PulteGroup Buys Dominion Homes' Assets in Ohio & Kentucky

Zacks

PulteGroup, Inc. (PHM) recently acquired some of the real estate assets of Dominion Homes, one of the leading homebuilder in Columbus, Ohio, and Louisville, Ky.

The acquisition includes 27 open communities in Columbus, OH; 11 open communities in Louisville, KY and three open communities in Lexington, KY. The acquisition secures the leading position of Pulte in the Midwest homebuilding markets of Columbus, Louisville and Lexington. Pulte expects this acquisition to be accretive to earnings.
 
Pulte has already acquired about 6,500 lots and intends to acquire another 1,600 lots within the next 45 days upon completion of the diligence period. These lots will cater to entry-level and move-up buyers, who primarily constitute Pulte’s clientele.

Based in Bloomfield Hills, MI, Pulte is facing supply constraints in many markets, which in turn, lowered its community count. In fact, the homebuilding company has intentionally slowed down sales pace across some of its communities due to a lack of land development and scarcity of finished lots.

Shortage of buildable lots, skilled labor and capital for smaller builders are limiting the production of homes, thereby lowering inventory of both new and existing homes. Instead, the company is focusing more on driving price and margin in most communities. This strategy hurt net order growth significantly in 2013 with orders declining around 10% — a stark contrast to increases witnessed by most peers, including KB Home (KBH), Meritage Homes Corporation (MTH) and Lennar Corp. (LEN). Though Pulte’s pricing and profits are improving, the below-average order growth remains a persistent concern.

Pulte is continuously evaluating its assets and prioritizing markets and projects in order to allocate capital appropriately and to invest selectively in high-return projects. While the company monetizes non-profitable existing assets, it is also adding strategic land positions. Also, the company plans to spend $2.0 billion on land and related development in 2014. The present acquisition of assets from Dominion Homes is in line with the company’s growth strategy.

PulteGroup carries a Zacks Rank #3 (Hold).

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