CONSOLIDATION OF THE HOME BUILDING
INDUSTRY
January 13, 2006
Presented
by
Gopal Ahluwalia
Staff V.P. – Research
Economics Group
National Association of Home Builders
Washington, D.C.
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.
2
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”?
3
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.
4
EXHIBIT 3
WHY 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.
5
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.
6
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.
7
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
% of Closings
EXHIBIT 5
Market Share of Top 10 Builders: 1989 TO 2004
23
21
19
17
15
13
11
9
7
5
8
EXHIBIT 6
Total Closings for Top 10 Builders
45,000
41,000
37,000
1993
2004
No. of Closings
33,000
29,000
25,000
21,000
17,000
13,000
9,000
5,000
1,000
.
e
s
.
s
n
p
s
orto e Home ar Corp ex Corp B H om mes USA d G rou te rprise Holding
H
.
t
K
n
n
.
o
D.R
Pult
C en
Lenn
R yla anian E M.D.C
er H
z
e
a
h
e
n
T
B
Hov
NVR
9
EXHIBIT 7
Market Share of Top 60 Builders: 1989 and 2004
25
20.9
% Share of Closings
20
1989
2004
1.6
1.5
15
10
5
8.8
4.0
5.0
2.5
2.9
2.1
2.1
1.8
1.4
0
Builders 1-10 Builders 11-20 Builders 21-30 Builders 31-40 Builders 41-50 Builders 51-60
Ranking
10
EXHIBIT 8
Market Share of Top 100 Builders: 1998-2004
40
Percent
Top
35 100
30 Builders
25
20
15
Builders
1-10
10
Builders
5
41-50
Builders
0 91-100
1998
1999
2000
2001
2002
2003
2004
11
EXHIBIT 9
Market Share of Builders Ranked 101 to 200
5.00%
4.02%
% Share of Closings
4.00%
4.17%
3.92%
3.90%
3.08%
3.00%
2.00%
1.00%
0.00%
2000
2001
2002
2003
2004
Year
12
EXHIBIT 10
Average Closings Per Firm
2000
2004
Ranked 1 to 10
16,422
25,138
Ranked 91 to 100
599
782
Ranked 101 to 200
270
471
13
EXHIBIT 11
Total Single Family Sales and Closings by Top 10 Builders
1994 -2004 Percent Change
SF New Home
Sales
79.3%
Top 10 builders
Closings
0.0%
Source: BUILDER magazine
260.7%
70.0%
140.0%
U.S. Census Bureau
210.0%
280.0%
14
-5%
Sales
2003-
2002-
2001-
2000-
1999-
1998-
1997-
1996-
1995-
1994-
1993-
1992-
1991-
1990-
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
New Home Sales:% Change Y/Y
35%
35%
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-10%
-10%
Top 10 Closings
-15%
-15%
15
Top 10 Closings:% Change Y/Y
EXHIBIT 12
Year/Year Percent Change in New Home Sales and Closings By
Top 10 Builders
EXHIBIT 13
Lot Inventory - 2005
369,000
350,000
323,000
Percent lots Owned
303,000
286,000
46%
250,000
46%
Percent lots Optioned
32%
37%
200,000
185,000
150,000
54%
63%
68%
107,000
26%
52%
50,000
106,000
100,000
80,000
45%
39%
100%
74%
49%
55%
61%
d
yl
an
R
er
VR
N
na
n
ov
K
.H
Be
az
ia
n
es
om
H
K
B
C
en
t
ex
ar
or
to
.R
.H
D
Le
nn
n
0
Pu
lte
44,000
51%
s
54%
H
ol
di
ng
100,000
48%
C
300,000
M
D
400,000
16
EXHIBIT 14
Years of Lot Inventory At Current Production Level - 2004
10
9.1
9
8.9
7.8
8
7.5
7.3
7.0
7
6.9
6.7
6.0
6
5.9
5.9
5.3
5.1
5.0
5
4
3.0
3
2
1
0
o
Br
l
l
To
s
er
h
t
c
c
e
R
gs
es
es
ar
nd
an
on azer
lte ntex
pi
ifi itag
i
n
V
t
n
a
i
m
m
u
c
l
n
r
n
m
o
N
d
o
P
Pa
ly
H
er
Be
Ry Hol
Le /I H ovna . Ho
Ce
O
d
B
M
r
l
a
K
M
. H D. R
ica
DC
nd
n
K
a
M
h
t
c
S
Te
Source: Annual Reports of Builders-10K
17
EXHIBIT 15
Number of Acquisitions: 1993 - 2005 (Jan. to Mar.)
