weyerhaeuser analyst meeting dc – day 1 (economic overview)
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DTP2844.ppt • 5/12/2005 • 1
Good MorningWeyerhaeuser Real Estate Company
Analyst SeminarMay 2005
DTP2844.ppt • 5/12/2005 • 2
Forward-looking Statements
This presentation contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements can be identified by the use of forward-looking terminology such as “expects,” “may,” “will,” “believes,” “should,” “approximately,”anticipates,” “estimates,” “plans,” and “probably,” and the negative or other variations of those terms or comparable terminology or by discussions of strategy, plans or intentions. In particular, some of these forward-looking statements deal with forecasts regarding the outlook for the national housing market, demand, market position in particular markets, competitive landscape in particular markets, expectations regarding increased market share of large homebuilders, builder/dealer consolidation affordability of particular housing markets, large base of first-time homebuyers in particular housing markets, barriers to entry in particular housing markets, financial goals, the regulatory environment and timing of land entitlement process, increase in land values, softness of certain local housing markets, labor demand and supply, innovation, technology, cost reduction, cycle time reduction, quality improvement, competition based upon solutions, and similar matters. The accuracy of such forward-looking statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, including the level of interest rates, exchange rates and inflation; immigration and population growth; the relative strength of various U.S. and global business segments; local market economies and employment growth; energy prices; raw material prices; the effect of governmental actions; natural disasters; and the outbreak of terrorism, war and other hostilities.
In addition, some information in this presentation is derived from publicly available information, building industry publications and websites, data complied by market research firms, and similar sources. Although we believe that this information is reliable, we have not independently verified any of this information and we cannot assure you that it is accurate.
DTP2844.ppt • 5/12/2005 • 3
Agenda
7:00 a.m. WRECO Overview
7:30 a.m. Homebuilding Operations
8:50 a.m. Land and Land Development
10:10 a.m. Construction Practices and Trends
11:10 a.m. South Village Case Study
11:30 a.m. Meeting Adjourns
Noon Depart for South Village Tour
3:30 p.m. Return to airport
DTP2844.ppt • 5/12/2005 • 4
Weyerhaeuser Real Estate Company Weyerhaeuser Real Estate Company
Daniel S. FultonDaniel S. FultonPresident, Weyerhaeuser Real Estate CompanyPresident, Weyerhaeuser Real Estate Company
DTP2844.ppt • 5/12/2005 • 5
Weyerhaeuser Real Estate Company
Single family homebuilding• Retail business — sell direct to final customer
• Local / regional focus
• Focused on markets where we have a competitive advantage
Builder finance
DTP2844.ppt • 5/12/2005 • 6
Who We Are
WRECOWRECO
DTP2844.ppt • 5/12/2005 • 7
Revenues
1,377 1,4611,750
2,029
2,495
469655
400800
1,2001,6002,0002,4002,800
2000 2001 2002 2003 2004 2004.1 2005.1
($m
illio
ns)
Financial Performance
2005 has started strongly
Average Home Price
318 334 340374
417377
450
200250
300350400
450500
2000 2001 2002 2003 2004 2004.1 2005.1
($00
0s)
Closings & Backlog
3,369 3,6514,280 4,626
5,264
1,065 1,189
5001,5002,5003,5004,5005,500
2000 2001 2002 2003 2004 2004.1 2005.1
Hom
es
Pre-tax Earnings
259 264336
392
120183
610
100200300400500600700
2000 2001 2002 2003 2004 2004.1 2005.1
($m
illio
ns)
ClosingsBacklog
DTP2844.ppt • 5/12/2005 • 8
Financial Performance
Margins and turnover trending favorably
Asset Turnover
1.0 1.0
1.2
1.4 1.4 1.41.5
0.8
