Larry Oglesby SVP, National Operations Regional President, Central. Matt Mandino Regional President

Transcription

1 Larry Oglesby SVP, National Operations Regional President, Central Matt Mandino Regional President

2 Introduction: Larry Oglesby 31 years at KB Home Previous roles: Regional President (Austin, Dallas/Fort Worth, Houston, New Mexico, Phoenix, Rio Grande Valley, San Antonio, and Tucson) Regional General Manager, Texas Division President, Austin VP Construction, Texas Director of Operations, San Antonio Regional Construction Manager, San Antonio Project Manager, San Antonio 2016 KB Home 2

3 Introduction: Matt Mandino 5 years at KB Home Previous roles: Division President, Colorado 16 years in the homebuilding industry Division President, Colorado Business Unit VP, Phoenix Land Acquisition, Phoenix VP Strategic Marketing, Arizona, Nevada & California 2016 KB Home 3

4 Central Region: Overview Presence in Austin, San Antonio, Houston, Dallas/Fort Worth and Denver Highly-experienced team, with Division Presidents serving an average of 10 years with KB Home Market size based on 2015 closings in served markets New 78,388 Resale 280,438 KB Home Metrostudy rankings for 2015 (based on closings) Austin #2 San Antonio #2 Houston #4 Denver #5 Dallas/Fort Worth (re-start) 2016 KB Home 4

5 Central Region: Consistently Improving Performance ($ in millions) $1,000 $750 $500 $250 $0 $100 $75 $50 $25 $0 $436 Housing Revenues $565 $693 $803 $ Q LTM Homebuilding Operating Income $8 $28 $47 $70 $ Q LTM 3,700 2,775 1, ,566 Unit Deliveries 2,841 3,098 3,183 3, Q LTM Average Community Count Q LTM 2016 KB Home 5

6 Central Region: Housing Gross Margin and Delivery Mix 20% 19.0% 19.5% 20% 16% 16.1% 17.2% 16% 13.8% 12% 12% 8% 6% 8% 4% 3% 4% 4% 0% 0% 0% Q Housing Gross Profit Margin LTM % of Deliveries from Reactivated Communities 0% 2016 KB Home 6

7 Central Region: Potential for Growth With deliveries at 48% of a normalized year, we see an opportunity for significant growth in the region. Deliveries Peak 2002 Normal 2003 Q LTM Austin 1, ,002 San Antonio 2,877 1, Houston/Dallas Ft. Worth 3,696 3,769 1,097 Colorado 1,732 1, Total 9,605 7,603 3, KB Home 7

8 Core Business Strategy: KB2020 Customer Operations Establish a Top 5 position in our served markets by building communities that offer a compelling combination of affordability, choice and personalization Land Product 2016 KB Home 8

9 It Starts With the Customer Customer Operations Target first-time and first move-up buyers with products that are affordably priced for the median household income of the submarket Land Product 2016 KB Home 9

10 Central Region: Customer Customer surveys, segmented by buyer type, drive our decisions. Customer Surveys Select Target Submarkets Develop Market Strategy Acquire Land that Supports the Market Strategy Surveys provide location, product and price point preferences Evaluate for product, price, and market share opportunities Identify how to serve the median household income for the locations selected Define products and price bands for each submarket Seek out the investments we want Position 2-3 years ahead to support targeted growth 2016 KB Home 10

11 Colorado Division: Customer Median household income is $71,000 Affordability range is $225,000 to $335,000 Challenging environment Lot development costs House costs Municipality fees Solving the affordability issue by increasing our density yield with our paired product (duplex) 10 to 12 du/ac 1,400 to 1,900 sq ft 2-car garage Private side yard 2016 KB Home 11

12 Colorado Division: Paired Product 2016 KB Home 12

13 Colorado Division: Paired Product Median price for new single-family home in the Denver metro area is $480,000 Our base prices start at $320,000 Attractive for land developers, as they work to increase their density and segment large assets Accounts for 25% of our net orders through Q We have also seen strong interest from move-down buyers due to the low maintenance aspect of the product 2016 KB Home 13

14 Investing in Land Customer Operations Invest in and develop land positions within prime growth submarkets that provide a 2-3 year supply of land/lots per community Land Product 2016 KB Home 14

15 Central Region: Customer Customer surveys, segmented by buyer type, drive our decisions. Customer Surveys Select Target Submarkets Develop Market Strategy Acquire Land that Supports the Market Strategy Surveys provide location, product and price point preferences Evaluate for product, price, and market share opportunities Identify how to serve the median household income for the locations selected Define products and price bands for each submarket Seek out the investments we want Position 2-3 years ahead to support targeted growth 2016 KB Home 15

16 Central Region: Colorado 2016 KB Home 16

17 Central Region: Colorado 18 Communities 1 Studio 2016 KB Home 17

18 Colorado Division: Land Experienced land team in a highly competitive market. VPs of land acquisition and land development have a combined 32 years in Denver Multiple builders have a presence in Colorado We have a competitive advantage in the strong local relationships we have with land developers Stapleton Forest City The Meadows Castle Rock Development Reunion Shea Homes North Park McWhinney 2016 KB Home 18

19 Colorado Division: Land Ownership/control of lots directly aligned with our strategy. Currently own and control 3-year supply of lots Currently own 2-year supply of lots Returns-focused approach Multiple takedown schedule Phase development Purchase finished lots when available 2016 KB Home 19

