Century Communities pulled the trigger on the acquisition of its Southeast beachhead in November 2014, and like clockwork, has announced its acquisition of 50% of fast-growing Southeastern powerhouse Wade Jurney Homes, moving Century well up the Builder 100 dial toward a top 15 ranking in home volume.
For Century, the move gives one of home building's younger public home building enterprises an adrenaline shot of volume and an instantaneous entry-level customer segment platform and strategy in markets that are enjoying both economic strength and moderately less regulatory burden than many other coastal markets.
For Wade Jurney, access to Century's land-buying coffers gives a company that's been on a scorching growth trajectory since the downturn a "rich uncle" in the business. As competition--for lots, for capital, for trades, for home buying customers, and for mindshare--intensifies during the next frame of housing's recovery, private builders who operate within the geographical footprint of big publics need to up their game if they're going to stay in it.
In 2015, per Builder 100 data, Century ranked No. 21, with $734 million in total revenue on closings of 2,401 homes, a 16% volume gain over 2014. Since, Century has consolidated gains through its 2014 acquisition of Peachtree Communities, and opened up operations in the hyper-active Salt Lake City market. Wade Jurney's ranking shot up 30 slots to No. 60, growing from 437 closings and $60 million in gross revenue in 2014, to 690 closings and $96 million in revenue in 2015.
Put them together now, and you've got a top 15-ranked home builder. Per the Century release this morning:
As of September 30th, Wade Jurney had approximately 3,949 owned and controlled lots and 309 homes in backlog representing a value of $42.7 million. For the trailing twelve month period ended September 30, 2016, Wade Jurney closed 1,060 homes generating $148.2 million in revenue.
Now, the important backdrop of this deal, as we've noted is competition, and the vital need for [bigger] players who intend to thrive in the next leg of recovery to be able to pivot elegantly and aggressively into the entry-level, lower price tiered arena, where demand is intensifying and overall supply is a relative trickle.
Good news for Century is that it has gained entree onto the entry-level juggernaut via a limited capital exposure joint venture investment that totals $18 million for a 50% ownership interest in a newly formed entity, WJH, LLC. Per the release:
“As we seek to further diversify our product platform across buyer profiles, this acquisition scales our access to first time homebuyers in a very efficient manner,” said Dale Francescon, Co-Chief Executive Officer. “By partnering with Wade Jurney we are able to leverage its unique business model, which requires less capital investment yet yields quicker asset turns.” Rob Francescon, Co-Chief Executive Officer, added, “We believe this investment will generate a high return on equity for Century shareholders while providing increased geographic exposure into one of the fastest growing regions of the country. Given the demonstrated success of the Wade Jurney brand and the growing strength of the entry level buyer, we plan to expand this platform into additional markets.”
Century Communities has to prove to the investment community and its board that it's going to be a long-haul player rather than one of the freshly-minted publics whom the other bigger, well-entrenched players are eyeing as acquisition targets. Now, at least, Century has more evident exposure to home building's hot-and-growing-hotter customer segment--the entry-level, Millennial, apartment rental refugee, upon which LGI Homes built its business and D.R. Horton's Express model accelerated the expansion of its empire to more active communities than during the peak boom years of last decade.
Among the immediate questions are which "additional markets?" Texas, for instance, where Century has a foothold, but a relatively modest one, considering Dallas and Houston are the No. 1 and No. 2 home building markets in volume in the country right now. And how about nearby Alabama, which is also growing fast for a secondary market? And, could Century have designs on pushing northward into the Virginia, West Virginia markets as well?
For Wade Jurney, the combination with Century is not dissimilar from the opportunities a number of private home builders have availed of via investments from Japanese companies like Sumitomo and Daiwa House. It remains autonomous as an entity, and management gets to stay in place and keep on executing on a formula that's been winning from the get-go. All Wade Jurney needed to amp up to another level was access to the public debt markets, which it basically gets via its new tie with Century.
Stepping back from this specific transaction, deal flow in home building is fully back on the table, fueled by dynamics exactly like this one. Competition in a more concentrated number of A-List markets is intensifying, so market share and exposure to up-and-coming customer segments like entry-level, first-time buying Millennials is critical.
Growth is out there, but probably only at the expense of competitors' growth. Too, some of the smaller, newer public companies are looking increasingly like targets for acquisition, especially since investors have been punishing the stocks, not appearing to "get" the particular strategies of a few of them.
Age demographics is, of course, also playing a part. A number of private home building companies that have been able to survive and thrive over the past couple of housing cycles have senior executive principals who may be looking for an exit before the next downturn, so in at least a few cases, that's what's behind some of the transaction talk.
Right up through the end of 2016 and into next year, deal flow should regain its pace from a rather slow 2016 to date. For Century, the Jurney's just beginning.