Two months ago we first observed the scramble by various hedge funds, in this case Blue Mountain, to take advantage of the peak sentiment in housing, and specifically rental housing (which just hit an all time high as reported previously) by rushing to capitalize on recent investments and dump exposure to the witless public.
Specifically, we envisioned the then just announced IPO of the aptly named American Homes 4 Rent (yes, with a "4" not "for"), also known as AMH, which however came at precisely the wrong time for the market: just as mortgage rates were soaring and Colony American Homes postponed its own parallel IPO. Two months later, with the market about to pass 1700 and fears about the housing market put back in the shelf despite a glaringly obvious collapse in mortgage demand, these IPOs are back and with a vengeance, although now reflecting a far more subdued, tapered if you will, view about the house leasing sector. Not surprisingly, AMH priced overnight, selling 44.1 million shares at a price at the bottom of the $16-18 range to raise a total of $706 million: a 44% discount to the $1.25 billion suggested in the prospectus filed back in June.
So much for the housing bubble.
This is what we wrote in June:
After the close today, another rental REIT, the hilariously named American Homes 4 Rent also scrambled to file its own IPO prospectus, realizing the game is almost up. And while we will let readers delve into the financials of the massively unprofitable rental REIT on their own (S-11 link here), the firm which has already invested $2.5 billion to purchase some 14,210 properties across the US, which in an ideal world would generate an average of $15,755 in cash rent per property (and a solid 9% cap rate if only on paper) suddenly also appears very worried about the rate compression between its assets and liabilities and can't seem to wait to cash out.
But what is most curious about the AH4R IPO is that it was only in November of last year that none other than Blue Mountain - the hedge fund located on the fifth floor of the JPM HQ best known for first raping then rescuing the JPM London Whale: one wonders just how much Andrew Feldstein might have overheard at the 48th Street Starbucks but we digress) invested over $70 million in the rental company. Six months later it is perfectly happy to be classified as a "selling shareholder."
Translation: the hedge funds that bought in barely six months ago into what everyone knew would be the easiest and most levered wave to ride the accelerated housing bubble, are now rushing to get out before the emperor's lack of clothes is obvious for all to see. If they can that is: for those who are forced to pull their IPOs, the sad housing reality summarized so aptly by Carrington is about to unfold.
Two months later the game is up, and those same hedge funds, while profitable, are willing to eat a 44% drop in their initially hoped for returns in just a two month period. From Bloomberg:
American Homes 4 Rent, based in Agoura Hills, California, sold 44.1 million shares for $16 each, according to data compiled by Bloomberg, after offering them for $16 to $18. The shares will start trading today, listed on the New York Stock Exchange under the symbol AMH.
The company, with almost 18,000 properties, is the second-largest in the U.S. homes-for-rent market, after Blackstone (BX) Group LP, and is going public at a time when investors are cooling on the fledgling industry. American Homes 4 Rent raised almost 44 percent less than the $1.25 billion amount estimated in an initial propectus by the company in June.
While American Homes 4 Rent has the benefit of strong leadership under Hughes and a diverse portfolio, it’s uncertain whether single-family owners can make money over the long term on par with other types of landlords, Dave Bragg, an analyst at Green Street Advisors Inc., said this week before the IPO. The two other REITs that have gone public -- Silver Bay (SBY) Realty Trust Corp. and American Residential Properties Inc. -- are trading below their offering price.
Shares of other public single-family rental REITs have fallen as the companies have failed to show a profit, in part because they are acquiring houses faster than they can fill them with tenants. Silver Bay, based in Minnetonka, Minnesota, began trading in December at $18.50 a share and closed yesterday at $16.09. American Residential Properties of Scottsdale, Arizona, went public in May at $21 and has fallen to $17.54.
The final question: who was lead left on the "straight to muppet dump" prospectus? Who else.
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