LGI Homes ($LGIH) is one of the nation’s fastest growing homebuilders engaged in the design and construction of entry-level homes in high growth markets in Texas, Arizona, Florida and Georgia.
12 other IPOs scheduled for this week. The full IPO calendar can be found at IPOpremium.
LGIH scheduled a $126 million IPO on the NASDAQ Global Select Market, with a market capitalization of $274 million at a price range midpoint of $14 for Thursday, November 7, 2013.
The S-1 with price ranges was filed Oct. 28, 2013. The Manager, Joint managers are Deutsche Bank, JMP Securities, J.P. Morgan. The Co-Managers are Barclays, BofA Merrill Lynch, Builder Advisor Group, LLC
Overview
Among its public homebuilder peers, LGIH had one of the highest revenue and closings growth rates between 2010 and 2012.
Post IPO LHIH will own or control 11,000 lots, representing more than seven years of land supply based on its home closings for the first six months of 2013 on a pro forma basis.
Valuation
The four homebuilding stocks that have IPO’d this year
- TRI Pointe Homes (TPH)
- William Lyon Homes (WLH)
- Taylor Morrison Home (TMHC)
- WCI communities (WCIC)
were all down for the five days ended November 1, 2013. See chart here
|
Valuation Ratios |
Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
|
annualizing June 30 6 mos |
Cap (mm) |
Sls |
Erngs |
BkVlue |
TanBV |
in IPO |
|
LGI Homes (LGIH) |
$272 |
1.4 |
18.4 |
1.6 |
1.7 |
46% |
Conclusion
LGIH has targeted lower priced home than many of its competitors, is solidly profitable, is entering multiple new communities and has control or ownership of 11,000 lots post IPO.
The rating on LGIH is a buy on the IPO.
Business
LGIH is one of the nation’s fastest growing homebuilders engaged in the design and construction of entry-level homes in high growth markets in Texas, Arizona, Florida and Georgia.
Its business model is based on building and selling high quality, entry-level homes in attractive locations that include well-designed floor plans with features that appeal to renters.
Since beginning operations in 2003, LGIH has constructed and sold over 4,000 homes, has been profitable every year despite the housing downturn, and has never taken an inventory impairment.
According to Builder magazine, LGIH was the only homebuilder among the 200 largest U.S. homebuilders to report closings and revenue growth from 2006 to 2008 when the housing market experienced a significant decline.
Among its public homebuilder peers, LGIH had one of the highest revenue and closings growth rates between 2010 and 2012.
Market
Total new home starts have averaged 1.5 million per year from 1968 to 2012 and declined to reach historic lows for starts in 2009 at 554,000.
Since then, starts recovered to reach 783,000 in 2012, and a seasonally adjusted rate of 836,000 in June 2013.
According to S&P, housing starts will grow by 24% in 2013 to reach 970,000, by 29% in 2014 to reach 1.25 million and by 25% in 2015 to reach 1.56 million.
Recent Developments
LGIH revenues for the three months ended September 30, 2013, are expected to be between $36.5 million and $37.5 million.
• On a pro forma basis, LGIH expects revenues for the three months ended September 30, 2013 to be between $67.0 million and $69.0 million.
• LGIH closed 240 homes in 14 active communities during the three months ended September 30, 2013, a decrease of 6 homes, or 2.4%, from 246 home closings in the three months ended June 30, 2013. Home closings in the third quarter of 2013 included closings for the first time in 4 new communities.
• On a pro forma basis, LGIH closed 448 homes in 22 active communities during the three months ended September 30, 2013, an increase of 37 homes, or 9.0%, from 411 home closings in the three months ended June 30, 2013. Home closings on a pro forma basis in the third quarter of 2013 included closings for the first time in 4 new communities.
In August 2013, LGIH entered the Tucson market where they currently own 24 lots and expect to own 271 lots by December 31, 2013. The company began construction on the first homes in Tucson in September 2013 and expects to close the first home sale in Tucson during the first quarter of 2014.
In addition, in September 2013, LGIH entered into a letter of intent to purchase 87 lots in Albuquerque and expect to acquire those lots and begin construction on the first homes in Albuquerque during the fourth quarter of 2013. LGIH expects to close the first home sale in Albuquerque during the second quarter of 2014.
Land supply
LGIH has a proven and highly effective operating model and expect to own or control more than 11,000 lots immediately following this offering, representing more than seven years of land supply based on its home closings for the first six months of 2013 on a pro forma basis.
LGIH believes it is well-positioned to continue its profitable growth within existing and new markets and capitalize on the U.S. housing recovery.
Backlog
At June 30, 2013, LGIH had a backlog of 93 homes valued at $14.3 million as compared to a backlog of 65 homes valued at $9.3 million at June 30, 2012. This increase in backlog was largely due to the increase in the average backlog value per home from $142,309 in the six months ended June 30, 2012 to $153,447 in the six months ended June 30, 2013, as well as an increase in active communities from five to ten.
Market
The U.S. housing market continues to improve from the cyclical low points reached during the 2008-2009 national recession. Between the 2005 market peak and 2011, new single-family housing sales declined 76%, according to data compiled by the U.S. Census Bureau (the “Census Bureau”), and median home prices declined 34%, as measured by the CoreLogic Case-Shiller Index.
In 2011, some U.S. markets showed early indications of recovery as a result of an improving macroeconomic backdrop and strong housing affordability. In the twelve months ended June 30, 2013, homebuilding permits increased 16% according to the Census Bureau and the median single-family home price increased 14% year-over-year, according to data compiled by the National Association of Realtors.
According to the Census Bureau, growth in new home sales outpaced growth in existing home sales over the same period, increasing 38% as compared to 15% for existing homes. LGIH’s target markets include Houston, Dallas/Fort Worth, San Antonio, Austin, Phoenix, Tampa, Orlando and Atlanta.
Seasonality
LGIH has historically experienced, and in the future expect to continue to experience, variability in its results on a quarterly basis. LGIH closes more homes in its second, third and fourth quarters. Thus, its revenue may fluctuate on a quarterly basis and LGIH may have higher capital requirements in its second, third and fourth quarters.
Competition
In each of its markets, LGIH faces competition from certain of its public homebuilder peers and from private homebuilders. In Phoenix, San Antonio/Austin and Atlanta, at least three of its top five competitors are certain of LGHI’s public homebuilder peers.
In Houston, Dallas/Fort Worth and Central Florida, three of its top five competitors are private homebuilders and the other two are public companies.
Post-IPO 5% stockholders
Eric Lipar 16.6% (after this offering)
Thomas Lipar 13.9% (after this offering)
Organization chart
Use of proceeds
LGIH expects to net $114.2 from its IPO.
LGIH expects to use $37 million to make a payment to GTIS as the cash portion of the purchase price to acquire all of the joint venture interests of GTIS in the LGI/GTIS Joint Ventures which the company does not own.
LGIH expects to use the remainder of the net proceeds for working capital and for general corporate purposes, including the acquisition of land, development of lots and construction of homes.
