JBREC Magazine 2015Q1

Trusted Analysis

for Executive Decisions

WWW.R EA LESTAT ECO N SU LT I N G . CO M

Huge 35% Jump in Average Sales Rate in January

• Average sales rates spiked 23% more than the normal 12% monthly lift, reaching 2.38 home sales per community in January.

• Traffic and sales during the last 2 weeks were much stronger than the first 2 weeks, so the momentum heading into February is even stronger than the data shows.

• Sales rates trended down so significantly during 2014 that this huge monthly increase is only 1% higher than last January and is still below January 2013.

• If community counts grow 11.5% as our survey indicates and sales rates improve, our 10% sales forecast for 2015 is too low. While optimism has shifted dramatically, our builder expectations index is the same as last year, so we are not ready to call for a great spring yet. Many of our builder clients are ecstatic.

Net Sales Per Community over the Last Month (National Average)

Source: John Burns Real Estate Consulting, LLC independent survey of ~13% of all US new home sales, NSA (Data: Jan-15, Pub: Feb-15)

Housing Survey from the Front Lines

Monthly Distribution

Every month we survey more than 200 builders across the nation on new home market conditions. Our survey provides timely and accurate insights on housing market conditions just a few days after the end of every month. Our report is the best monthly monitor of new home market conditions available and includes the following key features: • Graphs and analysis of new home traffic and sales, pricing trends, starts, inventory, cancellations, and starts by region and rolled-up nationally • Timely “questions of the month” ranging from buyer qualifications to labor shortages • Feedback and direct quotes from public and private builders managing approximately 2,000 communities across 80 metros and representing approximately 16% of new home sales annually.

We believe our survey represents market conditions for production volume builders much more accurately than the Census Bureau.

We invite the same 5,000+/- builders each month and have many regular survey participants. The Census Bureau sample differs each month, often includes a mix of smaller, custom builders, and typically has a huge margin for error.

What questions will this report help you answer?

• What are actively selling builders saying about current housing market conditions?

• How are new home sales and traffic faring across the regions and how does that compare to last month or last year?

• How do I quickly learn about new home sales, starts, and pricing trends across the country before data is released by the Census and NAHB? • How can I get a sense of what’s happening in the housing market in real time?

Note: Sales rates are per the original survey responses.

Source: John Burns Real Estate Consulting, LLC independent survey of ~13% of all US new home sales, NSA (Data: Jan-14 through Jan-15, Pub: Feb-15)

Energy-Dependent Housing Markets with Above Average Job Exposure to Mining/Oil/Gas Will be Negatively Impacted by Lower Oil Prices

As market conditions continue to shift, builders’ revenue growth will depend more on where they are geographically positioned.

While sales in the oil-dependent markets have held up thus far, we believe job growth will slow significantly (but remain positive) in the 8 energy-dependent markets most important to housing.

Denver Pittsburgh

1.6x 7.0x

1.5x 5.2x

Bakersfield

Oklahoma City

1.5x Dallas

1.1x

San Antonio

6.5x

This map shows job exposure to mining / oil / gas in large housing markets compared to the US average of 1.0. For example, Houston’s energy sector job exposure is 6.5 times the US average.

2.3x New Orleans

Houston

Sources: Brookings, John Burns Real Estate Consulting, LLC (Data: Sept-14, Pub:Jan-15)

Impact of Energy Exposure on Builders’ Forecasted Market Growth

Sources: John Burns Real Estate Consulting, LLC (Data: Jan-15, Pub: Feb-15)

Home Builder Analysis & Forecast

Monthly Distribution

This report examines each of the publicly traded home builders (mid, small and micro-cap) based on their geographic footprint and includes: • Builder rankings by past market performance, current market conditions, and forecasted market growth • Location comparisons of builders based on the builders’ markets’ fundamentals and submarket desirability • Builder metrics such as active community count changes, orders, and cancellations • Overview of each builder evaluating market strengths, weaknesses, their median price appreciation, employment growth and permits compared to an average of all builders.

What questions will this report help you answer?

• Past: Which builders should be reporting the highest revenue growth if they kept pace with their markets?

• Present: Which builders should be having the best quarter in terms of orders and raising price?

• Future: Which builders are in the best geographies based on our forecasts?

• How do community counts change quarterly by builder and by region?

• Which builders are located in the most desirable submarkets with the best market fundamentals?

Forecasted market growth is a calculation of our forecasted single-family permit growth and Burns Home Value Index™, weighted by the number of current actively selling communities for each builder.

