UBS Leveraged Finance Conference

Transcription

1 UBS Leveraged Finance Conference Las Vegas, NV - May 12, 2005

2 2 Comment to Investors This presentation includes forwardlooking statements as characterized in the Private Securities Litigation Reform Act of Any statements that are not historical in nature are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, i.e, expressed or implied forward-looking statements. Please refer to our most recent 10-K, 10-Q and earnings press release for other factors that could cause results to differ. This presentation presents a non-gaap measure, EBITDA. Please refer to our first-quarter earnings press release located on our website for the definition and discussion of EBITDA. 2

3 John R. Landon Co-Chairman & CEO Steven J. Hilton Co-Chairman & CEO Larry W. Seay CFO

4 4 Meritage Overview 4

5 Recent Meritage Achievements 5 Ranked #1 on Forbes Platinum 400 list of America s Best Big Companies Five-year annualized total return Fortune 1000 Ranked 747 th, up from 864 th last year Entered five new markets in the past five quarters Southern California (1/04), Denver (5/04), Orlando (12/04), Fort Myers/Naples, FL (2/05) and Reno, NV (3/05) Annual home closing revenue exceeded $2 billion for the first time (2004) 5

6 Achievements Continued 6 2-for-1 stock split effective January 2005 Reflects our belief in a strong future for Meritage Equity offering and bond tender offer (1 st Qtr 2005) Issued 1,035,000 shares at a public offering price of $70.35 per share Issued $350M senior notes at 6.25% & repurchased $279M of 9.75% senior notes Secures very favorable rate for 10 years Anticipate approximately $9M in annual interest payment savings 6

7 Operating Highlights 7 Record revenue & net earnings for 17 consecutive years 14th largest U.S. single-family homebuilder Texas, Arizona, California, Nevada, Colorado & Florida Six of top ten U.S. single-family housing markets First-time to semi-custom luxury homes: $96k to $927k Conservative balance sheet management with high inventory turns & low land risk Approximately 90% of lots under option contracts Experienced senior management with significant equity ownership Proven industry consolidator with nine acquisitions and four startups since going public at the end of 1996 Large public builder with preferred access to capital & entitled land 7

8 8 Operating Goals and Objectives Annual Revenue Growth Gross Margin Pre-tax Margin After-tax Return on Assets After-tax Return on Equity Net Debt/Capitalization Debt/EBITDA Target 15-25% 19-20% 10-12% 10-15% 25-35% 40-50% X Average of Last Three Years 40% 20% 11% 12% 28% 45% 1.9X Meritage has consistently met or exceeded its goals 8

9 9 Guidance Revenue 2004 $2.0B Increase 39% Home Closings $2.7 - $2.8B 7,254 34% - 39% 29% Diluted EPS * ,000 $ % 47% 2005 $ $ % - 27% Pro-forma ** 2005 $ $ % - 41% Diluted EPS amounts reflect January 7, :1 stock split * Diluted EPS guidance for 2005 includes one-time bond refinancing charge of $0.69 ** Pro-forma Diluted EPS guidance for 2005 excludes one-time bond refinancing charge of $0.69 9

10 10 Homebuilding Industry 10

11 11 Home Ownership Continues to Rise Consolidation Driving Market Share and Returns Housing Demand Remains Strong Through Rate Changes Housing Trends Support Sustainable Growth for Public Homebuilders Industry Performance Not Yet Recognized Positive Demographics Broader Mortgage Products Available 11 Large builders see bright future despite interest rate fears

12 Home Ownership Rate 12 70%-72% * 65.4% 66.3% 67.4% 67.9% 69.2% 64.0% Proj Over past ten years, 30-yr mortgage rate has fluctuated in the 6%-9% range. Rates have increased 18 times and decreased 2 times qtr-over-qtr while home ownership rate has risen steadily, never decreasing yr-over-yr. Source : Wachovia Securities * Home Ownership Alliance 12 Interest rates are a small component of housing demand

