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TRANSCRIPT
CONSOLIDATION OF THE HOME BUILDING INDUSTRY
January 13, 2006
Presented
by
Gopal AhluwaliaStaff V.P. – Research
Economics GroupNational Association of Home Builders
Washington, D.C.
2
EXHIBIT 1
WHY STUDY CONSOLIDATION?
1) SIGNIFICANT INCREASE IN THE MARKET SHARE OF NATIONAL/PUBLICLY HELD BUILDERS.
2) IMPACT ON LOCAL AND REGIONAL BUILDERS.
3) IMPACT ON BUILDING MATERIALS DISTRIBUTION.
3
EXHIBIT 1 (CONTD.)
WHY STUDY CONSOLIDATION?
4) ANDERSON CORPORATE FINANCE(2002): BY 2011 THE TOP 20 BUILDERS COULD ACCOUNT FOR 75 PERCENT OF HOME SALES.
5) QUESTION IS “WHERE ARE WE ACTUALLY HEADING”?
4
EXHIBIT 2
WHO IS CONSOLIDATING?
• MOSTLY PUBLICLY TRADED BUILDING COMPANIES.
• SOME CONSOLIDATION AMONG LARGE PRIVATELY HELD BUILDERS.
• SOME MERGERS AMONG MEDIUM VOLUME BUILDERS TO MAKE THEMSELVES ATTRACTIVE FOR ACQUISITION.
5
EXHIBIT 3WHY IS CONSOLIDATION OCCURRING?
• GEOGRAPHIC DIVERSIFICATION TO INSULATE AGAINST
REGIONAL DECLINES.
• PRODUCT DIVERSIFICATION/EXPANSION.
• ACQUIRE AND CONTROL LAND SUPPLY.
• ACQUIRE MANAGEMENT TALENT.
• ACQUIRE LOCAL MARKET POSITION/REPUTATION.
6
EXHIBIT 3 (CONTD.)
WHY IS CONSOLIDATION OCCURRING?
• REAP ADVANTAGES OF SIZE.
• CAPITAL COST ADVANTAGE.
• VOLUME DISCOUNT ON PURCHASES
• MARKETING ADVANTAGES.
• PRODUCTION EFFICIENCIES.
• WALL STREET PREFERENCE FOR SIZE AND GROWTH.
7
EXHIBIT 4
WHO IS BEING ACQUIRED?
• SOME PUBLICY TRADED BUILDERS.
• MOSTLY PRIVATELY HELD BUILDERS.
• PRODUCE MINIMUM OF 200+ UNITS.
• HAVE A LARGE INVENTORY OF LAND.
• ESTABLISHED POSITION IN TOP 75 MARKETS (AT LEAST 5,000 UNITS).
• HAVE MANAGEMENT TALENT TO RETAIN AFTER ACQUISITON.
8
5
7
9
11
13
15
17
19
21
23
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
% o
f Clo
singsEXHIBIT 5
Market Share of Top 10 Builders: 1989 TO 2004
9
1,000
5,000
9,000
13,000
17,000
21,000
25,000
29,000
33,000
37,000
41,000
45,000
D.R. Horton
Pulte HomesLennar Corp.
Centex Corp.KB Home
Beazer Homes USA
The Ryland Group
Hovnanian Enterprises
M.D.C. Holdings NVR
No.
