D. R. H O R T O N, I N C.

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Transcription:

Investor Presentation Q1 FY 2018 1

D.R. HORTON, INC. By closings volume for calendar years 2002 to 2017 2

FORWARD-LOOKING STATEMENTS This presentation may include forward looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. Factors that may cause the actual results to be materially different from the future results expressed by the forward looking statements include, but are not limited to: the cyclical nature of the homebuilding industry and changes in economic, real estate and other conditions; constriction of the credit markets, which could limit our ability to access capital and increase our costs of capital; reductions in the availability of mortgage financing provided by government agencies, changes in government financing programs, a decrease in our ability to sell mortgage loans on attractive terms or an increase in mortgage interest rates; the risks associated with our land and lot inventory; our ability to effect our growth strategies, acquisitions or investments successfully; home warranty and construction defect claims; the effects of a health and safety incident; the effects of negative publicity; supply shortages and other risks of acquiring land, building materials and skilled labor; the impact of an inflationary, deflationary or higher interest rate environment; reductions in the availability of performance bonds; increases in the costs of owning a home; the effects of governmental regulations and environmental matters on our homebuilding operations; the effects of governmental regulations on our financial services operations; our significant debt and our ability to comply with related debt covenants, restrictions and limitations; competitive conditions within the homebuilding and financial services industries; the effects of the loss of key personnel; and information technology failures and data security breaches. Additional information about issues that could lead to material changes in performanceiscontainedind.r. Horton s annual report on Form 10 K and our most recent quarterly report on Form 10 Q, both of which are filed with the Securities and Exchange Commission. 3

D.R. HORTON, INC. TRADED ON NYSE AS DHI 47,135 Annual homes closed $14.5 billion Annual consolidated revenues $13.0 billion Total assets $1.7 billion Annual pre tax income $20.98 Book value per common share $7.9 billion Stockholders equity As of or for the twelve month period ended December 31, 2017 4

BROAD NATIONAL FOOTPRINT 79 MARKETS 26 STATES 5

BROAD NATIONAL FOOTPRINT 79 MARKETS 26 STATES HB Revenue Inventory 12% 5% 5% 30% 12% 6% 6% 26% 24% 24% 26% 24% EAST Delaware, Maryland, New Jersey, North and South Carolina, Pennsylvania, Virginia MIDWEST Colorado Illinois Minnesota SOUTHEAST Alabama, Florida, Georgia, Mississippi, Tennessee SOUTH CENTRAL Louisiana Oklahoma Texas SOUTHWEST Arizona New Mexico WEST California, Hawaii, Nevada, Oregon, Utah, Washington As of or for the twelve month period ended December 31, 2017 Savannah, Georgia is included in the East Region; Atlanta and Augusta, Georgia are included in the Southeast Region 6

DIVERSE PRODUCT OFFERINGS AND PRICE POINTS Homes for entry level, move up, active adult and luxury buyers 26% 7% $500k $0 20% $200k $300k 20% $250k 27% Represents homes closed for the twelve months ended 12/31/17 7

FAMILY OF BRANDS FIRST TIME / MOVE UP ENTRY LEVEL LUXURY ACTIVE ADULT 79 markets 26 states ASP $318k 58 markets 21 states ASP $233k 39 markets 16 states ASP $610k 22 markets 12 states ASP $262k 3% 2% 3% 2% 6% 1% 37% Homes Sold 58% 36% Homes Closed 59% 29% Home Sales Revenue 64% Based on Q1 FY 2018 results 8

MANAGEMENT TENURE AND EXPERIENCE Executive team and region presidents approx. 25 years Division presidents over 13 years City managers over 10 years Average employee tenure 9

MARKET SHARE DOMINANCE D.R. Horton Share and Rankings in Largest U.S. Housing Markets Top 5 Markets Top 50 Markets 18% 50 16% 14% 12% 10% 8% 6% 40 30 20 28 36 40 4% 2% 10 13 0% DFW Houston Atlanta Phoenix Austin 0 #1 Top 5 Top 10 Operate In DHI market share Market share of highest ranking competitor Source: Builder magazine 2017 Local Leaders issue, rankings based on homes closed in calendar 2016 10

OPERATIONAL FOCUS Maximize returns by managing inventory levels and balancing sales pace and pricing in each community Generate consistent positive annual cash flow from operations Maintain inventories of land, lots and homes that support double digit annual growth in both revenues and profits Underwriting expectations for each community: Minimum 20% annual pre tax return on inventory (ROI) Initial cash investment returned within 24 months or less Increase optioned land and lots by expanding relationships with land developers Grow Forestar s land development platform Control SG&A while ensuring infrastructure supports growth 11