13 1,300 1,200 1,100 1, New Home Sales vs. Interest Rates Q194 Q394 Q195 Source : Wachovia Securities Rates rose 2 pts to highest point in last 10 years New home sales flat Q395 Q196 Q396 Q Rates rose 1 pt New home sales increased New Home Sales Q397 Q198 Q398 Q199 Q399 Q100 Q / Rates rose 2 pts New home sales flat Q101 Q301 Q102 Q302 Q103 Q303 Q104 Q Year Mortgage Rate New home sales have risen steadily despite changes in interest rates % 8.50% 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 5.00% 4.50%

14 14 Positive Demographics Aging Baby Boomers create move-up and retirement demand Age drive 2 nd move-up & retirement demand Age drive 1 st & 2 nd move-up demand Echo Boomers, 20 s and 30 s, drive start-up and 1 st move-up demand Immigrants continue to drive demand Especially concentrated in the South & West Baby Boomers and Immigrants continue to drive increases in demand 14

15 Positive Demographics 15 Home ownership expected to rise to 70%-72% by 2013 New household formations and single-family home sales anticipated to average 1.3 to 1.6 million per year , up from 1.2 million per year A home is the biggest & most important investment for many households and it continues to be a good investment Source : America s Home Forecast: The Next Decade for Housing and Mortgage Finance. Published by the Homeownership Alliance 15 Demographics remain positive for the homebuilding industry

16 Mortgage Products 16 Greater variety of mortgage products exist now than in the 1970 s, 80 s and 90 s Allows more buyers to qualify Traditional 30-yr fixed mortgage rates not expected to rise dramatically in the near future Housing still affordable in our markets Down payment about 20% in our divisions Committed to offering moderately priced homes in all of our markets Affordable rates readily available 16

17 Large Builders Growing Market Share 17 Market Share of Top 20 Builders 20.1% 20.7% 22.7% 24.4% 25.6% 27.0% 16.4% 14.1% 14.5% 14.6% 14.9% 12.2% Source : Big Builder Large builders have cost & scale advantages to outperform smaller builders 17

18 Consolidation Driving Profitability 18 Top 20 builders market share more than doubled since 1993 Large builders are more profitable than smaller builders Top 20 builders earn 350 to 400 basis points more in profit per unit than the next 380 builders * Better access to and lower cost of capital Preferred access to land results in lower land cost Lower material costs through high volume Lower fixed costs Spread across larger revenue base Market knowledge and relationships speed development process Market diversity vs. single market focus * Source : Wachovia Securities - Industrial Growth/Construction May 24, 2004 The future continues to look bright for the large public homebuilders 18

19 19 Operating Strategy 19

20 Operating Strategy 20 Select the right markets Conservative land acquisition policy Maintain high returns with prudent leverage Grow in our existing markets Enter new markets through acquisitions & start-ups Meritage is a leader in the consolidating homebuilding industry 20

21 Meritage Operates in Six of Top Ten Markets Sacramento Reno San Francisco Las Vegas Denver Single-Family Permits 1. Los Angeles 2. Phoenix/Mesa 3. Atlanta 4. Dallas/Ft. Worth 5. Houston 6. Washington DC 7. Chicago 8. Las Vegas 9. New York ,476 56,896 56,031 45,629 45,039 38,778 36,141 35,556 27,703 % Chg vs (3.0) Los Angeles Phoenix/Scottsdale Tucson Dallas/Ft. Worth 10. Orlando 22, Other Markets 13. Denver 16. Ft Myers/Naples 19. Sacramento 21. SF Bay Area 23. Austin-San Marcos 29. San Antonio 34. Tucson 63. Reno ,777 19,254 18,529 15,694 14,326 12,029 9,460 4,958 % Chg vs (2.1) Austin San Antonio Houston Orlando Ft. Myers/Naples * Source: US Housing Markets. Published by Meyers Group

22 22 Population Growth USA 1. Nevada 2. Arizona 3. Florida 4. Georgia 5. Texas 6. Colorado 7. Idaho 8. Utah 9. California 10. North Carolina % 86.5% 52.3% 31.5% 34.1% 30.2% 38.1% 35.7% 36.5% 19.2% 26.8% % 12.2% 8.8% 6.5% 6.1% 6.1% 5.8% 5.6% 5.3% 4.8% 4.4% Meritage operates in fast-growing states 22

