Shares of Tri Pointe Homes LLC, the first U.S. homebuilder to go public in almost a decade, surged in their market debut, indicating strong investor appetite for a sector gaining from a U.S. housing recovery.
Homebuilders are taking advantage of the recovery in the housing market, which fell into a deep rut six years ago. Record-low mortgage rates and rising selling prices have driven up demand to levels that the large builders are struggling to meet - leaving a gap in the market for smaller companies.
"Everything today is fairly lofty because of the expectations that are built into the demand that we know is going to be coming," Williams Financial Group analyst David Williams said.
Tri Pointe is among a host of homebuilders looking to cash in on this demand and raise capital to help meet the supply crunch.
The company was founded in 2009 and operated 13 communities in Southern and Northern California containing 695 lots under various stages of development as of September 30, according to a filing.
Tri Pointe shares rose as much as 18 percent above their IPO price of $17 and closed up 12 percent at $19.05. More than 6.7 million shares exchanged hands in the debut, making it one of the most actively traded stocks on the New York Stock Exchange on Thursday.
The Dow Jones U.S. Home Construction index has gained about 86 percent in the past year, outperforming the wider S&P 500 index that gained 14 percent in the same period.
Fellow homebuilder Taylor Morrison Home Corp filed with U.S. regulators in December to raise up to $250 million in an IPO. [ID:nL4N09F2WI]
ADVANTAGE PRIVATE EQUITY OWNERS
Tri Pointe said it priced its offering of 13.7 million shares - 43 percent of its outstanding shares - at $17 each, above its initially planned range of between $14 and $16 per share.
At the end of the first day of trading, the company is valued at about $602 million.
The IPO, which raised $233 million, also bodes well for Tri Pointe's private equity owners as well as Taylor Morrison, which is backed by Oaktree Capital Management, TPG Global and JH Investments.
"The builders owned by investors or hedge funds that bought on the cheap are now logically looking at an exit (typically via an IPO) to take advantage of the high valuations," Sageworks Inc analyst Tim McPeak said.
Tri Pointe is majority owned by Chairman Barry Sternlicht, who is chairman and chief executive of private equity firm Starwood Capital Group, which has invested $150 million in the company.
Sternlicht, who sold 3.7 million shares in the offering, retains a 45.4 percent stake in Tri Pointe, according to a filing.
(Additional reporting by Tanya Agrawal and Jochelle Mendonca in Bangalore; Editing by Roshni Menon, Supriya Kurane)