Taylor Morrison IPO to Triple Value of Oaktree, TPG Stake

TPG Capital and Oaktree Capital Management LP (OAK) stand to triple the value of their stake in Taylor Morrison Home Corp. by taking the builder public just two years after leading a buyout of the company.

Taylor Morrison, a Scottsdale, Arizona-based builder of homes in five states and Canada, filed to raise as much as $523.8 million in an initial public offering by selling 23.8 million shares at $20 to $22 each. The pricing may be announced today, with trading starting tomorrow.

The private-equity firms are poised to profit from a strengthening U.S. housing recovery that is fueling demand for new homes. David Bonderman’s TPG and Howard Marks’s Oaktree, along with minority holder JH Investments Inc., will see the value of their $770.3 million investment in Taylor Morrison increase to $2.33 billion, based on the $21-a-share midpoint range of the IPO.

“It’s been a good deal, and I think it’s going to be a better deal,” Jack Micenko, an analyst with Susquehanna International Group LLP in New York, said in a telephone interview. “There’s a lot of good stuff in the pipeline for this company.”

Demand for new houses has come back after the worst housing crash since the Great Depression as buyers seek to take advantage of low mortgage rates while facing a diminished supply of existing properties on the market. U.S. new homes sold at an annual pace of 411,000 in February, up 12 percent from a year earlier. Housing-construction permits jumped that month to the highest since June 2008, according to the Commerce Department.

Photographer: Sam Hodgson/Bloomberg

Demand for new houses has come back after the worst housing crash since the Great Depression as buyers seek to take advantage of low mortgage rates while facing a diminished supply of existing properties on the market. Close

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Photographer: Sam Hodgson/Bloomberg

Demand for new houses has come back after the worst housing crash since the Great Depression as buyers seek to take advantage of low mortgage rates while facing a diminished supply of existing properties on the market.

Sixth Largest

Taylor Morrison will have the sixth-largest market value among public homebuilders after its IPO, according to Micenko. The company is selling all of the stock in the offering and will use $275 million of the proceeds along with $7 million of cash on hand to buy shares back from existing investors, filings show. As a result, Fort Worth, Texas-based TPG and Los Angeles- based Oaktree will each own 39 percent of the company post-IPO.

A TPG spokeswoman, Lisa Baker with Owen Blicksilver PR Inc., and an Oaktree spokeswoman, Alyssa Linn with Sard Verbinnen & Co., declined to comment on the share sale.

Taylor Morrison had net income of $430.8 million and sales of $1.44 billion last year, ranking it among the 10 largest publicly traded homebuilders by revenue, according to its prospectus. It sold 4,014 homes in the U.S. and Canada with an average price of $364,000. Orders increased about 46 percent, to 1,697 homes, in the first quarter from a year earlier, the company said in a regulatory filing yesterday.

Strong Markets

Orders are likely to grow 32 percent this year because Taylor Morrison operates “in some of the stronger housing markets in the U.S. including Arizona, Florida, California and Texas,” Megan McGrath, an analyst with MKM Partners in Stamford, Connecticut, wrote in an April 4 note. “Taylor Morrison (TMHC)’s gross margins were roughly 21.7 percent in 2012, which we estimate puts it in the top three of large, publicly traded homebuilders.”

Margins may remain strong because Taylor Morrison “wrote down the entire inventory of land to 52 percent of original cost pre-IPO,” Micenko said in an April 2 note to investors.

Taylor Morrison has a 7.7-year supply of land at the current sales pace, according to McGrath, who estimates earnings of $1.58 a share this year, excluding one-time charges. Profit may be held back by a weakening housing market in Canada, where Taylor Morrison sold about 22 percent of its homes last year, she wrote. The Canadian division’s orders fell 38 percent in the first quarter, while orders in the U.S. increased 68 percent.

“The Canadian housing market is in decline, which represents a headwind to both unit sales and margins, as the Canadian business is a higher-margin business for the company,” McGrath said in the note.

Second IPO

Taylor Morrison is the second U.S. homebuilder to go public after an eight-year pause for the industry. Tri Pointe Homes Inc. (TPH), an Irvine, California-based builder that’s 38 percent owned by Barry Sternlicht’s Starwood Capital Group LLC, raised $267.6 million in January, the sector’s first IPO since 2004. Tri Pointe gained 15 percent through yesterday.

UCP LLC, a homebuilder and land developer based in San Jose, California, filed a registration statement on April 4 for an IPO to raise as much as $125 million. UCP, which was acquired by PICO Holdings Inc. in 2008, hasn’t announced an offering date or share-price range.

U.S. homebuilders surged to the highest since July 2007 on March 20, and have since dropped 6.4 percent through yesterday. The Standard & Poor’s Supercomposite Homebuilding Index has risen more than 90 percent since March 31, 2011, when TPG and Oaktree agreed to buy Taylor Morrison from U.K. parent Taylor Wimpey Plc. (TW/)

‘Perfect Time’

“Private-equity investors in real estate tend to look at multiples of equity,” Steve Duffy, managing director of Moss Adams Capital LLC, an investment bank based in Irvine, California, said in a telephone interview. “These guys got in at the perfect time.”

The Taylor Morrison takeover was valued at $1.2 billion, including a $620.3 million equity investment from TPG and Oaktree along with JH Investments, which will own less than 1 percent after the IPO. The remainder of the purchase was financed with debt. TPG and Oaktree subsequently invested $150 million more, filings show.

Taylor Morrison expects to issue $500 million in debt after the IPO for working capital and general purposes. Credit Suisse Group AG (CSGN) and Citigroup Inc. (C) are leading the offering.

To contact the reporters on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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