23 Conservative Land Acquisition Practices 23 Lot Options Approximately 90% of lots controlled through option contracts or joint ventures Typical deposit approximately 10% Typically Develop Smaller Parcels 100 to 300 lots with 3 year completion Typically Purchase Fully Entitled Land Targets 4 to 5 Year Land Supply Land acquisition policies minimize risk and boost turnover & returns 23

24 Lot Supply (3/31/05) 24 Texas Approximate Lots 14,250 Optioned 79% Years Supply * 4.1 Active Communities 90 Arizona 15,150 94% California 6,750 98% Nevada 3,400 95% Colorado % n/a ** 0 Florida 4,250 99% n/a ** 6 Total 44,300 90% * Years supply based on estimated 2005 closings ** Year s supply not representative because 2005 closings are expected to be limited in Colorado & Orlando Quality lot supply supports growth goals 24

25 Balanced Operating Objectives 25 Target 10%+ pre-tax margin Approximately 80% - 85% of homes are pre-sold Substantial customer deposits Don t design away profits Leverage purchasing power High inventory turnover Moderate leverage Balanced operating objectives deliver solid returns with minimum risk 25

26 26 Regional Overview 26

27 27 Texas Region 125,400 New Jobs Last 12 Months * Proj Revenue $387M $577M $681M $ M Closings 2,090 2,828 3,152 3,520 Communities Lots 9,162 10,680 13,853 15,000 SF Permits ** 122, , ,810 n/a * Source: US Bureau of Labor Statistics ** Source: Meyers Group 27 Markets: Dallas/Ft. Worth, Houston, Austin & San Antonio

28 28 Dallas/Ft. Worth Dallas/Ft. Worth s 10 th largest builder: Expect 10%-15% order growth in

29 29 Houston Houston s 8 th largest builder: Expect 10%-15% order growth in

30 30 Austin Austin s 7 th largest builder: Expect 40%-45% order growth in

31 31 San Antonio Expect to more than double closings in

32 32 Arizona Region 90,800 New Jobs Last 12 Months * Proj Revenue $445M $416M $586M $ M Closings 1,735 1,515 2,331 2,975 Communities Lots 11,636 13,063 14,497 16,000 SF Permits ** 55,798 64,143 78,841 n/a * Source: US Bureau of Labor Statistics ** Source: Meyers Group Markets: Phoenix and Tucson 32

33 33 Phoenix Meritage Homes Phoenix s 9 th largest builder: Expect 50%-60% revenue growth in

34 Phoenix Monterey Homes Price Range $500K to $1M 34

35 Tucson Meritage Homes Tucson s 3 rd largest builder - Expect 30%-35% growth in closings in

36 Arizona Active Adult Orders more than doubled in 2004: Expect closings to rise 25%-30% in

37 37 California Region 244,100 New Jobs Last 12 Months * Proj Revenue $246M $335M $628M $ M Closings ,367 1,445 Communities Lots 2,453 2,923 6,926 8,000 SF Permits ** 123, , ,710 n/a * Source: US Bureau of Labor Statistics ** Source: Meyers Group Markets: San Francisco East Bay, Sacramento & Los Angeles Inland Empire 37

38 38 San Francisco East Bay Anticipate 40%-45% revenue growth in

39 39 Sacramento Sacramento s 10 th largest builder: Expect 10%-15% revenue growth in

40 Los Angeles Inland Empire Anticipate 50% revenue growth in

41 41 Nevada Region 75,700 New Jobs Last 12 Months * 2002 *** Proj Revenue $34M $134M $121M $ M Closings Communities Lots 2,153 2,979 2,997 4,000 SF Permits ** 27,634 33,033 38,817 n/a * Source: US Bureau of Labor Statistics ** Source: Meyers Group ** 2002 is for 4 th quarter only. Markets: Las Vegas and Reno 41

42 42 Las Vegas Anticipate 50%-60% growth in orders in

43 Denver 43 Entered Denver in May 2004 through start-up operation 13 th largest single-family housing market in U.S. Issued 20,777 s.f. permits in 2004, 14% more than 2003 Approximately 500 lots under control at 3/31/05 Expect to have 1,500 lots under control Expect to begin delivering homes in 4 th quarter 2005 Colorado added 55,700 new jobs in the last 12 months Significant growth opportunity in Denver 43