of C
losi
ngs
1993 2004
EXHIBIT 6Total Closings for Top 10 Builders
10
8.8
4.02.5 2.1 1.8 1.5
20.9
5.0
2.9 2.1 1.6 1.4
0
5
10
15
20
25
Builders 1-10 Builders 11-20 Builders 21-30 Builders 31-40 Builders 41-50 Builders 51-60
Ranking
% S
hare
of C
losin
gs
1989 2004
EXHIBIT 7Market Share of Top 60 Builders: 1989 and 2004
11
EXHIBIT 8Market Share of Top 100 Builders: 1998-2004
0
5
10
15
20
25
30
35
40
1998 1999 2000 2001 2002 2003 2004
Perc
ent
1-10
41-5091-100
Top 100
Builders
Builders
Builders
Builders
12
3.08%
4.02% 3.90%4.17%
3.92%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
2000 2001 2002 2003 2004
Year
% S
hare
of C
losi
ngs
EXHIBIT 9Market Share of Builders Ranked 101 to 200
13
25,13816,422Ranked 1 to 10
471270Ranked 101 to 200
782599Ranked 91 to 100
20042000
EXHIBIT 10Average Closings Per Firm
14
EXHIBIT 11Total Single Family Sales and Closings by Top 10 Builders
1994 -2004 Percent Change
Source: BUILDER magazine U.S. Census Bureau
260.7%
79.3%
0.0% 70.0% 140.0% 210.0% 280.0%
Top 10 buildersClosings
SF New HomeSales
15
EXHIBIT 12Year/Year Percent Change in New Home Sales and Closings By
Top 10 Builders
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%19
90-1
991
1991
-199
2
1992
-199
3
1993
-199
4
1994
-199
5
1995
-199
6
1996
-199
7
1997
-199
8
1998
-199
9
1999
-200
0
2000
-200
1
2001
-200
2
2002
-200
3
2003
-200
4
New
Hom
e Sa
les:
% C
hang
e Y
/Y
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Top
10
Clo
sing
s:%
Cha
nge
Y/Y
Sales Top 10 Closings
16
EXHIBIT 13Lot Inventory - 2005
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
PulteD. R
. Hort
on
Lennar
Centex
KB Hom
esK. H
ovna
nian
Beazer
NVR
Ryland
MDC Hold
ings
Percent lots Owned
Percent lots Optioned
369,000
323,000
286,000303,000
185,000
107,000 106,000 100,00080,000
44,000
54% 54% 68% 63%
52% 74%55%
100%
61% 51%
46%
46%32%
26%
37%
48%
45%39%
49%
17
EXHIBIT 14Years of Lot Inventory At Current Production Level - 2004
9.1 8.9
7.87.5 7.3
7.0 6.9 6.7
6.0 5.9 5.95.3 5.1 5.0
3.0
0
1
2
3
4
5
6
7
8
9
10
Toll Brothers Pulte
Centex
Technical O
lympic
Lennar
M/I Homes
K. Hovnanian
D. R. H
orton
Beazer NVR
Standard Pacific
Meritage
KB HomesRyland
MDC Holdings
Source: Annual Reports of Builders-10K
18
EXHIBIT 15Number of Acquisitions: 1993 - 2005 (Jan. to Mar.)
Source: Builder Magazine, Housing Statistics, Mergent Online
233
5666
79
1112
1314
1723
0 5 10 15 20 25
NVR
Ryland
Shea Homes
Toll Brothers
MDC
Meritage
Pulte
Technical Olympic
Standard Pacific
Centex
Beazer
K Hovnanian
KB Home
D.R.. Horton
Lennar
19
EXHIBIT 16Shares of Company Closings – 2005 Top 3 markets (States)
Share of Company ClosingsWCI Communities 97%M/I Homes 89%Standard Pacific 83%Lennar 69%NVR 61%MDC Holdings 60%Hovnanian 59%DR Horton 56%KB Home 55%Ryland 48%Toll Brothers 48%Centex 46%Pulte 44%Beazer 35%Source: Credit Suisse Homebuilders' Facts & Figures 2005 Edition.
