Shares of real estate investment trust (REIT) Front Yard Residential (NYSE:RESI) rose a little more than 21% at the open of trading on Nov. 23. That level is likely to stick, because it is directly related to an updated agreement with affiliates of Ares Management (NYSE:ARES).
This has been an eventful year for Front Yard, which owns single-family homes. It is relatively small compared to industry giants like American Homes 4 Rent and had been trading at a relative discount. That resulted in two large investors pushing Front Yard to sell its portfolio and return cash to shareholders. Instead of that, the company agreed to sell itself to affiliates of Ares for $13.50 per share in October. The stock rallied massively on the news.
Today, that agreement was updated, increasing the price to $16.25 per share. The change was driven by Front Yard receiving a competing acquisition offer. Once again, the stock rallied on the news, as you would expect. The stock is basically trading at about the $16.25 level now, so further gains are unlikely today and the price probably won't fall materially, either. However, some might look at this development as a suggestion that Front Yard is in play and additional increases might be on tap. That's an aggressive bet -- the current offer represents a 63% premium over where the stock traded before the original agreement in October.
Front Yard is best looked at as a special situation stock at this point. There's virtually no chance of additional upside without another competing bid. Investing new money now probably isn't a great idea for most investors. Existing investors, however, might want to hold on just in case there is another offer, with the only downside being the wait for the deal to close if there isn't another bid. With the stock up so much at this point, and likely little downside risk, holding for a little while longer might be worth it... just in case.