Aspire Real Estate Investors Starts IPO Rollout (Private:AREI)


Quick Take

Aspire Real Estate Investors (AREI) has filed to raise $100 million in an IPO of its common stock, according to an S-11 registration statement.

The firm is a REIT focused on owning affordable and workforce-oriented multifamily properties in the United States.

AREI will likely yield in the 4% to 5% range, so the IPO may be more suited to investors looking for that level of return.

I’ll provide an update when we learn more IPO details from management.

Company & Business

Irvine, California-based Aspire was founded to purchase an initial portfolio of nine multifamily projects and develop or acquire additional similar projects, with up to 30% of its portfolio being ‘stabilized and value add properties for which we do not intend to undertake significant redevelopment work.’

Management is headed by president and CEO Daryl Carter, who has been with the firm since the company’s formation in January 2020 and was previously founder, Chairman and CEO of Avanath Capital Management, an investor in multifamily properties.

Below is a brief overview video of opportunity zones:

Source: Break Into CRE

Of the nine initial properties, six are located in Opportunity Zones, which are economically distressed areas where new investments meeting certain conditions are eligible for preferential tax treatment.

The nine initial properties are shown below:

Aspire has received at least $16 million from investors.

Market & Competition

According to a 2020 market research report by RealtyMogul, the U.S. market for multifamily real estate is expected to continue to grow, as real estate firm CBRE expects that 280,000 units will come to market in 2020.

However, this was a pre-Covid-19 pandemic estimate and the effects of the pandemic on construction have been significant, at least in the short term

Ultimately, it is the Millennial generation that will drive demand, which may increase outside of large cities as the pandemic persuades increasing numbers of younger persons to move outside the city and into suburban areas.

With interest rates at a historic low, developers will have friendly financing rates to reduce their financing costs, incentivizing them to build in locales where they previously may not have considered.

Major competitive or other industry participants include:

Financial Performance

Aspire’s recent financial results can be summarized as follows:

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Six Months To June 30, 2020

$ 3,825,000

6.4%

2019

$ 7,410,000

6.1%

2018

$ 6,983,000

Operating Income (Margin)

Period

% Variance vs. Prior

Six Months To June 30, 2020

$ 761,000

82.5%

2019

$ 1,005,000

64.8%

2018

$ 610,000

EBITDA

Period

EBITDA

% Variance vs. Prior

Six Months To June 30, 2020

$ 1,812,000

21.6%

2019

$ 3,170,000

17.1%

2018

$ 2,707,000

Net Income

Period

Net Income

% Variance vs. Prior

Six Months To June 30, 2020

$ 213,000

-251.1%

2019

$ (114,000)

-78.6%

2018

$ (532,000)

(Glossary Of Terms)

Source: Company registration statement

As of June 30, 2020, Aspire had $787,000 in cash and $26.3 million in total liabilities.

Funds from operations in the calendar year 2019 were $2,051,000.

IPO Details

Aspire intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO as follows:

We intend to contribute the net proceeds from this offering and the concurrent private placement to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will utilize such proceeds to acquire the nine multifamily projects that will comprise our initial portfolio for an aggregate cash purchase price of approximately $260.4 million, to develop or redevelop the six properties in our initial portfolio that are located in Opportunity Zones, and to acquire and, if they are located in Opportunity Zones, develop or redevelop other properties, which may include properties in our acquisition pipeline, and for general corporate and working capital purposes.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are Morgan Stanley, B. Riley Securities, Wells Fargo Securities, BMO Capital Markets, and KeyBanc Capital Markets.

Commentary

Aspire is seeking public investment to acquire its initial portfolio and expand its move into affordable multifamily housing located primarily in Opportunity Zones.

The firm’s financials indicate growing topline revenue, increased operating income and a swing to net income in the most recent six-month reporting period.

The market opportunity for acquiring workforce multifamily properties in lower tier cities is currently constrained, according to management, and they believe current cap rates for such properties are between 3.75% and 5%.

It is likely, therefore, that Aspire’s distribution yield will be in that range, perhaps a little higher if the firm proves adept at acquiring or developing properties at above-market levels.

Although we don’t have the final proposed terms, Aspire’s IPO would likely be appropriate for an IPO investor interested in steady income in the annual yield range of 4% to 5%.

While it isn’t a high tech firm with much of a one-day ‘pop’ potential, the IPO may be worth considering for income-oriented investors.

When we learn more IPO details, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

Gain Insight and actionable information on U.S. IPOs with IPO Edge research.

Members of IPO Edge get the latest IPO research, news, and industry analysis. Get started with a free trial!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Be the first to comment

Leave a Reply

Your email address will not be published.


*