44 44 Florida 262,100 New Jobs Last 12 Months * Fastest-growing state in terms of single-family permits Third fastest-growing state in terms of population Currently operating in Orlando and Ft. Myers/Naples Evaluating other major Florida markets for expansion * Source: US Bureau of Labor Statistics Significant growth potential in Florida 44

45 Orlando Entered Orlando in December 2004 through start-up operation Approximately 800 lots under control at 3/31/05 Currently four communities under control Anticipate adding 3 or 4 by the end of 2005 Expect to begin delivering homes in 4th Qtr A lot of room to grow in Orlando 45

46 Fort Myers / Naples, Florida 46 Entered Ft. Myers/Naples in February 2005 through acquisition of Colonial Homes Expect to deliver approximately 400 homes in 2005 Anticipate $140 million in revenue Approximately 3,000 lots under control at 3/31/05 Exceeded first quarter expectations 46

47 47 Fort Myers/Naples, Florida Acquired Colonial Homes of Florida in February

48 48 Reno 19,500 New Jobs Last 12 Months * Entered Reno in March 2005 through start-up operation Affordable alternative to Northern California Plan to offer homes in the mid-300 s as compared to mid-400 s in Sacramento and low-600 s in East SF Bay Buyers migrating to Reno from Northern California Three communities secured to date Expect one or two more in 2005 Approximately 125 lots under control at 3/31/05 Expect to begin delivering homes in 2006 * Source: US Bureau of Labor Statistics Reno will complement our Northern California divisions 48

49 49 Target for Growth 2005 Proj 2004 S.F. Market Target Closings MTH Permits Issued* Share Closings Texas 3, , % 6,000 Arizona 2,975 78, % 5,000 California 1, , % 3,000 Nevada , % 1,000 Colorado 40 38, % 1,000 Florida , % 3,000 TOTAL 9, , % 19,000 Growth in existing markets can be achieved through additional communities and increased product diversity such as active adult, attached product and urban infill. * Source: Meyers Group US Housing Markets Opportunity for growth in all of our markets 49

50 50 Financial Overview 50

51 51 1 st Qtr 2005 Results Excluding One-time Bond Refinancing Charge Including One-time Bond Refinancing Charge * 1Q 2005 Chg vs. 1Q Q 2005 Chg vs. 1Q 2004 Home Closing Revenue $551M 30% $551M 30% Sales Orders $881M 49% $881M 49% Order Backlog $1.8B 98% $1.8B 98% EBITDA $ % $50.4 (5%) Net Earnings $43.7M 62% $24.2M (10%) Diluted EPS $ % $0.86 (10%) * Includes one-time bond refinancing charge of $31.3 million before tax, $19.5 net of tax and $0.69 per diluted share Anticipating our 18th consecutive year of record revenue and earnings 51

52 Total Revenue 5-Yr Projected CAGR 39% - 40% 52 $2.7-$2.8B $2.0B $1.1B $1.5B $520M $744M Proj 52 Have exceeded our goal to double revenue every 3 to 4 years

53 EBITDA 5-Yr Projected CAGR 38% 53 $350M * $270M $69M $102M $140M $182M Proj * Includes one-time bond refinancing charge of $31.3 million Five-Yr projected EBITDA CAGR of 38% 53

54 Strong Sales Orders 5-Yr Projected CAGR 39% - 40% 54 $3.1 - $3.2B $2.6B $1.6B $1.2B $604M $700M Proj Strong sales orders lead to all-time record backlog 54

55 Active Communities 5-Yr Projected CAGR 24% - 25% Proj 55 Increase in communities positions Meritage for future growth

56 Five-Year Path for Revenue Growth Growth Plan to Hit 6.6B+ by 2009 ($ in Billions) 56 $6.6-$6.8 $5.3-$5.5 $2.0 $2.7-$2.8 $3.4-$3.5 $4.3-$ Our goal is to grow at a rate of 20% to 25% annually 56

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