American Residential Properties Inc. (ARPI), an owner of single-family rental homes, raised $287.7 million in an initial public offering and closed unchanged after pricing the stock at the bottom of the proposed range.
American Residential, based in Scottsdale, Arizona, sold 13.7 million shares at $21 each, according to a statement yesterday, after offering them for $21 to $23. The stock, which fell as much as 6.4 percent after it began trading on the New York Stock Exchange under the symbol ARPI, closed at $21.
“Our strategy all along has been to obtain the lowest cost of capital and have the best operating platform,” Chief Executive Officer Stephen Schmitz said in a telephone interview today. “Although people look at this as a new industry, there’s really nothing new about renting single-family homes. What’s new is that it’s being aggregated, we’re introducing professional management and we’re raising institutional capital.”
Institutional investors have stepped up purchases of single-family homes to lease, seeking to take advantage of prices that are 29 percent below their 2006 peak. American Residential plans to organize as a real estate investment trust, it said in filings.
Demand for rentals has increased as the homeownership rate declines because people lost properties to foreclosure or can’t qualify for a mortgage amid tighter lending standards. About 14 million single-family homes are rented, an asset class worth $2.8 trillion, according to a report last month by Goldman Sachs Group Inc.
American Residential, founded in 2008 and led by Schmitz and President Laurie Hawkes, has raised $372 million since July in three private offerings. As of April 30, the company owned or had rights to acquire more than 3,600 homes in Arizona, California, Florida, Georgia, Illinois, Indiana, Nevada, North Carolina, South Carolina, Tennessee and Texas, Hawkes said. Another 600 homes are owned in a separate entity called ARP Phoenix Fund I LP.
Proceeds from the IPO will be used to acquire, restore, lease and manage single-family homes as rental properties and for general purposes. Morgan Stanley led the sale.
It’s been common for REIT shares to drop after recent IPOs because the companies don’t have a track record of earnings or dividends, said Jason Arnold, an analyst with RBC Capital Markets in San Francisco. In the case of American Residential, an added factor is its new business model, he said.
“Investor unfamiliarity with the story and the fact that the business model isn’t yet fully proven could play a factor as well,” Arnold, who covers mortgage REITs and specialty finance, said in a telephone interview.
American Residential is the second single-family rental company to go public, after Silver Bay Realty Trust Corp. (SBY), which sold shares in December. Silver Bay fell 0.6 percent to $19.40 today in New York, and is up 4.9 percent since its IPO.
Colony American Homes Inc., a single-family rental operator founded by Thomas Barrack Jr., filed a preliminary plan last week to raise as much as $100 million in an IPO. Others looking to sell shares include American Homes 4 Rent, headed by Public Storage (PSA) founder B. Wayne Hughes, and Oakland, California-based Waypoint Homes Realty Trust Inc., which owns more than 3,000 rental homes.
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