1.0
1.2
1.4
1.6
2000 2001 2002 2003 2004 2004.1 2005.1
Pre-tax Margin
19% 18% 19% 19%
26%28%
24%
12%
16%
20%
24%
28%
32%
2000 2001 2002 2003 2004 2004.1 2005.1
Single Family Gross Margin
22% 23% 24%26%
30%26%
32%
15%
20%
26%
31%
37%
2000 2001 2002 2003 2004 2004.1 2005.1
DTP2844.ppt • 5/12/2005 • 9
Return On Investment
25.6 25.330.8 34.9
45.9
101520253035404550
2000 2001 2002 2003 2004
Perc
enta
ge
Return on Investment
WRECO has been a consistent top-quartile financial performer compared to other public homebuilders
DTP2844.ppt • 5/12/2005 • 10
Land Pipeline
WRECO currently has a 6-year supply of land and lots under control
Lots Under Control
0
2
4
6
8
10
12
Num
ber o
f Yea
rs
1994 2005.1
DTP2844.ppt • 5/12/2005 • 11
WRECO — RIR
WRECO is widely known for industry leadership in job-site safety
3.232.95
0.521.05
0.00.51.01.52.02.53.03.54.04.5
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005.1
Employees Contractors
DTP2844.ppt • 5/12/2005 • 12
WRECO Ranked 16th in Closings in 2004 Rank by Closings
1,000
6,000
11,000
16,000
21,000
26,000
31,000
36,000
41,000
46,000
51,000
Tota
l New
Res
iden
tial C
losi
ngs
WRECO: 5,264 Closings
(Source: Builder Magazine, May 2005 and Professional Builder Magazine, May 2005)
DTP2844.ppt • 5/12/2005 • 13
WRECO Ranked 14th in Revenue in 2004
Rank by Total Revenue
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
Tota
l Rev
enue
, $B
WRECO: $2.5 Billion
(Source: Builder Magazine, May 2005)
DTP2844.ppt • 5/12/2005 • 14
Rank by Pre-Tax Margin
0%
5%
10%
15%
20%
25%
2004
Pre
-Tax
Mar
gin
WRECO: 23.6%
WRECO Ranked 1st in Pre-tax Margin Among the Top 20 Public Builders in 2004
(Source: SEC filings)
DTP2844.ppt • 5/12/2005 • 15
Large Builders Capture Increasing Market Share
Current stability of market drivers
Supply constraints
Improved inventory management
Geographic diversification
Product diversification
Improved technology
Purchasing efficiencies
Stronger balance sheets
DTP2844.ppt • 5/12/2005 • 16
Months of Supply
0
2
4
6
8
10
12
14
Jan-
74
Jan-
76
Jan-
78
Jan-
80
Jan-
82
Jan-
84
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Mon
ths
Housing Supply Remains Low by Historical Standards
DTP2844.ppt • 5/12/2005 • 17
Industry Market Share Trends
Large homebuilders continue to gain scale faster than small builders• Improved efficiencies• Sophistication • Stability
1993—2004 CAGR
Top 5 Closings 14.8%Top 6–10 10.9%Top 11–20 6.3%Total U.S. 5.5%
Top 20 Market Share
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
1993 1998 2003 2004
Top 5 Top 6-10 Top 11-20
Source: Builder Magazine, US Census Bureau, NAHB
DTP2844.ppt • 5/12/2005 • 18
Large Builder Competitive Advantages
First look at deals (land and partnership)Expertise and resources to entitle landAttract and retain best peopleInvolvement in industry initiativesTechnology investment and implementation
Gross Margin 26.8%
SGA 12.5%
EBIT Margin 14.3%
Financing Cost 1.7%
Profit Margin 12.6%
Gross Margin 24.1%
SGA 13.6%
EBIT Margin 10.5%
Financing Cost 2.1%
Profit Margin 8.4%
2.7%
1.1%
3.8%
0.4%
4.2%
Builders 1–20 Builders 276–400 Advantage
Source: Michael Porter presentation, The U.S. Homebuilding Industry and the Competitive Position of Large Builders, 11/18/2003
DTP2844.ppt • 5/12/2005 • 19
Powerful regional brandsDisciplined execution• Safe job sites• Focused value propositions• Inventory controlLinkage with Weyerhaeuser
Select marketsExperienced management• 22-year average tenureLocalized approach• Product preferences• Community and
governmental issuesAligned management processes focused on financial results
Our Competitive Advantages
DTP2844.ppt • 5/12/2005 • 20
Weyerhaeuser Realty Investors
““Making deals work for over 30 yearsMaking deals work for over 30 years””• Dependable source of capital • Hassle-free approval• Quick initial response • Competitively priced• Funding on the promised date • Honest, fair and focused
