Home building's capital gold rush, kicked into high gear on January 31, as TRI Pointe homes raised $233 million in its Initial Public Offering, continues as Weyerhaeuser puts its five-gem home building operation--Weyerhaeuser Real Estate Company--up for exploration of strategic options.
The five companies--Maracay in Arizona, Pardee in California and Nevada, Quadrant in Seattle, Trendmaker in Houston, and Winchester Homes in the D.C. market--together and individually are standout competitors on quality, operational efficiencies, construction site safety, and profit margins. The portfolio, for which Weyerhaeuser does not reveal financial details, amasses to the BUILDER 100's 18th largest home builder, with 2012 reported closings at 2,314 at a 2012 revenue of $1.07 billion.
The biggest question: who will buy? In today's yield-famished investment milieu, viable possibilities include both financial and strategic players and options.
The caveat, of course, is that if the market demand for lot assets suddenly runs short on its vim and vigor, Weyerhaeuser could pull the portfolio back off the block, ... which it has done before.
Here's the official statement from Weyerhaeuser:
"The board of directors and management team are committed to further enhancing value for all Weyerhaeuser shareholders," said Dan Fulton, Weyerhaeuser president and chief executive officer. "WRECO is one of the 20 largest homebuilders in the country, with industry-leading margins. Given the improving fundamentals of the housing market, we believe now is a prudent time to explore strategic alternatives for this business. This process will help ensure that WRECO achieves its full potential while we continue to build on Weyerhaeuser's track record of shareholder value creation."
Among the "strategic" players with balance sheet big enough to go for the WRECO pop, the list is pretty short: PulteGroup, D.R. Horton, Lennar Homes, and Toll Brothers are very likely the only companies who could and might digest the WRECO group.
And why not? Each of the WRECO builders positions its product line in the move-up and second-time move up sweet spot that is moving the fastest right now, due mostly to credit and financing access among home buyers. The group would be an immediate incremental revenue boost opportunity, plus would give each of the companies above the chance to further streamline divisional overheads, and, most importantly, would expand a builder's lot pipeline in markets that are making hay right now.
Among financial player options, it's highly possible that a spin-off company could emerge, similar in structure and process to the Taylor Morrison play last year and this year. Since, as Dan Fulton says above, home building fundamentals have convinced Wall Street investors that the time has come for recovery in housing, those investors are clamoring for yield opportunities, and, thus far, have mobbed into every opening for investment.