On Dec. 17, The New Home Company filed its amended S-1 Registration Statement with the Securities and Exchange Commission in a renewed bid to go public, gaining access to the kind of capital an aggressive California-platform growth strategy calls for in an ever more competitive new-home landscape.
Among the big questions that come up as New Home gears back up for its public moment, at least one of them, given that timing is everything when it comes to initiatives like this, is what is the global investor appetite for private companies to go public at the outset of a year likely to bring along the unwinding of the Fed's massive bond-buying program, QE2. BIG BUILDER's John McManus has insight.
From Wall Street Journal staffers Matt Jarzemsky and Telis Demos, here's an an analysis of what's driving global investors' "craving" for more IPOs. Are macro conditions favorable to The New Home Company? One would think:
The factors underlying what many called a "healthy" IPO market in 2013 remain in place. Stocks have continued to hit records and cash is flowing into mutual funds investing in U.S. shares, evidence of continued demand for stocks. Bond yields, though higher than at the start of the year, remain near historic lows. "It's an IPO market that's healthy, but not overheated," said John Daly, Americas head of equity capital markets at Goldman Sachs Group Inc., which took home the most fees of any bank in 2013 for global stock offerings, $1.5 billion, a jump of 76% from 2012."
The New Home Company last July registered with the SEC its intention to enter the public IPO fray, but the timing--just after outgoing Fed Chairman Ben Bernanke first floated a plan for the Fed to begin tapering its purchases of bonds--proved inopportune. Investors who'd supercharged housing's capital markets for the first half of the year had their belief in real estate's upward trajectory shaken.
Still, given the blend of opportunity and urgency motivating The New Home Company braintrust of ceo Larry Webb, cfo Wayne Stelmar, chief investment officer Joseph Davis, and coo Tom Redwitz, plans to move forward with the IPO were not a question of if, but when.
A new year means a fresh start, and what is more, both investors and prospective home buyers show signs that interest rate creep--to somewhere south of 5% or so--may not douse a fundamentals-driven recovery from taking the market back to historical norms of supply and demand. Roughly speaking, that's current new-home sales levels of the mid-400,000s to a normalized annual new-home sales level of 800k.
So team New Home Company--which could not comment for this analysis due to "quiet period" SEC rules--is betting that "hope trade mojo" is in full gear as it lights into the investment community with a now-familiar narrative: fast-growing California home builder with deep operational and land acquisition pedigree seeks less-costly capital to fuel profitable growth in land-constrained residential real estate markets nationwide.
The double-edged sword of timing may have meant a longer wait for the New Home Company to capitalize with public equity dollars, but it also means its story for investors may be that much stronger for having some profitability under its belt to woo them into "the book."
Here's key commentary from the S-1 on New Home Company business performance since it's 2009 start-up.
Since August 2009, we have delivered 169 homes at Company projects, 116 homes through our unconsolidated joint ventures and 294 homes through our fee building projects. Our management team has long-standing relationships with leading masterplan community developers in each of our core markets and, through these relationships, we are generally invited to participate in new lot offerings.
Home sales revenues from our Company projects and our unconsolidated joint venture activities were $25.6 million and $0, respectively, in 2011, $24.2 million and $56.0 million, respectively, in 2012, and $24.7 million and $105.0 million, respectively, for the nine months ended September 30, 2013, and our business mix has shifted to projects in which we have a significant financial interest (either directly or in unconsolidated joint ventures), although we continue to pursue fee building on a selective basis.
As of September 30, 2013, we owned or controlled 826 lots and our unconsolidated joint ventures owned or controlled 3,040 lots. We owned 329 lots and controlled 497 lots, and our unconsolidated joint ventures owned 1,761 lots and controlled 1,279 lots. In addition, at such date we had 887 additional lots under fee building contracts. Cumulatively, we believe these lots represent supply to support our current growth plan over the next several years. We believe that our current inventory of owned and controlled lots and lots under option or purchase contracts will be adequate to supply our and our unconsolidated joint ventures’ homebuilding operations’ projected closings through 2016.
For the nine months ended September 30, 2013, we had net income of $2.9 million, and for the years ended December 31, 2012 and 2011, we experienced net losses of $1.4 million and $2.3 million, respectively.
In Southern California, we owned or controlled 473 lots as of September 30, 2013, and our unconsolidated joint ventures owned or controlled 567 lots. In addition, we controlled six fee building projects that contain a total of 544 homes remaining to be built in Irvine and Dana Point (Orange County) and Carlsbad (San Diego County).
In the San Francisco Bay area, we owned and controlled 162 lots as of September 30, 2013, and our unconsolidated joint ventures owned or controlled 728 lots. The lots owned by unconsolidated joint ventures consist of 85 lots in Larkspur (Marin County) and 239 lots in San Jose (Santa Clara County) intended for homebuilding activity. The lots controlled by unconsolidated joint ventures consist of 404 lots in Foster City (San Mateo County). Of these, approximately 200 lots are intended for homebuilding activity.
In metro Sacramento, we owned or controlled 191 lots located in established market areas in El Dorado, Placer and Sacramento counties and our unconsolidated joint ventures owned or controlled 1,745 lots as of September 30, 2013. One joint venture owned 870 lots in Sacramento County (Russell Ranch). We expect to acquire and develop 547 lots in Davis (Yolo county) and 328 lots in McKinley Village (Sacramento County) through unconsolidated joint ventures. We expect to create a masterplan containing 12 communities in the Russell Ranch community, under which we may acquire lots and build homes for our own account in addition to selling lots to other homebuilders. We are in the process of creating a masterplan containing eight communities in Davis, under which we may acquire lots from the unconsolidated joint venture and build homes for our own account in addition to selling lots to other homebuilders. We anticipate that the McKinley Village community will contain 328 homes in four product types. In addition, we controlled one fee building project that contains a total of 343 homes remaining to be built in Davis (Yolo County).
Make no mistake, management at The New Home Company gets the fact that optionality is a precious, fleeting phenomenon. Its business performance, its holdings, its backlog of booked sales, even its deep relationships with land sources and other partners are contingent on its future ability to iterate doing what it does best: buying tracts in hard-to-permit, highly desirable locations, and building rarefied above-average-selling-price homes and communities on those lots.
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