CONSOLIDATION OF THE HOME BUILDING INDUSTRY

January 13, 2006

Presented

by

Gopal AhluwaliaStaff V.P. – Research

Economics GroupNational Association of Home Builders

Washington, D.C.

2

EXHIBIT 1

WHY STUDY CONSOLIDATION?

1) SIGNIFICANT INCREASE IN THE MARKET SHARE OF NATIONAL/PUBLICLY HELD BUILDERS.

2) IMPACT ON LOCAL AND REGIONAL BUILDERS.

3) IMPACT ON BUILDING MATERIALS DISTRIBUTION.

3

EXHIBIT 1 (CONTD.)

WHY STUDY CONSOLIDATION?

4) ANDERSON CORPORATE FINANCE(2002): BY 2011 THE TOP 20 BUILDERS COULD ACCOUNT FOR 75 PERCENT OF HOME SALES.

5) QUESTION IS “WHERE ARE WE ACTUALLY HEADING”?

4

EXHIBIT 2

WHO IS CONSOLIDATING?

• MOSTLY PUBLICLY TRADED BUILDING COMPANIES.

• SOME CONSOLIDATION AMONG LARGE PRIVATELY HELD BUILDERS.

• SOME MERGERS AMONG MEDIUM VOLUME BUILDERS TO MAKE THEMSELVES ATTRACTIVE FOR ACQUISITION.

5

EXHIBIT 3WHY IS CONSOLIDATION OCCURRING?

• GEOGRAPHIC DIVERSIFICATION TO INSULATE AGAINST

REGIONAL DECLINES.

• PRODUCT DIVERSIFICATION/EXPANSION.

• ACQUIRE AND CONTROL LAND SUPPLY.

• ACQUIRE MANAGEMENT TALENT.

• ACQUIRE LOCAL MARKET POSITION/REPUTATION.

6

EXHIBIT 3 (CONTD.)

WHY IS CONSOLIDATION OCCURRING?

• REAP ADVANTAGES OF SIZE.

• CAPITAL COST ADVANTAGE.

• VOLUME DISCOUNT ON PURCHASES

• MARKETING ADVANTAGES.

• PRODUCTION EFFICIENCIES.

• WALL STREET PREFERENCE FOR SIZE AND GROWTH.

7

EXHIBIT 4

WHO IS BEING ACQUIRED?

• SOME PUBLICY TRADED BUILDERS.

• MOSTLY PRIVATELY HELD BUILDERS.

• PRODUCE MINIMUM OF 200+ UNITS.

• HAVE A LARGE INVENTORY OF LAND.

• ESTABLISHED POSITION IN TOP 75 MARKETS (AT LEAST 5,000 UNITS).

• HAVE MANAGEMENT TALENT TO RETAIN AFTER ACQUISITON.

8

5

7

9

11

13

15

17

19

21

23

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

% o

f Clo

singsEXHIBIT 5

Market Share of Top 10 Builders: 1989 TO 2004

9

1,000

5,000

9,000

13,000

17,000

21,000

25,000

29,000

33,000

37,000

41,000

45,000

D.R. Horton

Pulte HomesLennar Corp.

Centex Corp.KB Home

Beazer Homes USA

The Ryland Group

Hovnanian Enterprises

M.D.C. Holdings NVR

No.

of C

losi

ngs

1993 2004

EXHIBIT 6Total Closings for Top 10 Builders

10

8.8

4.02.5 2.1 1.8 1.5

20.9

5.0

2.9 2.1 1.6 1.4

0

5

10

15

20

25

Builders 1-10 Builders 11-20 Builders 21-30 Builders 31-40 Builders 41-50 Builders 51-60

