«Allen Hutto, Vice President of Governmental Affairs, Great Southern Homes»
Good afternoon everyone. I’m Allen Hutto with Great Southern Homes, also referred to as GSH. And I’d like to welcome you to today’s Investor Call. In connection with the business combination with DiamondHead Holdings, the combined company will change its name to United Homes Group, also referred to you as UHG. We’ll be going through a slide deck that’s on our website. And if you would like to pull that up and refer to it, you can go to unitedhomesgroup.com to access the presentation.
We’re very excited about what we think is the promising future at UHG and we’ve got some of our executive team and our board members here to tell you a little bit more about that. Joining us today is going to be Michael Nieri, who is the Founder, CEO, President and Chairman of the board at GSH, and will have the same roles at UHG. We have David Hamamoto, who is the Chairman and Co-CEO of DiamondHead Holdings, our SPAC partner, and will also be a UHG board member. We have Tom O’Grady, at GSH and Future UHG board member and future UHG Chief Administrative Officer; Shelton Twine, GSH and future UHG Chief Operating Officer; and Keith Feldman, Chief Financial Officer of DiamondHead Holdings, who will continue as the UHG CFO post-closing of the transaction.
The information discussed today is qualified in its entirety by the Form 8-K including the exhibits hereto that was filed by DiamondHead on September 12th and September 29, 2022. And that may be accessed on the SEC’s website at sec.gov. Please note that the press releases issued by DiamondHead and Great Southern Homes on September 12th and September 29, 2022, can also be found on the United Homes Group website at unitedhomesgroup.com. The investor presentation that will be presented as part of today’s discussion is publicly available as an exhibit to the Form 8-K filed on September 12th and posted on the diamondheadholdings.com website. Please carefully review the disclaimers included therein and refer to that as the guide for today’s call. In particular, I would like to remind you this call contains forward-looking statements, including among others DiamondHead and Great Southern Homes expectations of future financial and business performance and conditions, the outlook of the home building industry, the satisfaction of closing conditions to the proposed transaction and the expected timing and completion of the proposed transaction.
Forward-looking statements are inherently subject to risks, uncertainties, and assumptions, some of which are beyond the control of the parties, and they are not guarantees of performance. DiamondHead and Great Southern Homes are under no obligation and expressly disclaim an obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by the applicable securities laws. You’re encouraged to read the Form 8-Ks and the accompanying press releases and investor presentation, as well as DiamondHead’s other filings with the SEC for discussion of the risks that can affect the proposed business combination and the businesses of DiamondHead and Great Southern Homes before and after the completion of the proposed transaction.
This call is for information purposes only and shall not constitute an offer to sell or solicitation of proxies to approve or the solicitation of an offer to buy any securities pursuant to the proposed transaction or otherwise, nor shall there be any sale of securities in any jurisdiction in which the offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws in such jurisdiction. No offer of the securities shall be made except by means of proxy statement or prospectus meeting the requirements of Section 10 of the Securities Act.
So with the introductions and the formalities out the way, I’m going to turn things over to David Hamamoto. Mr. Hamamoto, over to you.
«David Hamamoto, Chairman and Co-Chief Executive Officer, DiamondHead Holdings»
Thanks, Allen, and good afternoon everyone. Welcome to our call to discuss the merger of DiamondHead Holdings with Great Southern Homes, which will be renamed United Homes Group. We’re excited to be merging with Great Southern Homes, one of the top private home builders in the Southeast that has a 20 year history and a proven track record of building and selling homes at industry-leading margins. As you know, the Southeast is an area of the country benefiting from extremely strong demographic trends. In addition, the business generates significant cash flow and has only a modest level of debt. The combined company will use a land-light operating model, which compared to the traditional home builder operating model has a lower risk profile and generate significantly higher returns on capital. And as you know, these positive attributes result in land-light builders being valued in the public markets at higher multiples than traditional land-heavy builders.