Source: John Burns Real Estate Consulting, LLC (Data: Jan-15, Pub: Feb-15)

Current

Market Conditions Current Market Conditions (Sales and Pricing Grades)

Nationally, Cold Markets Are Concentrated in California, the Northeast, and the Midwest Each month, we rate 70+ new construction housing markets on five-point scale.

Some S. California markets and much of the Central Valley are Cold, as well as many major Northeast markets.

Grades White Hot Hot Warm Cold

Sources: John Burns Real Estate Consulting, LLC (Data: Feb-15, Pub: Feb-15)

Very Cold

Exposure to JBREC rated Cold Markets is Higher for All Builders Compared to Six Months Ago Cold Markets are typically characterized by slowing absorption rates, use of incentives to spur sales, and sluggish traffic.

Note: Not all builders operate in each of the Cold markets. Totals include any exposure a builder has to Cold Markets.

Sources: John Burns Real Estate Consulting, LLC (Data: Feb-15, Pub: Feb-15)

For Rent Beating For Sale

Sample Newsletter Published December 2014

by Rick Palacios Jr., Director of Research The stock market has changed its tune from being bullish on for-sale housing to being bullish on rental housing.

Apartment stocks are up 35% YTD, and single-family rental stocks are up 5%—while the home builders are flat.

While survey after survey (including our own) indicates that consumers overwhelmingly want to own a home at some point in their lives, there is a big difference between the ambition to own and the ability to own. Increasingly, it appears that financially strapped families desirous of single-family living are turning to rental housing.

Professionally Managed Rental Homes People forget that it took several decades for the apartment sector to flourish from a cottage industry into a $92 billion dollar publicly traded investment class. We think the single-family REIT sector will be able to scale at a much quicker pace, due in large part to ubiquitous data and technologies that simply did not exist until just recently. Some might worry that single-family REITs will pull demand away from apartment REITs; however, the renter profile for each subsector is very different, allowing for continued growth across the entire rental universe.

We believe that the single-family REIT sector is still in its infancy, especially when you consider that publicly traded single-family REITs account for less than 1% of the 14.9 million single-family rental homes that exist in the US. Our firm has been at the forefront of this emerging institutional asset class, publishing a white paper back in 2011 titled Renting REO to Stabilize Housing, where we recommended the REO to rental model as a solution to the then ongoing downturn in housing. We are very pleased to announce the development of a new recurring research report that will focus on the single-family rental market, with the aim of helping operators, lenders, investors, and rating agencies navigate this market.

Sources: John Burns Real Estate Consulting, LLC; Thompson ONE

Mind the Gap: Starts vs. Completions

White Paper

Published January 2013

Construction Delays & Implications for Building Product Sector in 2013 In mid-2012 as the housing recovery was picking up steam, many of our clients were puzzled by the fact that building product suppliers had not yet seen a broad pickup in demand. We thus examined how housing recoveries typically play out, paying close attention to the relationship between various phases of the build cycle – namely starts and completions. As seen in the table below, our research uncovered that dating back to 1985, a 7 to 8 month lag between growth in housing starts and completions is typical in construction recoveries. As such, building product industry performance is much more correlated with housing completions. We ultimately concluded that completions would begin to catch up with starts in early 2013. Consequently, we advised our clients that building product suppliers with products geared toward later stages of construction as well as repair and remodel activity would begin to see demand accelerate at a 10%+ y/y clip in early 2013, roughly 7 to 8 months after housing starts began accelerating at a doubledigit clip. In addition, we stressed that housing’s positive feedback loop would help building product companies that depend on repair and remodel spending in 2013.

With two years now in the rearview mirror, we can see very clearly that our conclusions and recommendations back in January 2013 were spot-on.

As shown in the charts on the next page, single-family completions began to accelerate at a 10%+ clip beginning in January 2013, ultimately growing by 18% through the full calendar year. Moreover, building product company stocks started to takeoff in early 2013 and have since outperformed the S&P 500 by a wide margin.

Construction Recovery Phase

Single-Family Starts Begin to Accelerate at 10%+ Y/Y

Single-Family Completions Begin to Accelerate at 10%+ Y/Y

1991-1993 1997-1999 2001-2004

March, 1992 October, 1998 October, 2003

October, 1992 May, 1999 June, 2004

Source: Census Bureau, John Burns Real Estate Consulting, LLC (Rolling 12-month, NSA)

Month Lag (DoubleDigit Growth in Starts and Completions) 7 Months 7 Months 8 Months

About Us John Burns Real Estate Consulting (JBREC) is a national independent research provider and

consulting firm focused on the U.S. housing industry. Our goal is to provide strategic guidance that drives profitability.