on long-term relationships
2004 Closings: 7,371 Homes and LotsEquity or mezzanine debt construction financing to medium size homebuilders (50–600 homes annually)WRI is an investment manager for institutional investors as well as an investor itself• Total investment in WRI represents less than 2% of WRECO’s assets• Principal markets: Southern California, Northern California, Phoenix,
Las Vegas, Denver, Puget Sound, Portland, Washington DC, Chicago, Boise, Salt Lake City
DTP2844.ppt • 5/12/2005 • 21
WRECO Is Positioned to Succeed
Outlook for the national housing market is favorable• Demographic trends are compelling
WRECO is a top performer• We have strong competitive advantages
DTP2844.ppt • 5/12/2005 • 22
Agenda
7:00 a.m. WRECO Overview Dan Fulton
7:30 a.m. Homebuilding Operations Dan Fulton (Moderator)Larry BurrowsWill HolderPeter OrserMike McGeeHal Struck
8:40 a.m. Break
8:50 a.m. Land and Land Development Dan Fulton (Moderator)Jon LashSteve MargolinSteve NardellaJoel MarshallJohn Osgood
DTP2844.ppt • 5/12/2005 • 23
Home Sizes (sf) Price Range Communities 2004 Closings1,459–4,502 $245,000–$1,470,000 21 725 homes
● One of the largest builders of upscale homes in the D.C. area● Market customization leader through program● First large builder to win NAHB’s Housing Quality Award● Rated #4, “50 Best Companies to Work For” by Professional Builder Magazine
“Delivering a superior customer-focused buying experience to customers that value and can afford customization, in well-designed
communities in superior locations. Preferred brand for the upscale buyer.”
Winchester Homes
DTP2844.ppt • 5/12/2005 • 24
500
550
600
650
700
750
2000 2001 2002 2003 2004
Clo
sing
s
$400
$450
$500
$550
$600
Ave
rage
Pric
e ($
000'
s)
Closings Average Price
Winchester Homes: Historical Snapshot
DTP2844.ppt • 5/12/2005 • 25
Winchester Homes: Geography
DTP2844.ppt • 5/12/2005 • 26
Winchester Homes: Formative Periods
Started from Scratch in Maryland
Established as Large Production Builder, Entered Virginia
Market Peaked, Refocused, Branded Quality (WinchestersWorth)
Repositioned, “Preferred Brand Upscale Homebuyer”
Introduced 10 Cylinders
1979–1982
1983–1988
1989–1993
1994–1996
2003–Current
ImplementedCustomization (Your Home Your Way)
1997–2003
DTP2844.ppt • 5/12/2005 • 27
Winchester Homes: 10 Cylinders Operationalized
RetainRetain DevelopDevelop RecruitRecruit LocationLocationCommunityVisioning
CommunityVisioning
Product Design
Product Design
Product Quality
Product Quality
Buying Experience
Buying Experience
RealtorsRealtors CustomersCustomers
Great PeopleGreat
PeopleGreat
ProductGreat
ProductGreat
DemandGreat
Demand
Preferred Brand for the Upscale Buyer
Preferred Brand for the Upscale Buyer
DTP2844.ppt • 5/12/2005 • 28
Winchester Homes:Customization Through
DTP2844.ppt • 5/12/2005 • 29
Winchester Homes: Customization Through
DTP2844.ppt • 5/12/2005 • 30
Agenda
7:00 a.m. WRECO Overview Dan Fulton
7:30 a.m. Homebuilding Operations Dan Fulton (Moderator)Larry BurrowsWill HolderPeter OrserMike McGeeHal Struck
8:40 a.m. Break
8:50 a.m. Land and Land Development Dan Fulton (Moderator)Jon LashSteve MargolinSteve NardellaJoel MarshallJohn Osgood
DTP2844.ppt • 5/12/2005 • 31
Home Sizes (sf) Price Range Communities 2004 Closings1,700–5,869 $185,000–$667,000 22 745 homes
● Houston’s leading home builder in its targeted upscale market segment● Broad product offering: townhomes to spacious, luxury single-family homes● Houston Builder Ranking 2004: 2nd aver. price ($338,000), 8th total $ volume ($252MM)
Trendmaker Homes
“We offer luxury, production homes at a price below custom homes, but at a premium from other production builders, while using processes that minimize the hassle and anxiety of the home buying/building experience.”
