for the six month period after the Initial Public Offering. This action helps to stabilize the stock to determine the true value the public is willing to pay for the shares. Lock-up periods can vary from 30 to as much 365 days, but the average is around 180 days like in the case of this company.

With the announcement of the unlocking of these shares, investors may want to be careful over the next few weeks. The IPO of the stock opened at $21 per share, at the low end of the $21-$23 range. The unlocking of additional stock may drive the price somewhat lower, at least on a temporary basis.

Disclosure: I am short ARPI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.