20
EXHIBIT 17Average Closing Price of New Homes Sold By Public Builders:1998 to 2005
(In Thousands of Dollars)
(*) denotes the average closing price of the first 11 months in 2005, based on data published by the Census Bureau. Source: Credit Suisse Homebuilders’ Facts & Figures 2005 Edition
1998 2005 Price Change 1998-2005
National (U.S.A.) $182 289* 58.8%1 DR Horton $153 $261 70.6%2 Pulte 175 315 80.0%3 Lennar 194 308 58.8%4 Centex 185 270 45.9%5 K B Home 154 252 63.6%6 Beazer 159 269 69.2%7 Ryland 188 273 45.2%8 K. Hovanian Enterprises, Inc. 216 320 48.1%9 MDC Holding 194 307 58.2%
10 NVR Inc. 197 377 91.4%11 Standard Pacific 330 353 7.0%14 Toll Brothers 389 657 68.9%15 WCI Communities - 526 16 M/I Homes 197 300 52.3%
21
EXHIBIT 18CLOSINGS BY PRIVATE BUILDERS
8.0%2,9702,750Holiday Builders10
-10.0%2,8483,165MHI9
5.1%3,0622,914Drees Co.8
18.8%3,9553,329The Village of Lake Sumter3
9.6%3,2052,924Woodside Group7
11.7%4,5794,101Mercedes Homes Inc.2
-13.0%3,8224,394Choice Homes Inc.5
4.9%38,47336,679TOTAL (1 TO 10)
-0.2%3,6723,678Kimball Hill Homes6
11.4%3,9523,549David Weekley Homes4
9.1%6,4085,875Shea Homes1
Percent Change2003-200420042003
Closings
22
EXHIBIT 18 (CONTD.)CLOSINGS BY PRIVATE BUILDERS
91.4%2,0001,045Crosswind Communities20
53.9%2,0681,344Neuman Homes18
-1.8%2,2952,336American West Homes 16
18.8%2,7922,351Perry Homes11
Source: Builder Magazine.
20.2%23,41719,488TOTAL (11 TO 20)
5.2%2,0451,806John Laing Homes19
30.2%2,1151,625Epmark 17
29.1%2,3851,847Transeastern Properties15
4.1%2,4552,359Highland Homes14
7.0%2,5822,414C P Morgan Communities13
13.5%2,6802,361Pasquinelli Construction Co.12
Percent Change 2003-200420042003
Closings
23
EXHIBIT 19Select Top 200 Home Builders for 2004
(Closings and Gross Revenue)
286
458
731
1,829
2,115
2,970
4,303
12,749
44,005
05,000
10,00015,000
20,00025,000
30,00035,000
40,00045,000
50,000
The Oberer Companies
Salesbury Homes
Fronties Homes
Bowen Family Homes
Epmark
Holiday Builders
M/I Homes
NVR
D R Horton
Source: Builder Magazine.
Gross Revenue (in millions)
$11,156
Rank
1
10
20
30
40
50
100
151
200
$4,300
$1,175
$425
$381
$319
$203
$85
$78
24
EXHIBIT 20SOURCES OF REVENUE
13
12
11
10
9
8
7
6
5
4
3
2
1
--1-99Standard Pacific
--3295M/I Homes
---198Toll Brothers**
--2-98MDC Holdings
--2197K Hovanian
--2-98NVR
--3295Ryland
--1198Beazer
-21-97K B Homes
11310-76Centex
--6391Lennar
--1294Pulte*
--2%2%96%D R Horton
Home Services
Construction Services***
Financial ServicesLand SalesHome
Sales
Note: (*) denotes remaining 3 percent is from International sales(**) denotes remaining 1 percent is from Interest and Taxes
(***) covers range of commercial contracting services, including construction management,general contracting, design-build and pre-construction services.
25
EXHIBIT 21Public versus Private Homebuilders: FY 2003 Pre-Tax Income and Margins
($ in Millions)
Source: JMP Securities-Share of Market Analyses, Sept. 2004
Note:. (*) Operating in 10 states or more(**) Based on Company SEC Filings (+) Based on selected JMP relationships since 2002. Company names have been excluded for purpose of confidentiality.