Our passionate team of 50+ analysts and consultants help our clients identify areas of opportunity and risk through timely and trusted analysis. We are able to do this because of our:

• Client focus. Our clients have personal access to our

team of market and industry experts. We also connect clients to opportunities for new business. We seek to continually innovate and improve our practices to make our clients’ lives easier.

Quick Stats Regularly Quoted in:

• Speed. We are focused exclusively on housing and strive to have the most current data at our fingertips. We are diligent, regularly out in the field, and tapped into industry leaders— resulting in great research and advice.

• Proprietary tools. We have created many tools to

provide unique and timely insight. They include: a monthly survey of builder executives, several indices and forecasts, and a demand model by price range and household composition.

• Data quality. We create, collect and buy the best industry data available, enabling our analysts to explain what is going on and how clients can apply that insight to their business planning.

Weekly Newsletter Top 50

28,000+ subscribers

250K+ followers

• Local knowledge. Our team has offices in 10 of the

3,000+

major housing markets across the country.

followers

• Management expertise. Our team leaders are

seasoned industry veterans who have learned from multiple housing cycles.

• Trusted integrity. We are independent advisors. We do not recommend investments or take contingency fees so it’s clear we have no conflicting agendas.

Bloomberg Ticker

JBRE

Our

Team

Access to Our Nationwide Team of Experts John Burns Real Estate Consulting, LLC takes great pride in our highly educated, resourceful and experienced team that includes practitioners with 25+ years of experience in both homebuilding and community development. As a research client, you gain access to our team across the nation to discuss market conditions, our current research and our forecasts.

Client Resources

Regional Offices

John Burns CEO

Rick Palacios Director of Research

Lisa Marquis Jackson Business Development

Steve Dutra Data Management

Sacramento, CA Dean Wehrli

Green Bay, WI Todd Tomalak

Chicago, IL Lance Ramella

Irvine, CA

New England Jody Kahn

Mollie Carmichael

Nicole Murray

Washington, DC Dan Fulton

San Diego, CA Pete Reeb

Atlanta, GA David Kalosis

Don Walker Dallas, TX Ken Perlman

Paige Shipp

Boca Raton, FL Lesley Deutch

Diverse Client Base

Single-Family Rental

Banks

Private Equity Builders

Others

Investors

Building Products Hedge Funds

Developers

Our

Clients

Our Clients Outperform Their Peers Our diverse client base allows us to look at the market from a variety of perspectives. Our clients consistently outperform their peers.

• Superior Returns. As of December 2014, our publicly-traded home builder clients’ returns were 337% since December 2008 compared to non-clients at 80%.

• Newly Capitalized. All of the home builders that filed IPOs in 2013 and early 2014 are research and/or consulting clients of our firm.

• Cyclical Investors. Our clients use our research to appropriately time the market. Our two largest clients in 2006 sold their companies at huge book value/stock price premiums. Three of our investment clients in 2007/2008 reported 100%+ returns.

• Repeat Business. Our clients have made smart land portfolio acquisitions, valuations and due diligence decisions. Eighty-five percent of our consulting assignments come from repeat customers.

Research

Services

Comprehensive Research Every month, we analyze housing data at the metro, regional, and national levels to provide you with the information you need for a competitive edge. Clients receive a unique combination of the three reports below to answer questions and get insight based on their business.

Metro Analysis & Forecast

This monthly report provides an overview of major housing and economic metrics, as well as our forecasts, at an MSA level. This overview is combined with local insight, proprietary surveys, and extensive data analysis to give a complete picture of the important housing dynamics and shifts at the market level.

Regional Analysis & Forecast

This comprehensive monthly report summarizes important information in ten regions and key metro areas. This includes fiveyear pricing forecasts, supply and demand, housing affordability, and market health.

Home Builder Analysis & Forecast

This report examines each of the publicly traded home builders and ranks them based on their geographic footprint and forecasted market growth. It also includes location comparisons of builders based on the builders’ market fundamentals and submarket desirability.

Single-Family Rental Analysis & Forecast

This quarterly report examines the single-family rental market, including single-family rents, vacancy, and home price appreciation. Monthly we provide two pages of data for each of the 65 metro areas identified as top single-family rental markets across the country.

The US Housing Analysis and Forecast, Monthly Builder Survey and Quarterly Land Survey and Land Index come with every research subscription.

