In one of the largest US-listed IPO (initial public offering) in past one year, Dallas-based Blackstone’s Invitation Homes raised $1.54 billion. It sold 77 million shares at a price of $20 per share to raise this amount. But on its trading debut day, this stock listed on the New York Stock Exchange ended the day with the same allotted price of $20. The company now has a market valuation of $6 billion.
There has been an increased demand for single-family homes by young families who want both space and backyard for their little ones. They hardly go to purchase as most of the times they don’t have down payment money and the credit. At times, they don’t even have the inclination to buy one as they feel that with rented property they have mobility.
The mortgage standards are quite stringent in the US and combined with the rising prices it has brought the homeownership rate to a 51-year low if the Census data is to be believed.
The IPO offered at $18 – $21 a piece was a test of investors’ interest in the rental-home business now that the housing prices have rebound. In fact, in the second half of 2016, they were at the highest levels since the crash of 2007. If we believe the data of the S&P CoreLogic Case-Shiller composite index, taken from 20 metropolitan areas, then the prices today are only 7 percent below their all-time peak.
Many of the peers of the Invitation Homes tried going public earlier too, but all of them got beaten down by investors who showed no interest in the nascent industry. For the investors to take interest in the industry that was claiming to find renters for the large portfolio of homes was doubtful. Then what makes investors bet on Invitation Homes IPO? The answer lies in the statement of John Pawlowski, who works as a senior associate with Green Street Advisors.
He said, “For investors wanting to bet on the rental market for single-family houses, Invitation Homes portfolio is “superior” to its peers. The company may benefit from having waited longer than some of its competitors to tap public markets. Potential investors now have more proof points for Invitation Homes than were available for rivals. Investors like to see a track record of high occupancy levels, good solid margins and compelling rent growth.”
With an occupancy rate of 95%, Invitation Homes has an NOI (Net Operating Income) margin of 63.8 percent, which is the best among the peers.