EMPHASIS ON RETURN ON INVENTORY (ROI) 20% Steady improvement in Homebuilding ROI 15% 15.4% 15.9% 16.6% 17.0% 10% 11.1% 12.8% 5% 0% FY 2014 FY 2015 FY 2016 TTM 12/31/16 FY 2017 TTM 12/31/17 Homebuilding ROI is calculated as homebuilding pre tax income for the year divided by average homebuilding inventory. Average homebuilding inventory in the ROI calculation is the sum of ending homebuilding inventory balances for the trailing five quarters divided by five. 12

BALANCED APPROACH Expect to generate positive cash flow from operations for the fourth consecutive year while growing revenues and replenishing land investments Consolidated Revenues Land Investment $16 $15.5 $16.3 $5 $12 $8 $4 $10.8 $12.2 $14.1 $4 $3 $2 $1 $2.2 $2.7 $3.5 ~$4.0 $0 FY 2015 FY 2016 FY 2017 FY 2018e $0 FY 2015 FY 2016 FY 2017 FY 2018e $ in billions Expect to generate positive cash flow from operations for the fourth consecutive year excluding Forestar 13

FY 2018 CAPITAL AND CASH FLOW PRIORITIES Balanced, disciplined, flexible and opportunistic Invest in homebuilding opportunities, including acquisitions, to generate acceptable returns and consolidate market share Acquired 75% of Forestar for $558 million in October 2017 Reduce or maintain debt levels and leverage Refinanced $400 million of senior notes in Q1 FY 2018 Consistent dividends to shareholders Increased quarterly dividend by 25% in Q1 FY 2018 Approximately $190 million annually Share repurchases to partially offset dilution Repurchased 500,000 shares during Q1 FY 2018 for $25.4 million Remaining Board authorization of $174.6 million 14

HOMEBUILDING SG&A Expect SG&A as a percentage of homebuilding revenues to improve approximately 20 basis points in FY 2018 to around 8.7% HB Rev $ SG&A % $16.0 11.0% $12.0 $8.0 $10.6 $11.9 $13.7 10.0% 9.0% $7.9 8.0% $4.0 7.0% $0.0 2014 2015 2016 2017 HB Rev $ SGA % 6.0% $ in billions Shown as a % of homebuilding revenues 15

FORESTAR ACQUISITION On October 5, 2017, D.R. Horton ( DHI ) completed the acquisition of 75% of the outstanding shares of Forestar ( FOR ) for $558 million in cash FOR is and will continue to be a publicly traded residential land development company, with operations currently in 16 markets and 11 states The strategic relationship will significantly grow FOR into a large, national residential land development company, selling lots to D.R. Horton and other homebuilders Advances DHI s strategy of increasing its access to optioned land and lots to enhance operational efficiency and returns FOR is led by new Executive Chairman Don Tomnitz, DHI s CEO for over 15 years, and is supported by an experienced management team and board of directors Over the longer term, DHI intends to gradually reduce its ownership position and increase the public float of FOR stock Effective 1/30/18, FOR s fiscal year will end on 9/30, which aligns with DHI s fiscal year Expect FOR s annual deliveries to grow to approximately 10,000 lots by fiscal 2020 16

FORESTAR TIMELINE FOR evaluating 22 primarily DHI sourced projects (closed on 6 as of 12/31/17) representing 11,000 lots Expect FOR to invest $400 million in land acquisition and development in fiscal 2018 Expect FOR to access the public markets for additional growth capital in fiscal 2019 Oct. 5, 2017 DHI and FOR merger closed Dec. 31, 2017 FOR fiscal year end March 2018 FOR 10 K filing April 2018 DHI Q2 earnings release & call Sept. 30, 2018 DHI & FOR fiscal year end Sept. 30, 2019 Sept. 30, 2020 DHI will update 2018 FOR guidance Expect FOR to have a bank credit facility in place in fiscal 2018 Expect FOR to grow its annual deliveries to 10,000 lots by fiscal 2020 DHI & FOR working to improve returns on and accelerate cash flows from FOR s existing portfolio DHI does not expect FOR to have a material impact on its fiscal 2018 results Lot counts and dollar amounts are approximate 17