U.S. Housing Analysis & Forecast

This monthly report examines more than 150 metrics related to housing. The Executive Summary gives an overview of the important metrics affecting the housing market and our view of their impact on the future.

Monthly Builder Survey

Every month we survey more than 200 builders across the nation on new home market conditions. Our survey provides timely and accurate insights on housing market conditions just a few days after the end of every month.

We believe our survey represents market conditions for production volume builders much more accurately than the Census Bureau’s survey does.

Quarterly Land Survey and Land Index

Our quarterly land survey and index provides a balanced qualitative and quantitative approach to understanding the land market, using a proprietary model built through published data, local expertise, and our own market knowledge.

Ongoing Insight •

White Papers: We publish thorough research reports covering relevant and important topics.

•

Truth in Housing: We regularly send out Truth in Housing email notes to clients that include relevant non-confidential insight that we uncover in the field, at industry conferences, or through our industry contacts.

•

Public Builder Call Summaries: We summarize key performance statistics and market insight from the public builder quarterly earnings conference calls.

Client Events •

•

Client-exclusive webinars. We sponsor webinars with Q&A that informs our clients of timely market dynamics and offers insight on specialty areas like consumer research.

THE

SUMMIT

Client-Exclusive Annual Housing Conference. Clients receive one invitation to our annual client-only conference, The Summit, where we gather leaders across the housing industry for a day and a half of thought-provoking discussion and networking. We publish an annual summary of the event for clients only.

HOUSING MARKET OUTLOOK

•

Client-Exclusive Annual Housing Conference. The Housing Market Outlook Conference is designed to be the industry’s most informative day, discussing what is in store for the market in the upcoming year.

We hold the meeting in New York and introduce builders and developers to money sources as well.

Client Services •

Executive Access. Personal access to our team of market experts and research analysts.

•

Presentations. As requested, we meet with our clients and provide formal or informal industry or market-specific updates.

•

Introductions. We have helped many of our clients find a builder, developer, or capital partner and we have introduced many of our clients to specific industry experts.

•

Data Access. We collect, scrub, and analyze more than 1,000 data points each cycle. Our clients have access to reasonable and appropriate data exports from our team’s SQL database.

Specialized Reports: We offer specialized reports that are available at an additional cost.

National Consumer Research

We have partnered with builders and developers across the nation to launch our third annual Consumer Insights survey. These three surveys combined present more than 50,000 total responses from prospective home buyers. Research clients are given the opportunity to purchase the national report.

Apartment Analysis & Forecast

This wide-ranging quarterly report includes an economic outlook for the multifamily market and analysis of the interplay between housing and apartment market dynamics and demographics. Included are five-year apartment rent forecasts and rankings of top apartment REITs based on their regional diversification and other economic factors.

Customized Consulting

Our leadership can help executives make more informed decisions on a wide variety of issues, including market feasibility, land and company valuation, demographic drivers, home and community design, and effective marketing.

For more information about our research, please contact:

Lisa Marquis Jackson Sr. Vice President

lmjackson@realestateconsulting.com (214) 389-9003

Client Feedback Home Builder, CEO “My experience with John Burns has enabled me to better assess current market risk level at any point in the homebuilding cycle. Also, I have been able to make new valuable contacts.”

Land Developer, VP “Quick accessibility of local market knowledge is critical for us. This is one of the reasons why we switched (to John Burns Real Estate Consulting).”

Building Product Manufacturer, President

Institutional Investor, Portfolio Manager

“The John Burns reporting provides the timeliest local market pulse of any national data service allowing my residential divisions to know exactly where to focus.

Lisa Jackson has the contacts and insight to provide the most thorough local market analysis enabling us to make the right decisions.”

“The client experience has been great. It makes me wish we had allocated more capital to residential development in this fund.”

Private Equity, President “We would not consider using any other group. (Your work) is always well researched and thought out.”

Home Builder, President “John Burns Real Estate Company delivers valuable and comprehensive market data, which we feel it is the best in the industry. They also facilitated long standing relationships with industry leaders and now play an instrumental part in our culture by speaking at our annual events and enlightening our company on market trends.”

WHY FOLLOW HOUSING?

HOUSING HAS A CRITICAL IMPACT ON THE NATIONAL ECONOMY Housing comprises a significant portion of GDP.

EMPLOYMENT IS VERY DEPENDENT ON HOUSING There are 3 jobs created every year per home built: • 1.5 in construction • 1.5 in related fields (materials, banking, etc).

