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KB Home Issues $250M Offering

Zacks Equity Research

KB Home (KBH) announced that it intends to commence concurrent underwritten public offering of $100 million of common stock and convertible senior notes worth $150 million due 2019. The company intends to use the proceeds from the offering for corporate expenditures, including land acquisitions and development.  

Of late, KB Home has been involved in aggressive investment in land assets and communities. The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up.

This has necessitated the building of an adequate number of new homes to maintain the required level of inventory to meet growing demand. Acquiring lots and lands will help the company to capitalize on the increasing housing demand.  

KB Home intends to open more than 120 communities in 2013, with more communities started to come up in the later half of the year. As such, the community count is expected to increase by at least 15% to 20% by the end of next year. The company expects profitability for fiscal 2013. The proceeds from the offerings will support the company in meeting its targets.

The company is also taking other initiatives to capitalize on the rising housing demand. The company recently entered into an agreement with its current preferred mortgage lender, National Mortgage LLC to form a joint venture, Home Community Mortgage, LLC that will offer loans to KB Home customers.

National Mortgage LLC is a subsidiary of Nationstar Mortgage Holdings Inc. (NSM), one of the largest non-bank mortgage providers in the U.S. By providing easier access to finance, the new joint venture deal is expected to further boost the company’s order growth.  

However, we believe that the company may take time to achieve sustainable profitability as the housing market recovery process is erratic and uneven.  

KB Home carries a Zacks Rank #3 (Hold). Homebuilding companies that warrant a look include NVR Inc. (NVR), and MDC Holdings Inc. (MDC), both of which carry a Zacks Rank #1 (Strong Buy).

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