FY 2018 EXPECTATIONS* Fiscal Year: Consolidated pre tax profit margin of 11.8% to 12.0% Consolidated revenues between $15.5 billion and $16.3 billion Homes closed between 50,500 homes and 52,500 homes Home sales gross margin in the range of 20% to 21%, with potential quarterly fluctuations that may be outside of this range Homebuilding SG&A expense of around 8.7% of homebuilding revenues Financial Services operating margin of approximately 30% Income tax rate of approximately 26%** Outstanding share count increase of less than 1% Cash flow from operations of at least $700 million (excluding Forestar) Second Quarter: Backlog conversion rate in the range of 97% to 100% Home sales gross margin of 20% to 21% Homebuilding SG&A expense in the range of 9.0% to 9.2% of homebuilding revenues *Based on market conditions as noted on the Company s conference call on 1/31/18 and excluding Forestar **Excludes Q1 FY 2018 charge of $108.7 million to reduce net deferred tax assets as a result of the Tax Cuts and Jobs Act 18

THREE YEAR OUTLOOK* FY 18 FY 20: Increase consolidated revenues and pre tax profits at a double digit annual pace Improve return on inventory Increase optioned lots to 60% of total homebuilding land and lot position by 2020 Cash flow from operations growing to over $1.25 billion annually in 2020 Maintain or reduce debt and leverage Increase dividends Repurchase shares to offset dilution with a target to keep our outstanding share count flat by 2020 *Based on market conditions as noted on the Company s conference call on 1/31/18 and excluding Forestar 19

FIRST QUARTER DATA 20

Q1 FY 2018 HIGHLIGHTS Consolidated pre tax income increased 23% to $391.2 million Consolidated pre tax income margin improved 70 basis points to 11.7% The value of net homes sold, homes closed and homes in backlog increased by 17%, 14% and 11%, respectively 10,753 net homes sold and 10,788 homes closed Homes in inventory increased 13% to 27,800 homes Completed the acquisition of 75% of the outstanding shares of Forestar for $558 million in cash on October 5, 2017 Issued $400 million principal amount of 2.55% senior notes due 2020 Redeemed $400 million principal amount of our 3.625% senior notes due February 2018 at par 21

SALES, CLOSINGS AND BACKLOG Net Sales Orders, Homes Closed and Homes in Backlog increased 16%, 15% and 9%, respectively, in Q1 of FY 2018 compared to Q1 of FY 2017 # of Homes 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Sales Closings Backlog 1Q FY 2016 1Q FY 2017 1Q FY 2018 22

INCOME STATEMENT 3 MONTHS ENDED FISCAL YEAR ENDED 12/31/2017 12/31/2016 9/30/2017 9/30/2016 Homes closed 10,788 9,404 45,751 40,309 Homebuilding Revenues: Home sales $ 3,184.5 $ 2,797.7 $ 13,653.2 $ 11,783.1 Land/lot sales and other 36.4 28.4 88.3 78.7 3,220.9 2,826.1 13,741.5 11,861.8 Gross profit: Home sales 663.0 552.9 2,725.4 2,380.1 Land/lot sales and other 5.2 7.6 13.5 10.5 Inventory and other land option charges (3.7) (2.3) (40.2) (31.4) 664.5 558.2 2,698.7 2,359.2 SG&A 304.8 268.4 1,220.4 1,100.3 Interest and other (income) and goodwill impairment (14.1) (4.1) (11.0) (5.5) Homebuilding pre tax income 373.8 293.9 1,489.3 1,264.4 Financial services, Forestar and other pre tax income 17.4 24.2 112.8 89.1 Pre tax income 391.2 318.1 1,602.1 1,353.5 Income tax expense 202.4 111.2 563.7 467.2 Net income 188.8 206.9 1,038.4 886.3 Net loss attributable to noncontrolling interests (0.5) 0.0 0.0 0.0 Net income attributable to D.R. Horton, Inc. $ 189.3 $ 206.9 $ 1,038.4 $ 886.3 Diluted earnings per share $ 0.49 $ 0.55 $ 2.74 $ 2.36 $ in millions except per share data Q1 FY 2018 income tax expense includes a $108.7 million charge to reduce net deferred tax assets, partially offset by a lower effective tax rate, both as a result of the Tax Cuts and Jobs Act Detailed segment information is available in our Q1 FY 2018 earnings press release and Form 10 Q 23

HOME SALES GROSS MARGIN Home sales gross margin of around 20% 21% 18% 19.8% 20.2% 19.8% 19.8% 19.8% 20.3% 20.8% 15% 12% 9% 6% 3% 0% FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Shown as a % of home sales revenues Includes interest amortized to cost of sales 24

