A couple of months ago Tri Pointe Homes was a smallish
homebuilder with a heavy concentration in California and little
fanfare on Wall Street.
Today the company is poised to become one of the nation's 10
biggest builders as it prepares to move into a handful of new,
high-growth markets from one coast to the other.
For that,Tri Pointe (
) can thank its proposed buyout ofWeyerhaeuser Co. 's (
) homebuilding division in a $2.7 billion deal announced Nov.
The acquisition brings Tri Pointe around 27,000 lots and five
brands: Pardee Homes in Southern California and Nevada;
Trendmaker Homes in Texas; Maracay Homes in Arizona; Winchester
Homes in the Washington, D.C., metro area; and Quadrant Homes in
the Puget Sound region of Washington.
The deal is expected to close by the end of the second quarter
of 2014. When it does, Tri Pointe would have a market cap of
around $2.5 billion, going by current stock levels. That would
move it into the top 10 among U.S. homebuilders. The company's
current market cap is about $600 million.
Good Supply Of Land
Officials involved in the deal said the Weyerhaeuser unit,
known as Weyerhaeuser Real Estate Co., or Wreco, will give Tri
Pointe nine years' worth of land and lot supply.
According to industry reports, that compares favorably with
the roughly 7.4 years of average supply for leading U.S.
homebuilders likePulte Group (
),D.R. Horton (
) andLennar (
Part of Tri Pointe's new supply will be in and around large
urban markets such as Las Vegas, Houston, Phoenix and
A majority of the lots -- more than 16,000 -- are in
California, where available land in top markets is shrinking.
On a conference call with analysts, Tri Pointe CEO Doug Bauer
said the combined company will give Tri Pointe "a stronger and
deeper California market position, a relatively high
average-selling-price product line (and) land positions and brand
recognition in the nation's most attractive markets."
Wall Street reacted favorably to the news. Tri Pointe's stock,
which touched a low of 13.43 on Oct. 9, has since rallied about
35% and currently trades near 18. The stock went public in late
January at an IPO price of $17.
Even before the deal was announced, Tri Pointe was seeing
sales increase sharply. For the past five quarters, revenue has
risen by at least triple-digit percentages from a year ago. The
Wreco assets should kick growth into an even higher gear,
"The acquisition of about 27,000 lots in several of the
nation's best housing markets will permit Tri Pointe Homes to
continue its robust growth pace," Brendan Lynch, analyst at
Sidoti & Co., noted in a report.
"In addition to bolstering inventory, we think Wreco's land ..
. will contribute to gross margin expansion to 23.5% in 2014 and
24% in 2015, vs. our call for 22% in 2013," Lynch added.
Under the terms, Weyerhaeuser shareholders will get 130
million shares, or 80.5% of the combined company. Tri Pointe will
However, Tri Pointe's management will run the firm. Bauer will
remain as CEO and Barry Sternlicht will continue as chairman.
Sternlicht's Starwood Capital Group owns a large stake in Tri
The Tri Pointe-Weyerhaeuser deal is part of a recent trend
that has seen homebuilders use acquisitions to gain quick entry
into new markets.
In July,Ryland Group (RYL) made its fourth acquisition in a
year when it bought the operations and assets of Cornell Homes, a
developer in Philadelphia, western New Jersey and Delaware.
In September,Meritage Homes (MTH) announced its acquisition of
Phillips Builders, a Nashville-based builder.
Weyerhaeuser, a timberland owner that makes wood, container
board and paper products, began exploring the idea of selling its
homebuilding unit in June.
In a statement at the time, Weyerhaeuser CEO Dan Fulton said
that "given the improving fundamentals of the housing market, we
believe now is a prudent time to explore strategic alternatives
for this business."
The Tri Pointe-Weyerhaeuser deal was structured as a tax-free
Reverse Morris Trust, which allowed Tri Pointe to buy a larger
firm while Weyerhaeuser shareholders would own the majority of
When the deal closes, Tri Pointe will have a chance to expand
well beyond its current market, which mainly focuses on houses in
California and Colorado that sell for $300,000 to $1.5
"We have accelerated our long-term plan to be a leading
regional homebuilder in some of the nation's fastest-growing
markets," Bauer said on the conference call. "The combination of
Wreco's local market knowledge and Tri Pointe's strong and
established history of success should result in a powerful and
focused homebuilding company."
Prices And Revenue Growing
He made those comments following Tri Pointe's third-quarter
earnings release. The company posted earnings of 15 cents a
share, topping estimates for 9 cents. Revenue rose more than 480%
year over year to $58.5 million, above views for $44.9
The average selling price of homes delivered climbed 57% to
$624,000 as Tri Pointe benefited from the opening of three
communities in Southern California.
New home orders nearly doubled to 135 from 74 a year earlier,
while homebuilding gross margins improved to 23% from 11.7% the
Tri Pointe said it will have nine active communities by the
end of 2013. It expects to open 20 to 24 new communities in 2014,
excluding the Wreco assets.
"We project that Tri Pointe will sell all of the remaining
homes in a few of the nine communities that are open, resulting
in an active community count of 27 at year-end 2014," analyst
Analysts expect Tri Pointe to post full-year EPS of 47 cents
in 2013 and $1.09 in 2014.