A slowly improving U.S. housing market has boosted most large national homebuilders’ sales and bottom lines over the past few years.
Industry consolidation has also turbo-charged revenue growth of many in the homebuilding sector, with a handful of Orange County-based firms the prime beneficiaries.
For the New Home Co., though, recent growth has largely come from building in its own backyard, its relationship with the area’s dominant real estate company, and by focusing on the luxury market.
The Aliso Viejo-based builder, which derives a big portion of sales from upscale Orange County developments, ranks No. 1 on this week’s Business Journal list of fast-growing large public companies, with two-year revenue growth of nearly 208%.
The sales increase wasn’t by accident, said company co-founder and Chief Executive Larry Webb.
“We’ve been laying this foundation for a while,” said Webb, whose company kicked off operations in 2009 and went public in 2014 after raising $86 million in an initial public offering.
Orange County’s hot new-home market, currently home to four of the 25 best-selling master-planned communities in the country, is playing a big role in the company’s recent growth.
With the November sales kickoff at two projects at Rancho Mission Viejo, New Home Co. will have projects for sale at each of OC’s three largest new-home communities, along with the Irvine Ranch and Great Park Neighborhoods in Irvine.
In addition to sales of homes under its name, New Home also acts as a fee-builder for Irvine Pacific, the in-house building arm of Newport Beach’s Irvine Co., which has been among the largest homebuilders in OC by sales for several years.
“We’ve had significant success in Orange County,” said Webb, whose company also builds in other parts of California and in the Phoenix market.
One well-heeled part of OC in particular—Newport Coast’s ritzy Crystal Cove community, an Irvine Co. development—helped push New Home Co. to the No. 1 spot on this week’s list.
The builder kicked off sales last year at two ultra-high-end housing communities at Crystal Cove, where homes had average prices near $6 million.
Both communities, totaling 55 homes, sold out this year, bringing in more than $322 million in sales for the builder over the past year.
New Home Co. reported $769 million in sales for the 12-month period ending on June 30, compared to $250 million in the same period two years ago.
“Crystal Cove was a great success for us, and it’s all because Irvine Co. gave us a chance,” Webb said.
M&A Hub
The company’s route to the top of the list differs from strategies other area builders have recently taken to grow, via mergers and acquisitions.
One spot behind them on the large company list is Irvine-based CalAtlantic Group Inc., whose two-year sales rose 161% to $6.7 billion. One of the biggest housing industry mergers in recent years was behind much of the growth.
Last month marked the two-year anniversary of the creation of CalAtlantic, which was formed from the merger of Irvine’s Standard Pacific Corp. with Ryland Homes of Westlake Village.
CalAtlantic, which maintains its West Coast headquarters in Irvine and its East Coast hub in Arlington, Va., is now the country’s fourth-largest builder by home sales.
Last year’s No. 1 fast-growing large public company here, Irvine-based TRI Pointe Group Inc., experienced gains through a similar transaction, the 2014, $2.8 billion cash-and-stock acquisition of the homebuilding division of timber conglomerate Weyerhaeuser Co. in Federal Way, Wash.
Newport Beach’s William Lyon Homes, No. 7 on the latest list with two-year revenue growth of 47%, has been realizing the gains of its late 2014 buy of the homebuilding operations of Bellevue, Wash.-based Polygon Northwest Co. LLC, a $520 million deal.
‘Marginal’ Stock Gains
New Home Co.’s stock performance hasn’t matched its sales gains, particularly when viewed against other OC-based builders.
CalAtlantic’s stock is up nearly 23% year-over-year for a current market value of about $4.4 billion.
TRI Pointe, whose shares languished for the better part of two years and whose management team came under heavy rebuke from a former large shareholder early this year, has seen its stock rocket over the past six weeks, by nearly 50% from year-earlier levels to a market value of $2.5 billion.
William Lyon’s stock is up about 30% year-over-year for a market value of about $780 million. The performance mirrors that of the Standard & Poor’s Homebuilders ETF, a housing-stock fund that’s also experienced a nearly 30% increase over the past year.
New Home’s stock is up about 6% year-over year for a market value of $233 million last week, just before it announced third-quarter earnings. Webb describes the gains as “marginal” and not indicative of the company’s true value.
Outside of New Home Co., OC’s builders each have sizeable operations outside of California; Webb said he believes his company’s focus here could be seen by some on Wall Street as a drawback.
“New York and Wall Street probably doesn’t believe in California the way we do,” he said.
A similar issue appears to face master developer Five Point Communities, the Aliso Viejo-based company building Great Park Neighborhoods and other big projects in the state. Its shares are about 7% below where they traded immediately after its May IPO of $14 per share.
As in the case with Five Point, New Home wants “to be in the deepest markets in the pond,” Webb said.
Morningstar last week described New Home Co. in an equity report as being on the lower end of ‘fairly valued,’ its stock about 4% below that.
The average target stock price from analysts who cover New Home is $14 a share, about 20% higher than the company’s stock stood midweek last week.
Affordable Options
New Home plans one change in its business strategy, a decision that comes from company management, not Wall Street, Webb said.
This year, the average sale price for homes it builds was nearly $2 million, thanks in large part to Crystal Cove and other pricey projects in the region. That’s the highest per-home price of any publicly traded builder in the country.
Next year, the goal is to get the average price down to $1.5 million through the introduction of more affordable projects in and around OC. Homes at Rancho Mission Viejo, for example, will be priced starting around $400,000.
“They’ll be faster to build, we can sell them quicker, and construction costs will be easier to manage,” Webb said.
Of the dozen or so new projects the company will have under way by the new year, seven should have homes under $750,000, he said.
“We’ll always be in the upper end (of the market), but this should allow for more consistent growth.”