DTP2844.ppt • 5/12/2005 • 32
Trendmaker Homes: Overview
Houston homebuilder since 1971
Purchased by WRECO in 1984
Over the years we have carved out a competitive market niche with Houston’s discriminating, move-up homebuyers
Enjoys strong Realtor support with 83% co-op sales vs. 64% for all builders combined
We target where we see the greatest profit potential
• Move-up family buyers
• Move-down empty nesters
DTP2844.ppt • 5/12/2005 • 33
Trendmaker Homes: Market Statistics
Houston Market Characteristics
4th largest city in America with almost 5 million residents
Added 34,900 new jobs in 2004 (Best Texas Market: Source, MetroStudy)
Over 40,000 housing starts in 2004
One of the most affordable metro housing markets with large base of first-time homebuyers and move-up buyers
Highly attractive regulatory environment with few zoning or entitlement requirements
DTP2844.ppt • 5/12/2005 • 34
Trendmaker Homes: Competitive Landscape
Few significant entry barriers for new builders or lot developers
Supply-rich environment, highly competitive at the retail level
Steady demand from both local buyers and corporate relocation buyers
National and local builders play an important market roll
Realtors play an very important role in corporate relocations and in reselling existing homes for local move-up buyers
Separate and distinct builder and developer market roles
DTP2844.ppt • 5/12/2005 • 35
Trendmaker Homes: Historical Snapshot
Trendmaker Homes
400
500
600
700
800
2000 2001 2002 2003 2004
Clo
sing
s
$250
$300
$350
$400
Ave
rage
Pric
e ($
000'
s)
Closings Average Price
*Introduced lower-priced townhomes
*
DTP2844.ppt • 5/12/2005 • 36
Trendmaker Homes: Strategy
ProductHigh-design homesHigh level of finishesComplete architectural elementsFunctional features
ProfessionalismUncompromising safety standardsTenured employees — train and retainCustomer-satisfaction drivenFocused Realtor and developer relations
DTP2844.ppt • 5/12/2005 • 37
Trendmaker Homes: Houston Community Map
DTP2844.ppt • 5/12/2005 • 38
Trendmaker Homes: Target Markets / Product
60’ Lot Product Line • 2,400–3,400 s.f.• $190–250,000• 90% brick, granite counters • Move-up and move-down buyers
65’ Lot Product Line • 2,900–3,600 s.f.• $250–300,000• Detached garages, large dining rooms • Strong family homes, some empty nesters
DTP2844.ppt • 5/12/2005 • 39
Trendmaker Homes: Target Markets / Product
70’ Lot Product Line • 3,000–4,200 s.f.• $300,000+• Elegant, highly amenitized homes, master
suites with sitting rooms and large game rooms • Move-up family buyers
80’+ Lot Product Line • 3,500–5,000 s.f.• $300–500,000+• Auto-court, 3-car garages, lake and golf lots,
high design• Move-up family buyers
DTP2844.ppt • 5/12/2005 • 40
Trendmaker Homes: Target Markets / Product
Acreage Lot Product Line• 2,500–5,000 s.f.• $300–500,000+• Considerable product range, country style and
estate lots• Multi-generational buyers, large-family living
Townhomes• 1,800–2,400 s.f.• $200–260,000• Rear-loaded, 3-car garages, courtyards,
1- and 2-story plans• Density: 6 units per acre • Move-down, empty nesters