Ranking

% S

hare

of C

losin

gs

1989 2004

EXHIBIT 7Market Share of Top 60 Builders: 1989 and 2004

11

EXHIBIT 8Market Share of Top 100 Builders: 1998-2004

0

5

10

15

20

25

30

35

40

1998 1999 2000 2001 2002 2003 2004

Perc

ent

1-10

41-5091-100

Top 100

Builders

Builders

Builders

Builders

12

3.08%

4.02% 3.90%4.17%

3.92%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

2000 2001 2002 2003 2004

Year

% S

hare

of C

losi

ngs

EXHIBIT 9Market Share of Builders Ranked 101 to 200

13

25,13816,422Ranked 1 to 10

471270Ranked 101 to 200

782599Ranked 91 to 100

20042000

EXHIBIT 10Average Closings Per Firm

14

EXHIBIT 11Total Single Family Sales and Closings by Top 10 Builders

1994 -2004 Percent Change

Source: BUILDER magazine U.S. Census Bureau

260.7%

79.3%

0.0% 70.0% 140.0% 210.0% 280.0%

Top 10 buildersClosings

SF New HomeSales

15

EXHIBIT 12Year/Year Percent Change in New Home Sales and Closings By

Top 10 Builders

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%19

90-1

991

1991

-199

2

1992

-199

3

1993

-199

4

1994

-199

5

1995

-199

6

1996

-199

7

1997

-199

8

1998

-199

9

1999

-200

0

2000

-200

1

2001

-200

2

2002

-200

3

2003

-200

4

New

Hom

e Sa

les:

% C

hang

e Y

/Y

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Top

10

Clo

sing

s:%

Cha

nge

Y/Y

Sales Top 10 Closings

16

EXHIBIT 13Lot Inventory - 2005

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

PulteD. R

. Hort

on

Lennar

Centex

KB Hom

esK. H

ovna

nian

Beazer

NVR

Ryland

MDC Hold

ings

Percent lots Owned

Percent lots Optioned

369,000

323,000

286,000303,000

185,000

107,000 106,000 100,00080,000

44,000

54% 54% 68% 63%

52% 74%55%

100%

61% 51%

46%

46%32%

26%

37%

48%

45%39%

49%

17

EXHIBIT 14Years of Lot Inventory At Current Production Level - 2004

9.1 8.9

7.87.5 7.3

7.0 6.9 6.7

6.0 5.9 5.95.3 5.1 5.0

3.0

0

1

2

3

4

5

6

7

8

9

10

Toll Brothers Pulte

Centex

Technical O

lympic

Lennar

M/I Homes

K. Hovnanian

D. R. H

orton

Beazer NVR

Standard Pacific

Meritage

KB HomesRyland

MDC Holdings

Source: Annual Reports of Builders-10K

18

EXHIBIT 15Number of Acquisitions: 1993 - 2005 (Jan. to Mar.)

Source: Builder Magazine, Housing Statistics, Mergent Online

233

5666

79

1112

1314

1723

0 5 10 15 20 25

NVR

Ryland

Shea Homes

Toll Brothers

MDC

Meritage

Pulte

Technical Olympic

Standard Pacific

Centex

Beazer

K Hovnanian

KB Home

D.R.. Horton

Lennar

19

EXHIBIT 16Shares of Company Closings – 2005 Top 3 markets (States)

Share of Company ClosingsWCI Communities 97%M/I Homes 89%Standard Pacific 83%Lennar 69%NVR 61%MDC Holdings 60%Hovnanian 59%DR Horton 56%KB Home 55%Ryland 48%Toll Brothers 48%Centex 46%Pulte 44%Beazer 35%Source: Credit Suisse Homebuilders' Facts & Figures 2005 Edition.

20

EXHIBIT 17Average Closing Price of New Homes Sold By Public Builders:1998 to 2005

(In Thousands of Dollars)

(*) denotes the average closing price of the first 11 months in 2005, based on data published by the Census Bureau. Source: Credit Suisse Homebuilders’ Facts & Figures 2005 Edition

1998 2005 Price Change 1998-2005

National (U.S.A.) $182 289* 58.8%1 DR Horton $153 $261 70.6%2 Pulte 175 315 80.0%3 Lennar 194 308 58.8%4 Centex 185 270 45.9%5 K B Home 154 252 63.6%6 Beazer 159 269 69.2%7 Ryland 188 273 45.2%8 K. Hovanian Enterprises, Inc. 216 320 48.1%9 MDC Holding 194 307 58.2%

