IPO Preview: Aspire Real Estate Investors Seeks IPO Capital

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

Irvine, California-based Aspire was founded as a REIT 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:

aspireprops

Aspire has received at least $16 million from investors.

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 the 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:

  • Public REITs
  • Private REITs
  • Private equity investors
  • Institutional investment funds

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

  • Growing topline revenue
  • Increasing operating income and margin
  • Growing EBITDA
  • A swing to positive net income

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

aspirepl2

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.

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.

Morgan Stanley is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 41.7% since their IPO. This is a top-tier performance for all major underwriters during the period.

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.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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