12.4%Average of Public Homebuilders**
5.4%2004 NAHB Cost of Doing Business
8.7%30 of the Top 50 Housing MarketsAverage of 30 Private Homebuilders+
11.7%169.8FL, NYWCI Communities, Inc.14
14.9%411.2NationalToll Brothers, Inc.13
14.3%335.1NationalStandard Pacific Corporation12
12.9%135.1DC Metro, OH, IN, FLM/I Homes, Inc.11
12.2%348.2NationalMDC Holdings, Inc.10
13.1%411.5NationalHovnanian Enterprises. Inc.9
19.3%696.2NationalNVR, Inc.8
11.8%396.2NationalRyland Group, Inc.7
9.1%285.5NationalBeazer Homes USA, Inc.6
9.6%553.5NationalKB Home5
13.4%794.9NationalCentex Corporation4
14.5%1,207.1NationalLennar Corporation3
11.1%995.7NationalPulte Homes, Inc.2
11.8%$1,008.2National*D.R. Horton, Inc.1
%Margin$ Amount
FY 2003 Pre-Tax
MarketsCompanyRank
26
EXHIBIT 22EXPECTED DIVERSIFICATION/EXPANSION IN OTHER BUSINESS LINES
1. TELEPHONE SERVICE
2. CABLE
3. DISH
4. HIGH-SPEED INTERNET ACCESS
5. HOUSEHOLD MOVING
6. LAWN CARE
7. MAINTENANCE AND REPAIR
8. HOME IMPROVEMENT
9. OTHER SERVICES FOR THE HOUSEHOLDS.
27
EXHIBIT 23MOST PROFITABLE NICHES IN THE MARKETPLACE FOR SMALL AND
MEDIUM SIZE BUILDERS(Percent of Respondents)
11%
20%
27%
51%
58%
69%
70%
84%
0% 20% 40% 60% 80%
Other
Diversification to other services
Light commercial
Upscale Housing on Tear Downs
Remodeling
Building on owners lot
Infill
Custom home building
Source: BEC Survey, NAHB Economics
28
EXHIBIT 24EBIT MARGINS
7.0%7.9% 8.0%
7.3%6.5% 6.6% 6.8% 7.1%
8.4%
10.1%10.2%10.9%12.0%
13.8%15.2%
16.7%
15.8%
0.0%
5.0%
10.0%
15.0%
20.0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
e20
06e
Source: Company data, CFSB estimates. Compiled by NAHB Economics(e) Denotes Estimate
29
EXHIBIT 25Percentage of Home Building Debt by Year of Maturity
(as of 2004 year-end)
5%2%
8%6%
12%
8%
53%
4%
0%
10%
20%
30%
40%
50%
60%
2005 2006 2007 2008 2009 2010 2011-2020 2021-2030
Source: Company data, CFSB estimates. Compiled by NAHB Economics
30
EXHIBIT 26Average Cost of Debt.
14.4%
10.9%10.5%
9.7%9.4% 9.2%
8.9%8.3%
7.5%
9.9%
0.0%
5.0%
10.0%
15.0%
1980
1985
1990
1995
2000
2001
2002
2003
2004
Averag
e
Source: Company data, CFSB estimates. Compiled by NAHB Economics
31
EXHIBIT 27CURRENT AND FUTURE TRENDS
• MERGERS AND ACQUISITIONS STARTED IN EARLY 90’S AND ACCELERATED DURING LATE 90’S.
• NATIONAL BUILDERS WILL CONTINUE TO ACQUIRE SIZEABLE LOCAL OR REGIONAL BUILDERS.
• MARKET SHARE OF TOP 10 BUILDERS CONTIUES TO GROW.
• IN THE NEXT 3 YEARS, LARGEST BUILDERS WILL PRODUCE 50,000 OR MORE UNITS.
• MEGA BUILDER PRODUCING 100,000 UNITS A YEAR MAY HAPPEN WITH A MERGER OF TWO OF THE TOP 5 BUILDERS.
32
EXHIBIT 27 (CONTD.)CURRENT AND FUTURE TRENDS
• ALTHOUGH CONSOLIDATION WILL CONTINUE AT THE VERY TOP, THE MARKET SHARE OF THE NEXT TIER (NO. 21 TO 100) ISN’T GROWING.
• SMALL AND MEDIUM VOLUME BUILDERS WILL CONTINUE TO DOMINATE SMALLER METRO AND RURAL AREAS.
• IN LARGER MARKETS, SMALLER BUILDERS WILL CONCENTRATE ON “NICHE MARKETS”.
• THE OVERALL MARKET WILL CONTINUE TO INCLUDE A VERY LARGE NUMBER OF SMALL COMPANIES.