News Column

IPO Report: The New Home Company (NWHM)

January 30, 2014

Francis Gaskins

The New Home Company ($NWHM) is a homebuilder that builds for its own account and is also a contract/joint venture builder for other developers. Six other companies were scheduled to IPO this week. The full IPO calendar is available at IPOpremium.com NWHM scheduled a $125 million IPO with a market capitalization of $265 million at a price range midpoint of $16 for Friday, January 31, 2014 , on the NYSE . Manager, Joint managers: Citi , J.P. Morgan , Credit Suisse . Co-Managers: Zelman Partners LLC . SEC Documents Overview During the nine months ended September 30, 2013 , NWHM added four new fee building contracts for the construction of 801 homes in Southern California . Valuation Glossary Valuation Ratios Mrkt Price / Price / Price / Price / % offered annualizing Sept 9 mos '13 Cap (mm) Sls Erngs BkVlue TanBV in IPO Name & ticker $264 13.6 253.8 1.5 1.5 47% Conclusion NWHM's historial numbers are not particularly impressive . However, NWHM recently receivedbuilding contracts for the construction of 801 homes in Southern California and needs money to finance those contracts. The amount offered in the IPO is 47%, usually a sign of weakness. However, the price-to-book value ratio of 1.5 is attractive given the fee building contract for 801 homes. However, the rating on NWHM is neutral to avoid on the IPO because of lower home sales. Business NWHM is a homebuilder focused on the design, construction and sale of innovative and consumer-driven homes in major metropolitan areas within select growth markets in California , including coastal Southern California , the San Francisco Bay area and metro Sacramento . NWHM builds for its own account and is also a contract/joint venture builder for other developers. History NWHM was founded in August 2009 , towards the end of an unprecedented downturn in the U.S. homebuilding industry, with a combined initial capital commitment of $10 million by its founders, who are also its four most senior executives. Contract builder NWHM's business initially focused on fee building projects in Southern California , in which it built, marketed and sold homes for independent third-party land owners in prestigious master planned communities. Fee-building represented a capital-efficient method of establishing operations and strengthening relationships with key land owners and developers. Developer Commencing with the $20 million capital commitment by Institutional Housing Partners , or IHP, and Watt Residential LLC , or Watt, in August 2010 , and the subsequent $10 million capital commitment by Tricon Capital , or Tricon , in January 2011 , NWHM began to rapidly deploy capital to acquire land and build homes for its own account on larger infill sites within established communities, where it could leverage the experience of its management team in land planning and development. Joint Ventures In an effort to sustain a steep growth trajectory while retaining ownership control and generating attractive risk-adjusted returns for all stakeholders, NWHM has employed a joint venture strategy, in which it contributes a minority share of the capital and receive distributions in excess of its percentage capital interest plus management fees from the joint ventures. Its joint venture strategy has been instrumental in allowing NWHM to leverage its entity-level capital and establish a homebuilding platform focused on high-growth, land-constrained markets, such as Orange and Los Angeles counties in Southern California and San Mateo , Santa Clara , Marin and Yolo counties in Northern California . Outlook During the year ended December 31, 2012 and continuing through the nine months ended September 30, 2013 , the overall housing market continued to show signs of improvement largely driven by increasing consumer confidence levels related to the homebuilding industry, continued favorable housing affordability based on historical metrics, decreasing home inventory levels in many markets, and more positive consumer sentiment for the overall economy. Individual markets continue to experience varying results as local economic and employment situations strongly influence the local market demand and home buying abilities. However, NWHM's markets have shown positive indicators of a sustainable recovery. The company improved on several key operating metrics during the year and nine months ended December 31, 2012 and September 30, 2013 , respectively, as compared to the year and nine months ended December 31, 2011 and September 30, 2012 , respectively, including increased net new home orders, home deliveries, fee building revenue, homebuilding gross margin, backlog units, backlog value and equity in net income from unconsolidated joint ventures. Results of Operations Lots During the nine months ended September 30, 2013 and the year ended December 31, 2012 , NWHM acquired 20 and 150 lots, respectively, in California . As of September 30, 2013 , NWHM owned 329 lots and had begun development on 78 of those lots. The company was under contract to acquire 497 lots in existing markets as of September 30, 2013 . Joint venture & fee building lots As of September 30, 2013 , NWHM and its unconsolidated joint ventures owned or controlled, pursuant to purchase and sale agreements, non-binding letters of intent, an aggregate of 826 lots and 3,040 lots, respectively. In addition, NWHM also controlled 887 lots under fee building arrangements. Backlog Backlog units increased 7% from 30 to 32 as of September 30, 2013 as compared to September 30, 2012 . Backlog value also increased $4.5 million , or 29%, to $20.0 million as of September 30, 2013 as compared to September 30, 2012 . NWHM opened one new community and increased net new home orders by 60% during the year ended December 31, 2012 as compared to the year ended December 31, 2011 . Backlog units increased from seven to 26, a 271% increase, and the backlog value increased 109% from $5.1 million to $10.6 million as of December 31, 2012 , as compared to December 31, 2011 . Equity net income NWHM's equity in net income (loss) from unconsolidated joint ventures increased $1,872,850 from a loss of $183,191 to income of $1,689,659 for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 . NWHM experienced its first net new home orders and new home deliveries from an unconsolidated joint venture during the year ended December 31, 2012 , which were 96 and 42, respectively. During the nine months ended September 30, 2013 , net new home orders and new home deliveries from unconsolidated joint ventures were 111 and 74, respectively. In addition, during the nine months ended September 30, 2013 , NWHM added four new fee building contracts for the construction of 801 homes in Southern California . Lot inventory strategy NWHM's primary goal in 2012 was to acquire land or lots in targeted market areas to generate deliveries beginning in 2013 and beyond. NWHM is currently in the process of acquiring and developing lots in California to increase its lot supply and community count. NWHM's communities are strategically located in major metropolitan areas within select California growth markets, including coastal Southern California , the San Francisco Bay area and metro Sacramento . While the primary growth strategy will focus on increasing NWHM's market position in these markets, NWHM is exploring expansion opportunities in Phoenix and the Pacific Northwest and may consider other markets, through organic growth or acquisitions. 5% stockholders H. Lawrence Webb 12.7% Wayne Stelmar 9.6% Joseph Davis 8.9% Thomas Redwitz 7.1% David Berman 20.6% Douglas C. Neff 20.6% Nadine Watt 20.6% Use of proceeds NWHM expects to net $113 million from its IPO. Proceeds are allocated as follows: Primarily for the acquisition of land and for development of lots, home construction and other related purposes. A variety of capital preservation investments, including short-term, interest-bearing investment grade securities, money market accounts, certificates of deposit and direct or guaranteed obligations of the U.S. government.


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Source: Equities.com


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