57.5 F
Laguna Hills
Monday, Mar 18, 2024
-Advertisement-

Weyerhaeuser Purchase Puts TRI Pointe in Catbird Seat for Land

A $2.7 billion bet on an improving housing market is set to make TRI Pointe Homes Inc. a national presence among homebuilders and provide the Irvine-based company with an enviable landholding position across Southern California.

The upstart builder, founded in the wake of the last recession by former executives of Newport Beach-based William Lyon Homes, last week announced it reached a deal to buy the homebuilding division of Federal Way, Wash.-based timber conglomerate Weyerhaeuser Co.

The $2.7 billion deal, consisting of $2 billion in stock, plus a $700 million cash payment, had been rumored to be in the works for several weeks. The transaction is expected to close in the second quarter of 2014. TRI Pointe is expected to raise debt to help fund the cash portion of the purchase.

It’s the first acquisition topping $1 billion involving an Orange County builder since 2006, when Emaar in Dubai bought Irvine-based John Laing Homes for nearly $1.1 billion.

The purchase of a much larger competitor with substantial landholdings represents another notable achievement this year for TRI Pointe, which raised $233 million in its January initial public offering.

It was the first U.S. homebuilder to go public via an IPO in nearly eight years.

“It’s been a whirlwind,” said TRI Pointe Chief Executive Doug Bauer, whose company began operations in 2009. It sold 144 homes last year, all in California.

Weyerhaeuser’s homebuilding operations, by comparison, sold about 2,300 homes last year for nearly $1.1 billion in revenue.

It was the country’s 17th largest builder by sales volume and 13th by revenue as of 2012.

“It’s a transformational deal for us,” Bauer told the Business Journal last week. “It really provides us with an unbelievable opportunity to take TRI Pointe to the next level.”

The deal, when completed, should give TRI Pointe an equity market value of some $2.5 billion, about five times its current valuation. That would place the company ninth among publicly traded builders in the U.S.

Irvine-based Standard Pacific Corp. is ranked sixth among public builders, with a $3.1 billion valuation, while William Lyon Homes, which returned to the public markets in May after a nearly seven-year run as a privately held company, has a valuation of about $800 million and is 15th.

Miami-based Lennar Corp., which runs much of its day-to-day operations out of Aliso Viejo, is the country’s largest public builder, with a value of about $8.4 billion.

A $2.5 billion valuation would also make TRI Pointe Orange County’s ninth-largest public company as of last week.

Long on Land

TRI Pointe is buying five homebuilders from Weyerhaeuser who build in California, Washington, Texas, Arizona, Nevada and Washington, D.C.

The largest of the building units is El Segundo-based Pardee Homes, long one of Southern California’s more active builders.

Pardee last year ranked among the top five builders in San Diego and Los Angeles. It also builds in the Inland Empire and Las Vegas.

The Pardee acquisition provides TRI Pointe with a major boost to its local landholdings.

About 15,000 of the nearly 27,000 home lots it’s buying from Weyerhaeuser are in Southern California. The company, with those additions and its existing inventory, now has about 30,000 home lots, more than 16,200 of them in the Southland.

That’s a roughly nine-year supply of land, based on the combined companies’ historical sales, nearly triple what TRI Pointe had before the deal.

“It’s a formidable land position,” Bauer said.

The deal gives the company “a stronger and deeper California market position, a relatively high average selling price product line, land positions, and brand recognition in the nation’s most attractive housing markets.”

“If we were going to go long on land, (Southern California) was the one place we wanted to (do it),” said TRI Pointe Chairman Barry Sternlicht in a call with analysts last week.

Sternlicht’s Starwood Capital, which has about $20 billion in assets under management, invested $150 million in TRI Pointe in 2010 and is the company’s largest shareholder.

Sternlicht’s stake in TRI Pointe will fall from about 38% to 7.4% following the completion of the deal, although he’ll remain chairman.

Weyerhaeuser shareholders will own about 80% of the combined companies after the deal is completed, and TRI Pointe shareholders will own the rest.

Bauer and the remainder of TRI Pointe’s existing management team—Chief Financial Officer Mike Grubbs and President Tom Mitchell—will take charge of the combined businesses.

“They are among the tightest, most disciplined executives that I’ve run into in my career,” Sternlicht said.

The combined companies will continue to be based in Irvine.

Bauer said the company plans to move some corporate operations of the Weyerhaeuser companies to TRI Pointe’s Impac Center headquarters on Jamboree Road and to beef up its accounting and systems departments as part of its acquisition.

The five builders will continue to operate as stand-alone businesses for the most part, according to Bauer. There are no plans to rebrand any builder under the TRI Pointe name.

“Having a strong local brand in place is the best way to maximize profits,” he said. Existing management teams at the individual builders “won’t have to look over their shoulder.”

Along with Pardee, the other Weyerhaeuser builders TRI Pointe is buying include Scottsdale, Ariz.-based Maracay Homes; Quadrant Homes in Bellevue, Wash.; Houston-based Trendmaker Homes; and Winchester Homes of Bethesda, Md.

“This isn’t a broken company,” Sternlicht told analysts last week.

It’s “a very strong company, and Weyerhaeuser’s decision to exit the business was really a matter of focusing on their … larger business, which is their forest products business and not the homebuilding sector.

“So it’s a perfect move, I think for (Weyerhaeuser) and a great opportunity for TRI Pointe, which we were able to capitalize on.”

Want more from the best local business newspaper in the country?

Sign-up for our FREE Daily eNews update to get the latest Orange County news delivered right to your inbox!

Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-
-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-