23
Lennar
17
D.R.. Horton
14
KB Home
13
K Hovnanian
12
Beazer
11
Centex
9
Standard Pacific
7
Technical Olympic
6
6
6
Pulte
Meritage
MDC
5
Toll Brothers
3
3
Shea Homes
Ryland
2
NVR
0
5
10
Source: Builder Magazine, Housing Statistics, Mergent Online
15
20
25
18
EXHIBIT 16
Shares of Company Closings – 2005 Top 3 markets (States)
Share of Company Closings
WCI Communities
M/I Homes
Standard Pacific
Lennar
NVR
MDC Holdings
Hovnanian
DR Horton
KB Home
Ryland
Toll Brothers
Centex
Pulte
Beazer
97%
89%
83%
69%
61%
60%
59%
56%
55%
48%
48%
46%
44%
35%
Source: Credit Suisse Homebuilders' Facts & Figures 2005 Edition.
19
EXHIBIT 17
Average Closing Price of New Homes Sold By Public Builders:1998 to 2005
(In Thousands of Dollars)
National (U.S.A.)
1 DR Horton
2 Pulte
3 Lennar
4 Centex
5 K B Home
6 Beazer
7 Ryland
8 K. Hovanian Enterprises, Inc.
9 MDC Holding
10 NVR Inc.
11 Standard Pacific
14 Toll Brothers
15 WCI Communities
16 M/I Homes
1998
2005
$182
289*
$153
175
194
185
154
159
188
216
194
197
330
389
197
$261
315
308
270
252
269
273
320
307
377
353
657
526
300
Price Change
1998-2005
58.8%
70.6%
80.0%
58.8%
45.9%
63.6%
69.2%
45.2%
48.1%
58.2%
91.4%
7.0%
68.9%
52.3%
(*) 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
20
EXHIBIT 18
CLOSINGS BY PRIVATE BUILDERS
Closings
Percent Change
2003-2004
2003
2004
1 Shea Homes
5,875
6,408
9.1%
2 Mercedes Homes Inc.
4,101
4,579
11.7%
3 The Village of Lake Sumter
3,329
3,955
18.8%
4 David Weekley Homes
3,549
3,952
11.4%
5 Choice Homes Inc.
4,394
3,822
-13.0%
6 Kimball Hill Homes
3,678
3,672
-0.2%
7 Woodside Group
2,924
3,205
9.6%
8 Drees Co.
2,914
3,062
5.1%
9 MHI
3,165
2,848
-10.0%
2,750
2,970
8.0%
36,679
38,473
4.9%
10 Holiday Builders
TOTAL (1 TO 10)
21
EXHIBIT 18 (CONTD.)
CLOSINGS BY PRIVATE BUILDERS
Closings
2003
2004
Percent Change
2003-2004
11 Perry Homes
2,351
2,792
18.8%
12 Pasquinelli Construction Co.
2,361
2,680
13.5%
13 C P Morgan Communities
2,414
2,582
7.0%
14 Highland Homes
2,359
2,455
4.1%
15 Transeastern Properties
1,847
2,385
29.1%
16 American West Homes
2,336
2,295
-1.8%
17 Epmark
1,625
2,115
30.2%
18 Neuman Homes
1,344
2,068
53.9%
19 John Laing Homes
1,806
2,045
5.2%
20 Crosswind Communities
1,045
2,000
91.4%
19,488
23,417
20.2%
TOTAL (11 TO 20)
Source: Builder Magazine.
22
EXHIBIT 19
Select Top 200 Home Builders for 2004
(Closings and Gross Revenue)
Rank
Gross Revenue
(in millions)
1
D R Horton
10
NVR
20
M/I Homes
30
Holiday Builders
40
Epmark
2,115
$381
50
Bowen Family Homes
1,829
$319
44,005 $11,156
$4,300
12,749
$1,175
4,303
2,970
$425
100
Fronties Homes
731
$203
151
Salesbury Homes
458
$85
200 The Oberer Companies
286
$78
0
Source: Builder Magazine.
