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Thursday, Mar 28, 2024

Ryland Using Home Sales Spike to Secure Its Future

Corporate FOCUS Ryland Using Home Sales Spike to Secure Its Future By JACQUELINE FOX Staff Reporter There’s no question, for the homebuilding sector in 2002, the livin’ has been easy. Record low interest rates, which have fueled a spike in first-time homebuyers, kept the housing market pumping even as a weakened economy and questions about corporate governance kept other industries distracted. Calabasas-based homebuilder and mortgage lender The Ryland Group Inc. is among the industry’s top performers. Ryland reported net income of $45 million on revenues of $675 million for the quarter ending June 30 the highest second-quarter results in the company’s 35-year history compared to net income of $34 million on revenues of $689 million for the same quarter in 2001. Revenues from Ryland’s homebuilding business actually fell slightly in the quarter from $674 million in 2001 to $658 million this year. Chairman, President and CEO R. Chad Dreier said the dip was due to a 2.4-percent decline in average new home sale prices for Ryland properties, from $209,000 for the same quarter in 2001 down to $204,000. He attributed the change to an increased percentage of home closings in the Southern markets, where prices are lower, during the second quarter vs. the same quarter in 2001. Nevertheless, closings were up 1.5 percent over the same quarter in 2001 and backlog orders (for homes yet to be built) increased 1.7 percent to 3,943. Carl Reichardt, an analyst who covers Ryland for Banc of America Securities in San Francisco, said new single-family home sales have actually remained flat over the last few years. But, he added, Ryland has remained in a growth mode nevertheless because it targets homebuyers in the low to mid-level income brackets and because of its policy of not acquiring other homebuilding companies. One of its top competitors, Los Angeles-based KB Home reported a drop in new orders of 6.8 percent to 2,345 for its second quarter ending May 31. Its other big competitor, Dallas-based Centex Corp., reported a 20-percent increase in orders for its first quarter ending June 30 at 6,771. But, unlike Ryland, Centex owns several smaller home building companies and plans to continue to buy up other entities in order to expand its market share, particularly in the Southern states. “While their competitors have operated in acquisition mode (taking over smaller homebuilding companies outside their markets), Ryland’s expansion has been more organic,” Reichardt said. “They stick to their own back yards and build from there.” “I think acquisitions are very disruptive to a company,” he said. “If I buy a company in Dallas, for example, then all these questions come up (with your staff) about who’s going to go and who isn’t. They create a lot of chaos.” Truth be told, there is another reason for Ryland’s cautious approach to acquisitions: land. Ryland has access to plenty of it, roughly three and a half years supply of land lots in the pipeline. The company oversees home construction in roughly 270 communities in 14 states and Washington, D.C. “We have a pretty good company already, so all I would really want is their land, but I don’t need to pay a premium for their company just to get the land,” Dreier said. But what happens when Ryland runs out of land? “I went into home building in 1977, and they told us that the biggest problem then was land shortage,” said Dreier. “Yes, in the (San Fernando) Valley, it’s a problem. But when you go to a city such as Dallas, you can go forever and not see a house. So on a macro basis it’s not that big of a problem. And, what I’ve always said is, for every city that doesn’t want to grow, there’s two cities someplace else that do.” Another key to Ryland’s success, said Reichardt, is the fact that Ryland’s in-house mortgage lending service, Ryland Mortgage Co., offers a broad enough range of lending packages to appeal to a wide number of income levels. Revenues for the second quarter from financial services alone were $17 million, up from $14.2 million for the same quarter in 2001. One more thing Ryland has done to set itself apart, said Reichardt, is establish a history of investing in itself. In August, the company bought back 1 million shares. To date, it has repurchased 1.6 million, leaving 1.7 million shares outstanding. “We think our stock is under-priced as it is,” said Dreier. “We think it’s a good value for our money.” The company’s stock has risen from as low as $16 a share in January 2000 to $38.25 Friday on Sept. 27.

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