The company focuses on the attractive entry level and first move up segment of the market and will benefit from the attractive long-term industry tailwinds, namely the National Association of REALTORS estimate of an approximately 600 million home supply shortage in the United States, but I’m most excited about the team that will operate and grow the business both organically and through accretive M&A. Michael Nieri is the Founder and the CEO of Great Southern Homes and has a goal and vision to leverage his 160 person plus team’s expertise in South Carolina to other contiguous southeastern states both organically and through M&A. I’m excited to be partnering with Michael to lead and grow United Homes. With over 40 years of experience as a real estate investor and a former public company CEO and Chairman, I believe my complementary skills will enable us to capitalize on some of the near term headwinds in the market and opportunistically grow the business. Michael and I are both committed to this business for the long-term, and I’m excited for you to hear from him now. Michael?
«Michael Nieri, Chairman, President & Chief Executive Officer, United Homes Group, Inc.»
Thank you, David. Good afternoon to everybody and thank you for joining our call. I’m Michael Nieri, Founder, Chairman and CEO of Great Southern Homes. Now let’s move to Slide 7 and give you a little bit of background on me. I’m a 1986 graduate of Clemson University and graduated in the building science program. I spent the first 10 years of my career in various construction management roles before setting out to start my own company. I built a few higher end homes prior to 1996, but quickly found my niche in building more affordable production style homes. Over the past 20 years, I’ve focused on being the low cost producer in our markets, value engineering our product to meet demand and affordability requirements of our customer base. We’ve been recognized for our organic growth over the past 20 years. And in 2022, we became the largest private builder in the State of South Carolina based on the number of closings through the first half of the year. But I don’t live in the past, I live in the future. My goal with this transaction in United Homes is to become one of the top public home builders over time. I call myself the Chief Growth Officer and that’s what my job will be over the next decade or more.
Looking now at the next Slide 8, this is our roadmap for future growth. We expect to build off of our organic growth with the acquisition of smaller builders in our existing and targeted markets. We are currently in discussions with a number of private builders that build anywhere between 200 and 800 homes per year. While there can be no assurances that these acquisitions will come to fruition, in our view, we are the buyer of choice for this group. As a builder, I speak their language, I understand their challenges and United Home Building Group wants and needs their people, which is a big difference from the larger public builders. We’re offering these owners a chance to stay involved and meaningfully contribute to the combined company’s future success as a public company. So this will be an exciting journey over the next few years.
Back to you, David.
«David Hamamoto, Chairman and Co-Chief Executive Officer, DiamondHead Partners»
Okay. On Slides 9 and 10, I’ll talk a little bit more about the land and light model. As I said it provides us with a more attractive operating model, which should enable us to outperform traditional home builders because of our lower risk and higher ROEs. Rather than owning land on our balance sheet, we control our land supply through options and currently have options on over 11,000 lots at attractive prices with a number of land banking counterparties.
And rather than having to take capital intensive and long duration land development risk, we will take down finish lots, enabling us to decrease the development time and increase our return on invested capital.
And as you can see on Page 10, other than NVR, we own less lots as a percentage of total lots controlled than other public home builders. The land and light model provides us with optionality. We don’t have to take down option land unless it’s going to be profitable to build at that basis. And as a result of this, unlike traditional builders land and light home builders have maintained positive growth operating margins throughout the various economic cycles.
«Michael Nieri, Chairman, President & Chief Executive Officer, United Homes Group, Inc.»
So I’ll take it from here David. Looking at Slide 11 in this map of the southeast, we’re targeting our expansion in 10 of the 15 fastest growing cities in the country. Currently, we are active in the Carolinas in Georgia, and we think both the I-85 and the I-40 corridors from Virginia to Alabama, and from North Carolina through Tennessee are poised for decades of future growth with significant in migration. Over the next 10 years we think you are going to see a tremendous growth within a 50 miles either side of those interstate corridors.
On Slide 12, I wanted to take a quick minute to highlight our management team. Shelton Twine, our COO has been with us for over 20 years, having had various positions in the organization. Keith Feldman has been with David for over 15 years and has been a public company CFO at one of the NorthStar REITs. Tom O’Grady is a very accomplished corporate attorney. He is our Chief Administrative Officer and board member. He has been very instrumental in preparing us to be a public company. Also, I want to highlight Dan Goldstein, the EVP of Finance. He bolsters our financial team and has had experience with both public home building and public reach.
