An eight-year partnership between Irvine-based homebuilder TRI Pointe Group Inc. and its former majority shareholder ended on an unexpected sour note.
Greenwich, Conn.-based private equity firm Starwood Capital Group late last month confirmed it exited its position in TRI Pointe by selling its last remaining stake in the company, and capped the departure with some unflattering parting words.
The nearly 12 million-share sale, representing about 7.5% of TRI Pointe’s outstanding stock, brought in a little more than $150 million for Starwood, which has about $52 billion in assets under management.
It first invested in TRI Pointe in 2010 with $150 million, which initially gave it a more than 80% stake.
The firm liquidated portions of its holdings in the intervening years, most notably in 2013 when the builder raised about $233 million in its initial public offering. Starwood got back about $63 million of its initial investment at the time of the IPO.
Upon last month’s cash-out of Starwood’s remaining stake, the builder portrayed the sale as business as usual. It noted in regulatory filings that the two Starwood executives on its board, including Chairman Barry Sternlicht, would leave their positions following the transaction.
The resignations “were not due to any disagreement with the company, including with respect to any matter relating to the company’s operations, policies or practices,” TRI Pointe said in a March 30 filing with the Securities and Exchange Commission.
Starwood didn’t feel the same. It released a blistering announcement of its own later that day, saying its decision “to exit its stake was due to its ongoing disappointment in the performance of the company over the past several years, lack of confidence in the strategic direction of the company and disagreement over the best way to maximize shareholder value.”
Starwood didn’t specify recommendations for improving shareholder value. The builder hasn’t been rumored to be an acquisition candidate or a buyer of other large builders.
Sluggish Stock
TRI Pointe’s $2 billion market value makes it Orange County’s 11th largest public company (see related stories, pages 1 and 3 to 5). It’s the area’s second largest public homebuilder behind Irvine-based CalAtlantic Group Inc., which is valued at about $4.1 billion and is OC’s seventh largest public company by market value.
TRI Pointe’s stock has fallen since completion of a mid-2014 buy of the homebuilding division of timber conglomerate Weyerhaeuser Co. in a $2.8 billion cash-and-stock deal. Its shares have since dropped about 20%, and its stock price is flat from about a year ago.
Homebuilder stocks have generally underperformed the larger market over the past few years. One closely watched homebuilding index, the SPDR S&P Homebuilders ETF, has lagged the S&P 500 by nearly 50% in performance over the past six years.
CalAtlantic’s shares are up about 10% from a year ago, while stock of Newport Beach-based William Lyon Homes is up about 33%, and Aliso Viejo-based New Home Co. is down about 13% (see related story, page 1).
The mixed stock performance doesn’t correlate with a generally optimistic view of the near-term health of the homebuilding industry. Homebuilder sentiment over the state of the industry is at a 12-year high, according to last month’s National Association of Home Builders Housing Market Index.
But Wall Street has yet to embrace many builder stocks, noted New Home Co. Chief Executive Larry Webb.
“The question we always hear (from prospective investors) is, ‘Where are we in the cycle,’” he said. Wall Street thinks the housing market is further along in the cycle than what New Home Co. executives feel, particularly for California.
Webb said he “didn’t understand the logic” of Starwood waiting till exiting to express concerns.
TRI Pointe officials, for their part, said they remain appreciative of Starwood’s investment but feel decidedly more positive about the builder’s long-term outlook.
Since the 2010 investment, “the company has undergone meaningful transformation, including its IPO in 2013 and $2.8 billion merger with Weyerhaeuser Real Estate Co. in 2014,” Chief Executive Doug Bauer said in a statement provided to the Business Journal last week.
“As we look ahead, we are confident that the company is well positioned to continue executing our operating strategies at our six homebuilding brands as well as unlocking the significant value embedded in our long-term California assets.”
TRI Pointe said in SEC filings that it won’t fill the seats that were held by Starwood executives, leaving it with six members.