DTP2844.ppt • 5/12/2005 • 41
Agenda
7:00 a.m. WRECO Overview Dan Fulton
7:30 a.m. Homebuilding Operations Dan Fulton (Moderator)Larry BurrowsWill HolderPeter OrserMike McGeeHal Struck
8:40 a.m. Break
8:50 a.m. Land and Land Development Dan Fulton (Moderator)Jon LashSteve MargolinSteve NardellaJoel MarshallJohn Osgood
DTP2844.ppt • 5/12/2005 • 42
“We provide the most home for the money —space, choice, value and hassle-free.”
Home Sizes (sf) Price Range Communities 2004 Closings1,288–4,120 $170,000–$390,000 11 1,160 homes
● #1 in sales volume in the Puget Sound Region● Builds homes using an “even-flow” production system● Selected by Washington CEO Magazine as the “Best Company to Work For” in 2004● Only homebuilder in the nation recommended for OSHA / WISHA VPP Star status
Quadrant Homes
DTP2844.ppt • 5/12/2005 • 43
Quadrant Homes: Historical Overview
Purchased by Weyerhaeuser in 1969
1974: Region’s first master-planned community (West Campus)
1990–2000: Leader in commercial build-to-suit market
1998: Reengineered homebuilding value proposition and began 1/day
2002: Exit commercial
2003: 4/day
2004: 5 and 6/day
DTP2844.ppt • 5/12/2005 • 44
Quadrant Homes
300
600
900
1,200
1,500
2000 2001 2002 2003 2004
Clo
sing
s
$250
$260
$270
$280
$290
$300
Ave
rage
Pric
e ($
000'
s)
Closings Average Price
Quadrant Homes: Historical Snapshot
DTP2844.ppt • 5/12/2005 • 45
Quadrant Homes
Market Characteristics• New homes• Resale homes• Jobs• Regulatory environmentCompetitive Landscape• Only 2 publics
– No large land positions• Mid-size (300) pushing for
500 sales recently• The 2 publics pushing out into
the next ring
DTP2844.ppt • 5/12/2005 • 46
Quadrant Homes: Strategies
Remain focused on executing in the Puget Sound core ($250–$400,000)
Create compelling value in next ring out ($150–$300,000)
Target unavailable price point in 3rd ring ($125–$200,000)
Stay true to More House, Less Money by appealing to 1st and 2nd homebuyers
DTP2844.ppt • 5/12/2005 • 47
Quadrant Homes: Value Proposition
More House — Less Money
Differentiated by execution of the value delivery system and “tipping-point” brand value
Market position is sustainable because• Surgical focus on principles• People• Ability to transport brand• Disciplined land-acquisition strategies
DTP2844.ppt • 5/12/2005 • 48
Quadrant Homes: Brand
Local Northwest focus
Reinforced by “listening to the customer”
Focus on referral, not traffic generation
Create a repeatable / referable experience
Demonstrate “green” and citizenship values
DTP2844.ppt • 5/12/2005 • 49
Quadrant Homes: Value Delivery System
The competitive edge of a low-cost producer• Safety focus with commitment to quality
• 6 starts and 6 closings every day
• 54-working-day construction schedule
• Harnessing the power of choice
• Focusing on returns through velocity
DTP2844.ppt • 5/12/2005 • 50
Agenda
7:00 a.m. WRECO Overview Dan Fulton
7:30 a.m. Homebuilding Operations Dan Fulton (Moderator)Larry BurrowsWill HolderPeter OrserMike McGeeHal Struck
8:40 a.m. Break