Next on Slide 13, we show the first six month comparisons over the past couple of years highlighting again, healthy and consistent growth over time. And you can see that we have generated a 30% compounded annual growth rate based on the total value of closings over this time period. David?
«David Hamamoto, Chairman and Co-Chief Executive Officer, DiamondHead Partners»
Thanks Michael. I would like to talk briefly about the macro environment. We believe the macro trends in the housing market overall and particularly the demographics in the southeast are very positive for our business. I mentioned the 2021 study by the National Association of REALTORS, which suggests the six million housing unit shortage in the U.S. The current annual production rate of just under one million units a year is insufficient to satisfy that pent-up demand for many years. So we should be a beneficiary of this macro supply demand imbalance.
In addition, high rental rates and the work-from-home trend will continue to be positive for home builders. The population growth and job growth in the Southeast is projected to continue due to migration from more expensive Northeast and Midwest markets.
We believe the single-family, build-to-rent market is an area that will help us scale and we talk about that on Slide 19. There has been a considerable amount of capital committed, an estimated $50 billion specifically for buying homes for the rental segment of the market, demonstrating its institutionalization over the last 10 years. This should enable us to create programmatic ventures where we build housing communities specifically for a single family rental owner operator who commits upfront to buying entire communities as homes are completed.
Our COO, Shelton Twine, will now go over the company’s operational overview. Shelton?
«Shelton Twine, Chief Operating Officer, Great Southern Home»
Thank you, David. If you are following along, we’re on Page 21. And on this slide we’re going to take a look at UHG’s core product, and how it’s focused on affordability and aligns with consumer demand.
Looking at this chart, you’ll see entry-level and first move-up buyers make up nearly 80% of our total closings in 2021. Buyers of entry-level homes are driven more by life-changing events than select macro factors like rising interest rates.
Moving to Slide 23, I’d like to point out two main takeaways on this slide. First on the chart to the left, you will see how it illustrates the fact that UHG will tie up far less capital per home closing. This is key because as you see on the chart below, land lite companies did not lose money and remained profitable throughout the last downward cycle.
Taking a look at build-to-rent, UHG is well positioned to capitalize on significant BTR opportunities. We’ve recently contracted to sell a 41 unit BTR deal in Columbia, South Carolina, we are currently marketing another opportunity in the upstate of South Carolina and we are working on a third possible new deal in the Asheville, North Carolina market. This is just the beginning of what could be a huge source of annual sales.
Moving to Slide 25, this is a case study of Walnut Creek. This is a great example of our core product located in the Midlands of South Carolina. Walnut Creek began construction in 2019. The community consisting of 137 lots, has closed 132 homes to-date, averaging 3.6 home closings per month and an average sales price of $273,000 based on actual closing since inception.
Typical Homes in this community range from 1,748 square feet to just over 3,000 square feet. Another great example is Harvest Glen. Harvest Glen is located in the Upstate of South Carolina. It consists of 160 lots, of which we have closed 89 homes to-date, averaging 4.9 home closings per month. Average sales price a year right at $280,000 based on actual closing since inception. Typical Homes and Harvest Glen range from 1,296 square feet to just over 3,000 square feet.
«Michael Nieri, Chairman, President & Chief Executive Officer, United Homes Group, Inc.»
I’ll take Slide 27. I want to take a minute to highlight the people who will serve on our Board of Directors. We think it’s a group of people ideally positioned to guide our growth in the coming years. I already touched on Tom O’Grady. Next up is Dr. Jim Clements, President at Clemson University and former President of West Virginia University.
Dr. Clements has done a great job moving Clemson forward over the last 10 years. He is very well connected in the Southeast and he’s done a great job administratively with Clemson. Nikki Haley, next needs no introduction. The former Ambassador and Governor of South Carolina. She’s pro business and pro South Carolina but also a great asset around regulation and strong proponent of United Homes.
Nextly, Alan Levine is a former President at Enterprise Rent-A-Car. He ran the biggest division in South Florida and became the first non-family member to become president in Enterprise.
