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Ashton Woods Gets Aggressive

Georgia-based private builder strikes a deal with investors for $75 million to acquire land, companies.

In late August, Roswell, Ga.–based Ashton Woods Homes completed a recapitalization with investors that will provide the company with between $50 million and $75 million over a five-year period to strengthen beachheads in markets across a handful of states.

“We've been able to do a couple of things in a very tough market,” said Ashton Woods CEO Tom Krobot. “We extended our revolver with Wells Fargo and Regions Bank for two years, and we went to Wall Street and were able to get capital to expand our business. We really have a very good story,” Krobot added. “In our fiscal year—May to May—we made money.”

Just who the investors are is unknown, as Krobot is under a confidentiality agreement with his new investors and refrains from disclosing them.

The deal is the latest in a series of strategic financial moves designed to give the company's balance sheet more flexibility. In early 2009, management negotiated a swap of all $125 million of its 9.5 percent senior subordinated notes due 2015 for new, 11 percent notes that carry no interest charges for the first three years. Management also amended its senior credit facility to provide as much as $95 million in borrowing capacity, a restructuring that also saw the company's original owners add $20 million of new capital to the balance sheet. Moreover, management brought on finance heavyweight Cory Boydston, who signed on after serving as CFO of Starwood Land Ventures and senior vice president of finance and treasurer at Beazer.

Krobot said the new infusion of capital will be immediately used to beef up Ashton Woods' fledgling position in Raleigh, N.C., where it has two developments in its portfolio—one actively selling subdivision and a second recently acquired. Other sinks for the new capital source include Austin, Texas, where management recently hired a new land acquisition person; San Antonio; Charleston, S.C.; and Minneapolis.

“We're also looking at opportunities in Charlotte and Denver,” Krobot added. Currently, Ashton Woods operates in seven cities in five states: Arizona, Florida, Georgia, North Carolina, and Texas, and reported $320 million in 2009 revenue on closings of 1,319 homes, earning it the No. 24 slot on BUILDER magazine's annual list of the top 100 builders.

San Francisco–based home building and developer mergers and acquisitions consultancy Avila Advisors will be working with Ashton Woods management to identify both acquisition targets and land position opportunities.

“We've put together a list of 100 company targets with strength in these markets,” said Tony Avila, CEO of Avila Advisors. “It's a first and second move-up emphasis, so purely entry-level players probably won't be a strong fit.”

Krobot attributes the company's ability to be acquisitive at such a low point in the housing cycle to four things:

  • Conservative land strategy. “We never exceeded three and a half years of land supply,” said Krobot. “And we've never followed the crowd when it comes to land acquisition. Right now, we've got less than a three-year supply, which is a bit of a concern, but we'll work with that now.”
  • Redesigned product. “We dropped more than 80 floor plans and now we've got about 210 to 220 houses that have been value engineered to open up living space and take out costs, and they look pretty darn good inside,” said Krobot.
  • Unit pricing. Ashton Woods converted to this method of sourcing and purchasing to pay for materials based on the actual unit price of the material so that it can manage vendors' mark-ups more precisely.
  • Customer satisfaction. Krobot asserts that although the latest J.D. Power rankings had yet to be released at press time, Ashton Woods has ranked in the top three in home buyer customer satisfaction in its markets. “We've been able to maintain a strong service level through it all, and that's helped,” said Krobot.
  • Ashton Woods' parent company is Great Gulf Group, which builds both towers and single-family residences in Canada, where housing troubles have been less acute than in the United States.

    As for the U.S. market, Krobot sees continued headwinds in the near future. As the company's fiscal first quarter drew to a close in August, Krobot said his firm's closings were likely to see a single-digit decline from 2009, which, he said, he'll take.

    “When you look at the overall market drops of 20 percent or 27 percent versus this period last year, 6 percent is pretty good,” he said. –John McManus

    Hot or Not?

    A look at Ashton Woods' core and target markets.

    Click here for larger image.

    It's no secret that housing markets nationwide are well off their highs when it comes to market hotness. However, according to Hanley Wood Market Intelligence's director of research, Jonathan Dienhart, some markets are still outperforming the national average—including a few that Ashton Woods' management is eyeing for future growth. So, while the market may feel lukewarm at best right now, things look to be heating up for Ashton Woods in the next 12 to 24 months.