TRI Pointe Homes LLC (TPH) made its public debut on Thursday, January 31st. Shares of the construction company ended their first day with gains of 11.7% at $19.00 per share. From that point in time, shares kept hovering around the $19 mark, closing at $19.03 on Wednesday.
The Public Offering
TRI Pointe Homes is a newly formed homebuilding company. The company will focus on the design, construction and sale of innovative single-family homes in key metropolitan areas in California. TRI Pointe was founded as recent as April 2009, amidst the downturn in the construction industry.
The company operates in 13 different communities and it has 695 lots under various stages of development, of which 3 are community projects.
TRI Pointe sold 13.7 million shares for $17 a piece. The company raised roughly $170 million in gross proceeds in the offering process, valuing the company at $537 million. The company sold 10 million shares, with selling shareholder Starwood Capital Group offering 3.7 million shares.
The deal is quite a success. The offer price was set some 13.3% above the midpoint of the preliminary $14-$16 price range. Besides boosting the offer price, the company furthermore upped the size of the offering as selling shareholders upped the share sale from 1.7 million to 3.7 million shares.
The major banks that brought the company public were Citigroup, Deutsche Bank, FBR, Moelis & Company and JMP Securities.
TRI Pointe points towards the strength of its management team in its S1 filing, as the team has worked together for more than 20 years. Since inception, the company has sold more than 350 homes in a price range between $300,000 and $1,500,000. A $150 million equity commitment of Starwood Capital allowed the group to acquire construction lots in current and future communities, enabling the company to increase construction activity in the near future.
The company reported annual revenues of $13.5 million for the full year of 2011, on which it reported a net loss of $4.6 million.
For the first nine months of 2012, TRI Pointe generated revenues of $22.3 million, up 140% compared to the similar period a year earlier. Net losses increased from $3.1 million to $3.9 million over the period.
The company operates with $46.4 million in notes payable and $45.2 million in cash and equivalents before the public offering. Including the $170 million in gross proceeds, TRI Pointe will operate with approximately $160 million in net cash.
The company will use the net proceeds to further acquire land, finance developments and boost home construction.
Based on Friday's valuation of $600 million, the market values operating assets at roughly $440 million. This values operating assets at roughly 15 times 2012s expected annual revenues of $30 million.
As noted above, the offering of TRI Pointe has been quite a success. Shares were eventually offered 13% above the midpoint of the preliminary range, and are currently trading 30% above that point.
The valuation of TRI Pointe is obviously entirely dependent on future growth. The near term future looks bright as the company received 129 new orders for the first nine months, while it only delivered 55 homes, for a book-to-bill ratio of 2.34. At the end of the period the backlog has grown to 82 houses which represent a value of $46.1 million.
An evaluation of the prospects, valuation and investment recommendation for TRI Pointe is complicated by the fact that the company had limited operating history and the valuation is largely based on future growth. Given these difficulties I remain on the sidelines for the time being.