01 March 2013

A recovery in the US housing market could prompt IPOs

With Tri Pointe Homes becoming the first US homebuilder to go public domestically in almost a decade, the slowly thawing initial public offering (IPO) market could attract more sector and housing-related players as the industry is said to be slowly getting back on its feet after hitting rock bottom, though admittedly there was nowhere to go but up.

US sales of new single-family houses rose by almost 16 per cent in January 2013 to 437,000 from 378,000 in December 2012 and were 29 per cent higher year-on-year, according to the Department of Commerce. However, the market is far from recovered as tight credit conditions and strict mortgage requirements, among other things, are making it difficult for people to buy and sell homes. This in turn is also leading to increased demand for rental properties.

Californian Tri Pointe, which builds single-family homes in communities across the Golden state and in Colorado, raised USD 233 million when it listed on the New York Stock Exchange at the end of January and investor interest has prompted Arizona-based Taylor Morrison Home to double the value of its proposed IPO to USD 500 million. In the meantime, American Homes 4 Rent has indicated a desire to float in order to fund the acquisition and renovation of single-family homes. The Californian housing landlord is following in the footsteps of Silver Bay Realty Trust. The Minnesota-based real estate investment trust (REIT) formed to rent out homes raised USD 245.00 million in an IPO in December and its shares have risen 12.4 per cent from the set price of USD 18.50 on 14th December to USD 20.80 yesterday. Meanwhile, American Residential Properties of Arizona filed with regulators at the beginning of December to float this year.

Andrew Reading, an analyst at Bloomberg Industries, told the Financial Times that a lack of financing could push private builders to enter the public markets to raise debt and equity more easily. Reading noted the housing industry recovery is in the nascent stages and more homebuilder IPOs could emerge as the sector improves.

Meanwhile Robert Crowley, a managing director at Moelis & Co, which advised Tri Pointe, expressed similar sentiments, telling Bloomberg that another five private builders could head to the bourses over the next 12 to 24 months as the public equity markets have demonstrated real demand for additional opportunities to invest in the US housing uptick. Crowley added that along with an increase in IPOs, M&A activity is likely to be on the rise as some shareholders could opt to cash in on their investments now rather than in the public arena.

Globally, there were 128 announced or completed IPOs worth a combined USD 10,882 million, as at the time of writing, according to Zephyr, the M&A database published by Bureau Van Dijk. The largest of these deals was the completed IPO of LEG Immobilien, a German residential property developer which raised USD 1,583 million when it went public mid-January.

© Zephyr