JOHN BURNS CEO

(949) 870-1210

jburns@realestateconsulting.com

John founded John Burns Real Estate Consulting in 2001, but he has advised real estate executives for more than 25 years. He spent eight years in KPMG Peat Marwick’s Real Estate Consulting practice and two years as a CPA before starting JBREC. Many of the largest companies in the real estate and investment industries retain John for ongoing research and advice, as well as customized market and consumer research studies to help with portfolio, strategic, and community-specific decisions.

Highly regarded as an authority in the housing industry, 250,000 people follow John’s Influencer column on LinkedIn, 28,000 subscribe to his free Building Market Intelligence emails. The media turns to John for insight on the housing market as often as 60 times per year.

Presenting our team’s industry knowledge to groups of smart people and learning from them during the Q&A afterward is one of John’s pleasures. The feedback helps him work harder to make our research even better.

John has a B.A. Economics from Stanford University and a MBA from the University of California, Los Angeles.

When not dissecting and disseminating data for clients across the country, John attended home games for all 30 major league baseball teams. He regularly runs 5Ks, and has seen every Academy Award-winning Best Picture.

EDUCATION B.A. Economics from Stanford University MBA from the University of California, Los Angeles

LISA MARQUIS JACKSON Sr. Vice President

(214) 389-9003

lmjackson@realestateconsulting.com

As Senior Vice President, Lisa leads the company’s strategic research and business development efforts. With over 23 years of experience in housing research, she is a proven industry strategist with a demonstrated track record for driving growth and successfully creating solutions for complex business challenges and opportunities. Leveraging the strength of her network, experience and industry knowledge, Lisa is a driver of opportunity and has developed a reputation for being a dynamic and strategic business advisor.

Prior to joining John Burns Real Estate Consulting, Lisa was an award-winning business journalist providing in-depth news and interpretive coverage of the housing industry for 18 years—most recently with Hanley Wood publications.

She also gained industry experience as an account director for a boutique marketing research firm, creating custom research products for business-to-business clients.

Lisa has been widely sourced in major media including the Wall Street Journal, NPR, and CNBC. In her free time, Lisa enjoys tending to her budding, urban farm.

Education B.S. in Mass Communications from Illinois State University

RICK PALACIOS JR. Director of Research

(949) 870-1244

rpalacios@realestateconsulting.com

With more than 10 years of experience in residential real estate and economic research, Rick oversees all research pertaining to the single-family for sale/rent, multifamily and building product sectors.

Previously, Rick worked as an Equity Research Associate (homebuilders) at Morgan Stanley in New York. In addition, he spent several years as an Analyst at the Milken Institute, an economic think tank located in Santa Monica, California.

Rick is regularly quoted in local news publications as well as major outlets such as the Wall Street Journal, Bloomberg Businessweek, CNBC, CNN, MSNBC, and Professional Builder.

In his free time Rick loves to travel.

EDUCATION M.S. in Real Estate Economics and Finance from the London School of Economics B.A. from the University of California, Irvine

REGIONAL OFFICE LOCATIONS ATLANTA, GA

CHARLOTTE, NC

12600 Deerfield Parkway | Suite 100 Alpharetta, Georgia 30004

1900 Glades Road | Suite 205 Boca Raton, Florida 33431

9935-D Rea Road | Suite 273 Charlotte, North Carolina 28277

DIR: (770) 286-3493

DIR: (561) 998-5814

DIR: (704) 989-1190

CHICAGO, IL

DALLAS, TX

DENVER, CO

3108 State Route 59 | Suite 124-247 Naperville, Illinois 60564

5220 Spring Valley Road | Suite 215 Dallas, Texas 75254

1630-A 30th Street| Suite 475 Boulder, Colorado 80301

DIR: (630) 544-7826

DIR: (214) 389-9003

DIR: (720) 328-1530

IRVINE, CA

NEW ENGLAND

SACRAMENTO, CA

9140 Irvine Center Drive | Suite 200 Irvine, California 92618

155 Fleet Street | Suite 11 Portsmouth, New Hampshire 03801

7844 Madison Avenue | Suite 145 Fair Oaks, California 95628

DIR: (949) 870-1200

DIR: (603) 235-5760

DIR: (949) 870-1200

SAN DIEGO, CA

20

BOCA RATON, FL

WASHINGTON, DC

4250 Executive Square | Suite 540 La Jolla, California 92037

11710 Plaza America Drive | Suite 2000 Reston, Virginia 20190

DIR: (858) 558-8384

DIR: (703) 447-7171

WWW.REALESTATECONSULTING.COM

WISCONSIN DIR: (920) 373-6727