Private placement with existing investors including CEO Brian Bair extends the company’s cash burn runway by six months to a year, KBW analysts say.

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Struggling iBuyer Offerpad has bought itself some additional time to pivot from a seller’s to a buyer’s market this year, announcing a plan Wednesday to raise $90 million from existing investors including CEO Brian Bair, Roberto Sella and First American Financial Corp.

The private placement dilutes existing investors’ stake in Offerpad by 65 percent, and only extends the company’s cash burn runway by six months to a year, analysts at Keefe, Bruyette & Woods (KBW) led by Ryan Tomasello wrote in a note to clients.

But on the positive side, the raise “bolsters liquidity during a difficult operating environment with heightened impairment risk, and provides Offerpad with needed capital to scale longer-term,” KBW analysts said. The influx of cash will bolster a metric watched by investors, “forward book value per share.”

With the private placement of 160.7 million warrants at $0.56 per share already approved by investors representing a majority of shares, Offerpad’s share price posted double-digit gains Wednesday, surging back above $1 for the first time since November.

Offerpad’s share price back over $1

Shares in Offerpad surged 25 percent Wednesday to close at $1.15. Source: Yahoo Finance.

That’s a development that could help the company stay listed on the New York Stock Exchange. On Nov. 15, Offerpad received a noncompliance notice from the exchange after the average closing price of the company’s stock fell below $1 during a consecutive 30-day trading period.

To regain compliance and avoid being delisted, Offerpad has until mid-June to get its share price back over $1, and achieve an average share price of at least $1 over a 30 trading-day period.

KBW analysts maintained their “underperform” rating on Offerpad shares, with a price target of $0.40

Having racked up losses during seven of the past 11 quarters, Offerpad shouldered $1.15 billion in outstanding debt as of Sept. 30 after posting an $80 million third-quarter net loss as revenue declined for the second consecutive quarter to $821.7 million.

KBW analysts have said Offerpad is undercapitalized because of high redemptions when the company went public via a merger with a special purpose acquisition company (SPAC) led by Spencer Rascoff.

With $197 million of unrestricted cash on hand as of Sept. 30 — a pool that KBW analysts expected to dwindle to $138 million by year end — Offerpad is burning cash at a rate that could bring it to the end of its “runway” as soon as this year.

“Our current model implies that Offerpad has only four to six quarters of remaining cash runway based on an average quarterly cash burn rate of $30-40 million through year-end 2023,” KBW analysts said. “As a result, the $90 million private placement extends the company’s estimated cash runway by two to four quarters.”

To make the transition to a buyer’s market, Offerpad executives have said they plan to rely less on flipping houses and more on providing “asset light” services that streamline transactions and facilitate sales directly to buyers without taking title of a home.

Once buyers are off the fence, CEO Brian Bair sees opportunities for growth.

“When sellers can’t go from listing to pending in days, and instead it takes weeks or months, iBuying becomes even more attractive,” Bair said on the company’s Nov. 2 earning call. “And if we are smart about how we underwrite homes in the market, there is an opportunity for enormous growth.”

KBW analysts said Bair, who is participating in the private placement, has a 7 percent economic stake and 40 percent voting interest in Offerpad. Others participating in the raise include Roberto Sella, founder and board member of LL Funds (an Offerpad creditor with a 41 percent stake in Offerpad), and First American Financial (which provides title and settlement services to Offerpad and holds a 13 percent stake).

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Email Matt Carter

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