0
5 ,0
0
1
0
0,0
0
1
0
5, 0
0
2
0
0,0
0
00 ,0 00 ,0 00 ,0 00 ,0 00 ,0 00
0
,
50
40
30
45
35
25
23
EXHIBIT 20
SOURCES OF REVENUE
Home
Sales
Land Sales
Financial
Services
Construction
Services***
Home
Services
96%
2%
2%
-
-
2 Pulte*
94
2
1
-
-
3 Lennar
91
3
6
-
-
4 Centex
76
-
10
13
1
5 K B Homes
97
-
1
2
-
6 Beazer
98
1
1
-
-
7 Ryland
95
2
3
-
-
8 NVR
98
-
2
-
-
9 K Hovanian
97
1
2
-
-
10 MDC Holdings
98
-
2
-
-
11 Toll Brothers**
98
1
-
-
-
12 M/I Homes
95
2
3
-
-
13 Standard Pacific
99
-
1
-
-
1 D R Horton
Note: (*) denotes remaining 3 percent is from International sales
(**) denotes remaining 1 percent is from Interest and Taxes
(***) covers range of commercial contracting services, including construction management,
general contracting, design-build and pre-construction services.
24
EXHIBIT 21
Public versus Private Homebuilders: FY 2003 Pre-Tax Income and Margins
($ in Millions)
FY 2003 Pre-Tax
Rank
Company
Markets
1
D.R. Horton, Inc.
National*
2
Pulte Homes, Inc.
3
$ Amount
%Margin
$1,008.2
11.8%
National
995.7
11.1%
Lennar Corporation
National
1,207.1
14.5%
4
Centex Corporation
National
794.9
13.4%
5
KB Home
National
553.5
9.6%
6
Beazer Homes USA, Inc.
National
285.5
9.1%
7
Ryland Group, Inc.
National
396.2
11.8%
8
NVR, Inc.
National
696.2
19.3%
9
Hovnanian Enterprises. Inc.
National
411.5
13.1%
10
MDC Holdings, Inc.
National
348.2
12.2%
11
M/I Homes, Inc.
DC Metro, OH, IN, FL
135.1
12.9%
12
Standard Pacific Corporation
National
335.1
14.3%
13
Toll Brothers, Inc.
National
411.2
14.9%
14
WCI Communities, Inc.
FL, NY
169.8
11.7%
Average of Public Homebuilders**
Average of 30 Private Homebuilders+
12.4%
30 of the Top 50 Housing Markets
2004 NAHB Cost of Doing Business
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.
Source: JMP Securities-Share of Market Analyses, Sept. 2004
8.7%
5.4%
25
EXHIBIT 22
EXPECTED 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.
26
EXHIBIT 23
MOST PROFITABLE NICHES IN THE MARKETPLACE FOR SMALL AND
MEDIUM SIZE BUILDERS
(Percent of Respondents)
Custom home building
84%
Infill
70%
Building on owners lot
69%
Remodeling
58%
Upscale Housing on Tear Downs
51%
Light commercial
27%
Diversification to other services
20%
Other
11%
0%
Source: BEC Survey, NAHB Economics
20%
40%
60%
80%
27
EXHIBIT 24
EBIT MARGINS
20.0%
15
15.0%
13.8
12.0
% 2%
10.1 10.
10.0%
7.0%
%
7.9% 8.0
%
16.7
%
15.8
.2%
%
%
%
10.9
8.4%
7.3%
% 7.1%
8
.
%
%
6
6
.
5
.
6
6
5.0%
Source: Company data, CFSB estimates. Compiled by NAHB Economics
(e) Denotes Estimate
20
06
e
e
05
20
04
20
03
20
02
20
20
01
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
19
90
0.0%
28
EXHIBIT 25
Percentage of Home Building Debt by Year of Maturity
(as of 2004 year-end)
60%
53%
50%
40%
30%
20%
12%
8%
10%
5%
8%
6%
4%
2%
0%
2005
2006
2007
2008
2009
Source: Company data, CFSB estimates. Compiled by NAHB Economics
2010
2011-2020
2021-2030
29
EXHIBIT 26
Average Cost of Debt.
15.0%
%
14.4
%
10.9
%
10.5
9.7%
10.0%
9.4%
9.2%
9.9%
8.9%
8.3%
7.5%
5.0%
Av
er
ag
e
04
20
20
03
02
20
01
20
00
20
95
19
90
19
85
19
19
80
0.0%
Source: Company data, CFSB estimates. Compiled by NAHB Economics
30
EXHIBIT 27
CURRENT 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.
31
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.
32