by Jordan Green
International Market Centers has indefinitely postponed its initial public offering.
International Market Centers, whose properties dominate High Point’s central business district, has indefinitely postponed an offering of common stock as part of its interest in becoming a publicly traded company on the New York Stock Exchange.
The company is the largest taxpayer for the city of High Point and its properties monopolize the city’s downtown, which remains moribund for much of the year between the twice-yearly markets. The company’s financial prospects are a matter of intense interest in a city struggling to revitalize its core.
International Market Centers, which is based in High Point and Las Vegas, was scheduled to go public on May 8, but company spokeswoman Eden Bloss said last week that the decision had been postponed.
“The market conditions were really volatile and we felt like it wasn’t the best time to go public,” she said.
“We are calling it a postponement,” Bloss continued. “We were pleased because we did get a lot of institutional investor interest. We were oversubscribed.”
Bloss said the decision to postpone the initial public offering was influenced by volatility in Standard & Poor’s financial ratings and a 6 percent drop in the RMZ real estate index in late March.
The proposed aggregate offering price of the company is $185.2 million. Regardless of whether the company goes public, International Market Centers’ prospectus indicates that Bain Capital and Oaktree Capital Management will retain majority ownership.
International Market Centers is the largest owner and operator of showroom space for the home furnishings and gift industries in North America. According to its prospectus, the company generated $162.8 million in total revenues, but suffered a net loss of $29.6 million in 2014. The company estimates that it controls 59 percent of showroom space in downtown High Point. In contrast, no other property owner owns more than 4 percent of the city’s real estate zoned for showroom use.
The company’s biannual markets in High Point and Las Vegas provide an opportunity for a wide array of manufacturers and suppliers to interact with wholesale buyers. The prospectus states, “We believe this creates significant value for both our tenants and their customers in the US home furniture industry, in the US home décor industry and in the highly fragmented US gift industry.”
The furniture market in High Point has evolved over the past 100 years. In 2005, a competing market opened in Las Vegas. As an indication of the furniture industry’s continuing viability, the company cites the High Point Market Authority as saying that even between 2007 and 2009, during the depths of the economic downturn, annual buyer registrations dropped by only 7 percent.
The company argues in its prospectus that it holds a superior position over any would-be competitors because its portfolio of properties would be expensive to replicate.
“Our showroom space includes 6.7 million gross square feet in High Point and 5.4 million gross square feet in Las Vegas,” the prospectus states. “We and our tenants have invested significant capital in these facilities, which makes them extremely difficult and costly to replicate. Our High Point property includes the largest and most iconic showroom buildings in High Point, which are recognized throughout the home furniture industry. Their location in the heart of the downtown furniture district and proximity to the main transportation hub, event venues and food and beverage amenities offer incremental value to our tenants and their customers.”
The company has invested $33 million in its High Point properties since 2011, compared to $47 million in its Las Vegas holdings, according to the prospectus.
The prospectus suggests that International Market Centers’ consolidation of showroom real estate is part of its advantage. The fragmented nature of ownership prior to the recession, with three companies controlling the lion’s share of showroom space in High Point, drove down leasing revenues. Since the formation of International Market Centers, which took control of the largest showrooms in High Point and the Las Vegas market, in 2011, rental rates have rebounded. The prospectus states that average rental rates in International Market Centers’ High Point showrooms increased from $13.50 per square foot in January 2012 to $15.84 in March 2015.
To accomplish its primary business objective of maximizing return for its shareholders, International Market Centers’ prospectus states that the company is creating value for its tenants and their customers by improving buyer experience and helping tenants generate stronger profits.
But several risks loom over the industry, the prospectus warns, which could cause prospective investors to lose some or all of their investment.
In August 2014, the company took on significant debt. As the prospectus explains, “Our operating partnership entered into new senior secured credit facilities, which are comprised of a $405 million first lien term loan facility, a $50 million first lien revolving credit facility and a $125 million second lien term facility.” The company expects to repay its debt with a portion of the capital raised from the public offering. But the prospectus lists its “substantial amount of indebtedness following this offering” as among the risk factors for potential investors.
The prospectus also notes that International Market Centers’ tenants include “large numbers of smaller manufacturers, and the bankruptcy, insolvency or inability to pay rent of these tenants may adversely affect the income produced by our properties and could have an adverse effect on our financial condition and results of operations.”
The most significant challenge for the company might be that it has yet to achieve profitability. The company has experienced net losses every year since it was formed in 2011, according to the prospectus.
“Our ability to achieve profitability is dependent upon a number of risks and uncertainties, many of which are beyond our control,” the prospectus states. “We cannot assure you that we will be successful in executing our business strategy and become profitable and our failure to do so could have a material adverse effect on the price of our common stock and our ability to satisfy your obligations, including making payments on our indebtedness.”