HOMEBUILDING SG&A First quarter SG&A as a percentage of homebuilding revenues of 9.5% Fiscal Year 2017 First Fiscal Quarter 2018 HB Rev $ SG&A % HB Rev $ SG&A % $14,000 12% $14,000 12% $12,000 $12,000 $10,000 11% $10,000 11% $8,000 $6,000 $4,000 $2,000 9.3% 8.9% 10% 9% $8,000 $6,000 $4,000 $2,000 9.5% 9.5% 10% 9% $0 2016 2017 8% $0 Q1 FY17 Q1 FY18 8% HB Rev $ SG&A % HB Rev $ SG&A % $ in millions Shown as a % of homebuilding revenues Q1 FY 2018 homebuilding SG&A includes approximately $5.3 million of Forestar transaction costs 25

CONSOLIDATED PRE-TAX INCOME Consolidated pre tax profit margin improved 70 basis points to 11.7% in Q1 FY 2018 Fiscal Year 2017 First Fiscal Quarter 2018 PTI $ PTI $ $1,800 $1,800 11.4% $1,600 $1,600 $1,400 11.1% $1,602.1 $1,400 $1,200 $1,353.5 $1,200 $1,000 $1,000 $800 $800 $600 $600 $400 $400 $200 $200 $0 $0 2016 2017 11.0% 11.7% $318.1 $391.2 Q1 FY17 Q1 FY18 $ in millions Shown as a % of consolidated revenues 26

BALANCE SHEET 12/31/2017 9/30/2017 12/31/2016 Homebuilding Cash and cash equivalents $ 566.3 $ 982.3 $ 1,124.3 Inventories: Construction in progress and finished homes 4,907.8 4,606.0 4,285.4 Land inventories 4,767.9 4,631.1 4,457.0 9,675.7 9,237.1 8,742.4 Other assets 829.6 793.1 678.8 Deferred income taxes, net 239.1 365.0 467.8 Financial services, Forestar and other assets 1,646.6 807.1 698.8 Total assets $ 12,957.3 $ 12,184.6 $ 11,712.1 Homebuilding Notes payable $ 2,749.6 $ 2,451.6 $ 2,798.6 Other liabilities 1,564.2 1,508.7 1,473.5 Financial services, Forestar and other liabilities 588.1 476.7 458.2 Stockholders equity 7,882.0 7,747.1 6,981.3 Noncontrolling interests 173.4 0.5 0.5 Total equity 8,055.4 7,747.6 6,981.8 Total liabilities and equity $ 12,957.3 $ 12,184.6 $ 11,712.1 Debt to total capital homebuilding 25.9% 24.0% 28.6% Common shares outstanding 375.69 374.99 373.3 Book value per common share $ 20.98 $ 20.66 $ 18.70 In millions, excluding per share metrics Homebuilding cash and cash equivalents includes $8.3 million, $9.3 million and $8.8 million of restricted cash for the periods ended 12/31/17, 9/30/17 and 12/31/16, respectively Detailed segment information is available in our Q1 FY 2018 earnings press release and Form 10 Q 27

HOMES IN INVENTORY Homes in inventory increased 13% from a year ago to support expected growth in homes closed 30,000 25,000 20,000 20,600 19,800 23,100 24,500 26,200 27,800 15,000 10,000 5,000 0 9/30/14 9/30/15 9/30/16 12/31/16 9/30/17 12/31/17 Models Sold Specs 28

HOMEBUILDING LAND AND LOT POSITION 300,000 Optioned lot position increased 42% from a year ago 250,000 249,000 259,400 200,000 150,000 183,500 58,900 173,900 55,500 204,500 212,600 91,600 94,300 124,000 133,500 * 100,000 50,000 124,600 118,400 112,900 118,300 125,000 125,900 0 9/30/14 9/30/15 9/30/16 12/31/16 9/30/17 12/31/17 Optioned Owned *Includes 3,100 lots D.R. Horton has under contract with or the right of first refusal to purchase from Forestar 29

HOMEBUILDING PUBLIC DEBT MATURITIES BY YEAR $800 $700 $600 $500 $500 $500 $700 5.750% $400 $300 $200 $400 $350 $100 $0 3.750% 4.000% 2.550% 4.375% 4.750% FY 19 FY 20 FY 21 FY 22 FY 23 $ in millions 30