10 NVR Inc. 197 377 91.4%11 Standard Pacific 330 353 7.0%14 Toll Brothers 389 657 68.9%15 WCI Communities - 526 16 M/I Homes 197 300 52.3%

21

EXHIBIT 18CLOSINGS BY PRIVATE BUILDERS

8.0%2,9702,750Holiday Builders10

-10.0%2,8483,165MHI9

5.1%3,0622,914Drees Co.8

18.8%3,9553,329The Village of Lake Sumter3

9.6%3,2052,924Woodside Group7

11.7%4,5794,101Mercedes Homes Inc.2

-13.0%3,8224,394Choice Homes Inc.5

4.9%38,47336,679TOTAL (1 TO 10)

-0.2%3,6723,678Kimball Hill Homes6

11.4%3,9523,549David Weekley Homes4

9.1%6,4085,875Shea Homes1

Percent Change2003-200420042003

Closings

22

EXHIBIT 18 (CONTD.)CLOSINGS BY PRIVATE BUILDERS

91.4%2,0001,045Crosswind Communities20

53.9%2,0681,344Neuman Homes18

-1.8%2,2952,336American West Homes 16

18.8%2,7922,351Perry Homes11

Source: Builder Magazine.

20.2%23,41719,488TOTAL (11 TO 20)

5.2%2,0451,806John Laing Homes19

30.2%2,1151,625Epmark 17

29.1%2,3851,847Transeastern Properties15

4.1%2,4552,359Highland Homes14

7.0%2,5822,414C P Morgan Communities13

13.5%2,6802,361Pasquinelli Construction Co.12

Percent Change 2003-200420042003

Closings

23

EXHIBIT 19Select Top 200 Home Builders for 2004

(Closings and Gross Revenue)

286

458

731

1,829

2,115

2,970

4,303

12,749

44,005

05,000

10,00015,000

20,00025,000

30,00035,000

40,00045,000

50,000

The Oberer Companies

Salesbury Homes

Fronties Homes

Bowen Family Homes

Epmark

Holiday Builders

M/I Homes

NVR

D R Horton

Source: Builder Magazine.

Gross Revenue (in millions)

$11,156

Rank

1

10

20

30

40

50

100

151

200

$4,300

$1,175

$425

$381

$319

$203

$85

$78

24

EXHIBIT 20SOURCES OF REVENUE

13

12

11

10

9

8

7

6

5

4

3

2

1

--1-99Standard Pacific

--3295M/I Homes

---198Toll Brothers**

--2-98MDC Holdings

--2197K Hovanian

--2-98NVR

--3295Ryland

--1198Beazer

-21-97K B Homes

11310-76Centex

--6391Lennar

--1294Pulte*

--2%2%96%D R Horton

Home Services

Construction Services***

Financial ServicesLand SalesHome

Sales

Note: (*) denotes remaining 3 percent is from International sales(**) denotes remaining 1 percent is from Interest and Taxes

(***) covers range of commercial contracting services, including construction management,general contracting, design-build and pre-construction services.

25

EXHIBIT 21Public versus Private Homebuilders: FY 2003 Pre-Tax Income and Margins

($ in Millions)

Source: JMP Securities-Share of Market Analyses, Sept. 2004

Note:. (*) Operating in 10 states or more(**) Based on Company SEC Filings (+) Based on selected JMP relationships since 2002. Company names have been excluded for purpose of confidentiality.

