On July 18, officials of UCP Inc. stood inside the New York Stock Exchange as their company’s common shares traded for the first time under the symbol UPC.
The San Jose, Calif.-based builder/developer raised $116.3 million from that initial public offering of 7,750,000 shares, representing 42.3% of the company’s ownership. (The rest is owned by PICO Holdings, the investment firm that acquired the company—then known as Union Community Partners—in 2008, four years after its launch.)
UCP is the fourth home builder to go public this year, and one of five companies in different business sectors that went public this week. Dan Primack, a senior editor for Fortune magazine, told MSNBC on the morning of July 19 that 11 more companies were preparing to launch IPOs the following week.
The dollar total that UCP raised, at an average price of $15 per share, was at the low end of what its officials had anticipated from the offering, according to its prospectus. Still, the timing of the stock offering was right, says Dustin Bogue, UCP’s 38-year-old chief executive officer.
“It was the next logical step for us,” he explains, after having deployed an estimated $220 million over the previous six years. Much of that money went toward purchasing land in central California and the Puget Sound area in Washington state for the development of finished lots that UCP sells to other builders.
However, a growing percentage of its land portfolio is going to be earmarked for Benchmark Communities, the home building company UCP started in 2010 that has begun to pick up momentum. Through the first six months of 2013, UCP delivered 69 homes, compared with selling 41 homes in all of 2012. The company expects to increase Benchmark’s active communities to 14 by the end of this year, from seven at the end of June. Bogue projects that home building will account for 90% of UCP’s revenue in 2015, compared with 24.2% of the $58.1 million it generated in 2012.
“We are convinced that our hybrid [builder/developer] business model works, and we see the opportunity to sell into a rising ride incrementally through home building,” he says.
Over the past several years, UCP has been expanding its home building management, led by James Fletcher, its chief operating officer, who previously ran a development and construction company in Monterey, Calif. UCP’s vice president of construction, Terry Secor, held senior-level positions at Centex and McMillin Cos., and its chairman of the board of directors, Michael Cortney, had been president of Standard Pacific.
The homes that UCP builds range in size from 1,500 to 4,000 square feet, with an average selling price of $361,000. First-time buyers represent about one-fifth of its purchases, but the builder’s sweet spot is with first-time move-up buyers, says Bogue.
In its prospectus, UCP stated “we may seek to acquire other home builders and land developers.” Bogue—whose background before joining UCP was primarily in real estate—declined to discuss details about future growth, except to say “right now, we are very focused on our current markets.” (As of March 31, the company’s property portfolio consisted of 48 communities in 17 cities.) UCP expects to have expended only half of its land portfolio by 2015.
Bogue says his company typically looks for development projects that would be under 300 lots. As for moving into new home building markets through acquisition, he says UCP would first consider “the right people to broaden our culture,” followed by “a land pipeline that would give us a few years of steady growth” and then “the operational integrity of the company.”
John Caulfield is a senior editor at BUILDER.