At least in the public eye American Residential Properties, a single family REIT, quickly addressed activist Land and Buildings’ concerns when they decided to merge with their peer American Homes 4 Rent.
On November 30 Land and Buildings, which had acquired a 7.4 percent stake of American Residential, urged the company to look for an exit strategy in order to realize its intrinsic value. Land & Buildings said the company was trading at a 45 percent discount to the stock’s net asset value of $24 per share. They also threatened to nominate director candidates for the board.
Three days later, on December 3, both American Residential Properties and American Homes 4 Rent announced that they wanted to merge. American Homes will exchange 1.135 shares for every American Residential share. American Residential shareholders will own approximately 13 percent of the combined company.
American Residential has not been in an ideal situation. Following the IPO, in May 2013, the share price failed to grow. Due to the small size, they were not operating at their optimum efficiency. This year they were able to get into the mid 90s occupancy, but still had to improve net operating income margins. To address that they wanted to reduce property management expenses, and sell properties where they did not have critical mass.
While Land & Buildings may have accelerated the merger process they only received a little of what they were after. American Residential is currently valued at approximately 18.32 (American Homes’ closing price on December 8), representing an increase of 10 percent. This is still far short of the NAV. It is true that sometimes people aim high, but are happy with less.
Sources:American Homes 4 Rent (NYSE:AMH), American Residential Properties, Inc. (NYSE:ARPI), Land & Buildings Investment Management
Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.
Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.