20 Colorado Division: Recent Acquisitions Recently secured a number of exceptional opportunities in highly desirable areas. Community Location # of Lots # of Takedowns Stapleton Denver 56 4 Stapleton Denver 56 3 The Meadows Castle Rock Reunion Commerce City 94 (finished) 2 Product Single-family court yards Paired (duplex) homes Single-family and paired homes Single-family homes 2016 KB Home 20

21 Product Design & Customer Choice Customer Operations Design products that maximize value to the customer, creating a base product with a standardized set of functions and features at a competitive price per square foot, while also providing structural choices and leveraging the Studio for personalization Land Product 2016 KB Home 21

22 Central Region: Product Multiple product series, with each series providing 3-5 available elevations and plan-specific structural options. Division Austin X X X X X San Antonio X X X Houston X X X X X Colorado Paired X X 2016 KB Home 22

23 Central Region: Product (Plan 2004) Frequency since 2013: 663 Plan is property of KB Home 2016 KB Home 23

24 Central Region: Product (Plan 2004) Good selling floor plan that can be sold in multiple markets Key buyer preferences Single-story Master bedroom is in the back of the house Bedrooms 2 & 3 are split from master bedroom Plan is property of KB Home 2016 KB Home 24

25 Central Region: Product (Plan 2004) 2016 KB Home 25

26 Central Region: Product (Plan 2004) 2016 KB Home 26

27 Central Region: Product (Studio) 2016 KB Home 27

28 Colorado Division: Product Three primary product series, with 40 total floor plans. Base price ranges from $320,000 - $480,000. Product Series Square Feet Ranch Two-Story Paired 1,400 1, % 40 Single-Family Home 1,300 2,800 48% 52% 50 Single-Family Home 2,000 3,900 44% 56% 2016 KB Home 28

29 Colorado Division: 40 Exterior 2016 KB Home 29

30 Central Region: Asset Optimization Manage every community to perform at or above targeted gross margin and return hurdle rates. Analyze every community based on its current pace and margin to place each asset in an optimized position Review every community weekly to evaluate asset balance, lot count, replaceability If a community is not in an optimized position, we review various factors and take action 2016 KB Home 30

31 Central Region: Positioning/Pricing Resale pricing and square footage Moving up or down? Resale days on the market Is the price band getting sticky with sales slowing? How do our recent sales compare to resale in square footage and price? Are there new or resale positions that are achieving better results? How does our product offering and price fit current median household income? Does our model park fit the current buyers in the market for price and square footage? 2016 KB Home 31

32 Central Region: Positioning/Pricing Based on the outcomes of these and other comparisons, we may need a tweak or full reposition A tweak could include: Minor adjustment to included features More careful price banding in the target square footage and plans Consider adding a plan to fill an identified gap vs. what is absorbing in the market A full reposition could include: Introduce new models to move up or down in square footage and price Re-plat future lots in the community to fit different footprints Stop selling and re-establish the reservation process to verify the adjustments have the desired effect prior to re-grand opening 2016 KB Home 32

33 Operational Model Customer Operations Built-to-order model drives efficient, low-cost production through disciplined and scalable operations Land Product 2016 KB Home 33

34 Central Region: Operations Backlog targets are equal to one full sale-to-close cycle generally 6 months. Maintaining one full cycle in backlog softens production spikes and creates more efficiency, internally and externally Provides consistent visibility to our subcontractors and suppliers that helps their business planning Central Region currently has a 6.3 month backlog Managed from two specific categories: sold not started; sold under construction Managing the sold not started category properly provides an after-start cancellation rate of less than 10% 2016 KB Home 34

35 Colorado Division: Operations Currently operating with a 6.5 month backlog, 434 sold homes Low percentage of spec home inventory 12% of WIP 11 finished inventory units Competitive advantage as we work with our trade partners Key component in our ability to scale operations Year Deliveries Q LTM KB Home 35

36 Customer Satisfaction Customer Operations Provide high customer satisfaction from sale to delivery Land Product 2016 KB Home 36

37 Central Region: Customer H2insight is focused on developing and increasing customer satisfaction levels through proactive customer engagement Since 2011, KB Home has partnered with H2insight to conduct postclosing surveys at the 30-day and 11-month marks H2insight works with 5 of the 8 largest builders in the United States H2insight s analysis of industry survey results shows KB Home above the national average in every aspect of customer satisfaction they measure Through our Customer First focus, our scores continue to improve each quarter 2016 KB Home 37

38 Central Region: Customer High ratings from customers across key categories. Metric Q Q Sales Construction Home Readiness Design Overall Quality Customer Care KB Home 38

39 Central Region: Customer Coach each division in overall quality to understand how we can improve our product. IBACOS is an insurer-approved, nationally recognized home quality and performance assessment, design and consulting firm with 25 years experience PERFORM Assess Annual in-field construction quality assessments since days in each market 13 systems, 92 sub-systems, nearly 600 checkpoints Proactive coaching while onsite Leadership debriefing concluding each site visit Best practices observed Improvement opportunities and recommendations 2016 KB Home 39

40 Implementation of Strategy Manage the region to a defined set of key measures. Daily review of Orders Final inspections Loan authorization Deliveries Studio finals Warranty claims received Permits Warranty claims closed Slab starts Frame starts Drywall starts 2016 KB Home 40

41 Central Region: Key Takeaway Consistent and focused execution of our core business strategy together with steady growth and improving performance leads to a key outcome: increasing returns 2016 KB Home 41

42 Central Region: Operating Return on Capital (OROC) Healthy and growing returns. 12% 11.6% 10.2% 9.0% 8% 7.7% 4% 2.6% 0% Q LTM 2016 KB Home 42

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