Also next, Jason Enoch is a retired Deloitte partner and will chair our audit committee. Finally, Eric Bland is a well known and accomplished lawyer here in South Carolina and we’re glad to have him on our team. And then of course, you guys know David and Michael Bayles with DiamondHead.
Next, Slide 29. Highlights again are four leaders of growth, organic growth supplemented by M&A, BTR relationships and our new mortgage JV. As mentioned earlier, we are having a number of conversations on the M&A front also. Again, small builders too young to retire but would greatly benefit from a larger balance sheet to grow their business. Therefore, they see the benefits of being part of a larger organization. They want to stay involved, they want to contribute and participate in future growth and they’re good development partners. A number of these can lead development efforts in their respective geographic areas, which works well for us.
Slide 32 shows the illustrative opportunities of what modest market share gains can look like in our target markets. We’ve got over a 6.5 market share in South Carolina today and just showing a 1% market share in others and what it does to create meaningful opportunities. David?
«David Hamamoto, Chairman and Co-Chief Executive Officer, DiamondHead Holdings»
Let me briefly talk about the growth prospects for the company. We’re extremely excited by the many different drivers that can generate earnings growth. Through the 11,000 lot options on our expanded land inventory, we can continue to grow organically. This is a result of both having more communities under development as well as the communities getting larger. So this should continue to drive the organic growth, but I also mentioned expanding the build to rent segment of our business with one or more institutional programmatic partners.
As Michael mentioned, we’ve also recently entered into the high margin consumer services business initially with our captive mortgage origination joint venture and we expect to eventually expand into insurance title and other service sectors. But I think most exciting for me are the potential M&A opportunities and the opportunity to buy smaller private home builders in other southeastern markets.
As Slide 30 shows, we think that we can buy private builders at EBITDA multiples that are meaningful discounts to where the public land light home builders trade, which offers very accretive growth opportunities for us and where our expertise, scale and systems can enhance the acquired company.
And we can also benefit from operating synergies. And as you would expect with some of the recent headwinds in the market, the number of interested sellers is increasing and offers us a wide array of expansion options. Of course, we’ll be disciplined about making sure that the acquired company is a good fit, both in terms of their business model, particularly land-light, geography in the Southeast, and most importantly, the chemistry of the team and fitting into UHG’s business principles.
With that, I’ll turn it back over to Shelton to talk more specifically about our recent entry into the consumer services business through our mortgage JV. Shelton.
«Shelton Twine, Chief Operating Officer, Great Southern Home»
Thank you, David. Moving ahead to Slide 35, our mortgage joint venture, Homeowner’s Mortgage launched in June of 2022. Our partner is FBC Mortgage. They are partner of choice for both public and large private home builders when creating an in-house mortgage operation. We are currently set up on a broker model which required minimal capital and minimizes risk. We are already seeing early success with a 65% capture rate and look to generate $3 million in EBITDA in 2023 from the joint venture. Over time, we think we can increase capture rate to industry norms in both on additional revenue opportunities in time.
«David Hamamoto, Chairman and Co-Chief Executive Officer, DiamondHead Holdings»
I’ll refer everyone to Slides 38 and 39 and let you know that our financial forecast does not incorporate any M&A or use of any proceeds from our merger and it’s specifically standalone. The characteristics of the business, very high margins and strong cash flow, are very attractive and aligned with what public market investors currently value.
As I said earlier, the steady growth is due to both a growing number of communities as well as larger communities in our core markets. Our financial metrics are very similar to the two other land light public builders. As you can see on Page 39, the other public land-light builders are NVR and Dream Finders. We believe that the land-light builders are best positioned to manage risk as the sector grows through some near-term headwinds associated with interest rate increases.
Our land-light model also positions us to continue to generate industry leading ROEs and higher growth in the future. We feel that our operating model is right for managing risk on the downside, but also for maintaining cash flow profitability and maintaining an industry-leading multiple. We’re extremely excited to be in front of you today. We appreciate your time. And now we’ll open it up for Q&A.
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DiamondHead Holdings Corp. published this content on 04 October 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 October 2022 10:21:21 UTC.
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