12.4%Average of Public Homebuilders**

5.4%2004 NAHB Cost of Doing Business

8.7%30 of the Top 50 Housing MarketsAverage of 30 Private Homebuilders+

11.7%169.8FL, NYWCI Communities, Inc.14

14.9%411.2NationalToll Brothers, Inc.13

14.3%335.1NationalStandard Pacific Corporation12

12.9%135.1DC Metro, OH, IN, FLM/I Homes, Inc.11

12.2%348.2NationalMDC Holdings, Inc.10

13.1%411.5NationalHovnanian Enterprises. Inc.9

19.3%696.2NationalNVR, Inc.8

11.8%396.2NationalRyland Group, Inc.7

9.1%285.5NationalBeazer Homes USA, Inc.6

9.6%553.5NationalKB Home5

13.4%794.9NationalCentex Corporation4

14.5%1,207.1NationalLennar Corporation3

11.1%995.7NationalPulte Homes, Inc.2

11.8%$1,008.2National*D.R. Horton, Inc.1

%Margin$ Amount

FY 2003 Pre-Tax

MarketsCompanyRank

26

EXHIBIT 22EXPECTED DIVERSIFICATION/EXPANSION IN OTHER BUSINESS LINES

1. TELEPHONE SERVICE

2. CABLE

3. DISH

4. HIGH-SPEED INTERNET ACCESS

5. HOUSEHOLD MOVING

6. LAWN CARE

7. MAINTENANCE AND REPAIR

8. HOME IMPROVEMENT

9. OTHER SERVICES FOR THE HOUSEHOLDS.

27

EXHIBIT 23MOST PROFITABLE NICHES IN THE MARKETPLACE FOR SMALL AND

MEDIUM SIZE BUILDERS(Percent of Respondents)

11%

20%

27%

51%

58%

69%

70%

84%

0% 20% 40% 60% 80%

Other

Diversification to other services

Light commercial

Upscale Housing on Tear Downs

Remodeling

Building on owners lot

Infill

Custom home building

Source: BEC Survey, NAHB Economics

28

EXHIBIT 24EBIT MARGINS

7.0%7.9% 8.0%

7.3%6.5% 6.6% 6.8% 7.1%

8.4%

10.1%10.2%10.9%12.0%

13.8%15.2%

16.7%

15.8%

0.0%

5.0%

10.0%

15.0%

20.0%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

e20

06e

Source: Company data, CFSB estimates. Compiled by NAHB Economics(e) Denotes Estimate

29

EXHIBIT 25Percentage of Home Building Debt by Year of Maturity

(as of 2004 year-end)

5%2%

8%6%

12%

8%

53%

4%

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 2010 2011-2020 2021-2030

Source: Company data, CFSB estimates. Compiled by NAHB Economics

30

EXHIBIT 26Average Cost of Debt.

14.4%

10.9%10.5%

9.7%9.4% 9.2%

8.9%8.3%

7.5%

9.9%

0.0%

5.0%

10.0%

15.0%

1980

1985

1990

1995

2000

2001

2002

2003

2004

Averag

e

Source: Company data, CFSB estimates. Compiled by NAHB Economics

31

EXHIBIT 27CURRENT AND FUTURE TRENDS

• MERGERS AND ACQUISITIONS STARTED IN EARLY 90’S AND ACCELERATED DURING LATE 90’S.

• NATIONAL BUILDERS WILL CONTINUE TO ACQUIRE SIZEABLE LOCAL OR REGIONAL BUILDERS.

• MARKET SHARE OF TOP 10 BUILDERS CONTIUES TO GROW.

• IN THE NEXT 3 YEARS, LARGEST BUILDERS WILL PRODUCE 50,000 OR MORE UNITS.

• MEGA BUILDER PRODUCING 100,000 UNITS A YEAR MAY HAPPEN WITH A MERGER OF TWO OF THE TOP 5 BUILDERS.

32

EXHIBIT 27 (CONTD.)CURRENT AND FUTURE TRENDS

• ALTHOUGH CONSOLIDATION WILL CONTINUE AT THE VERY TOP, THE MARKET SHARE OF THE NEXT TIER (NO. 21 TO 100) ISN’T GROWING.

• SMALL AND MEDIUM VOLUME BUILDERS WILL CONTINUE TO DOMINATE SMALLER METRO AND RURAL AREAS.

• IN LARGER MARKETS, SMALLER BUILDERS WILL CONCENTRATE ON “NICHE MARKETS”.

• THE OVERALL MARKET WILL CONTINUE TO INCLUDE A VERY LARGE NUMBER OF SMALL COMPANIES.