8:50 a.m. Land and Land Development Dan Fulton (Moderator)Jon LashSteve MargolinSteve NardellaJoel MarshallJohn Osgood
DTP2844.ppt • 5/12/2005 • 51
Founded in Los Angeles in 1921Purchased by WRECO in 1969Celebrating over 50 years in the Los Angeles, San Diego and Las Vegas marketsOur Senior Management Team has an average tenure of 22 years Builder Magazine’s “2003 America’s Best Builder”U.S. EPA Energy Star “2003, 2004 and 2005 Partner of the Year”
THE WAY YOU WANT TO LIVE
DTP2844.ppt • 5/12/2005 • 52
Our value proposition is customer driven, based on 80+ years of experience and intentionally broad
““We build homes and communitiesWe build homes and communitiesfor the way people want to live,for the way people want to live,
creating premium value creating premium value through a trusting builder relationship.through a trusting builder relationship.””
Focused on development of highly amenitized master-planned communities and the construction of homes for first-time through luxury move-up buyers, with extensive option offerings
Pardee Homes: Value Proposition
DTP2844.ppt • 5/12/2005 • 53
We develop a keen sense of regional buyer preferences and earn exceptional homebuyer loyalty
We utilize Six Sigma processes to drive continuous improvement
We are a recognized industry leader in energy efficient and “Green Building” practices
is a powerful brand that succeeds against national brands by being home grown, and benefiting from established trade contractor and consultant alliances
THE WAY YOU WANT TO LIVE
DTP2844.ppt • 5/12/2005 • 54
Sacramento
Pleasanton
Los Angeles
Santa Clarita
Irvine
Corona
San Diego
CALIFORNIACALIFORNIA
Home Sizes (s.f.) Price Range998–5,118 $264,000–$2,100,000
Communities 2004 Closings
25 1,514
THE WAY YOU WANT TO LIVE
DTP2844.ppt • 5/12/2005 • 55
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
2000 2001 2002 2003 2004
Clo
sing
s
$375
$400
$425
$450
$475
$500
$525
$550
$575
Ave
rage
Pric
e ($
000'
s)
Closings Average Price
CaliforniaCalifornia
Pardee Homes: Historical Snapshot
DTP2844.ppt • 5/12/2005 • 56
THE WAY YOU WANT TO LIVE
Los Angeles / VenturaLos Angeles / Ventura
East Bay / SacramentoEast Bay / Sacramento
DTP2844.ppt • 5/12/2005 • 57
Orange County / San DiegoOrange County / San Diego
Inland EmpireInland Empire
THE WAY YOU WANT TO LIVE
DTP2844.ppt • 5/12/2005 • 58
NEVADANEVADA
Las Vegas
Home Sizes (s.f.) Price Range
1,414–4,330 $258,000–$789,000
Communities 2004 Closings
17 1,120
THE WAY YOU WANT TO LIVE
DTP2844.ppt • 5/12/2005 • 59
0
200
400
600
800
1,000
1,200
1,400
2000 2001 2002 2003 2004
Clo
sing
s
$175
$200
$225
$250
$275
$300
$325
$350
Ave
rage
Pric
e ($
000'
s)
Closings Average Price
NevadaNevada
Pardee Homes: Historical Snapshot
DTP2844.ppt • 5/12/2005 • 60
Pardee Homes
DTP2844.ppt • 5/12/2005 • 61
Characteristics of our markets• Employment trending positive• Housing pushing to the edges• Land is becoming more scarceDemographics of our markets• 50% families aged 35-40• Increasingly ethnically diverse• Buyers seek affiliation with an eco-friendly builderProduct position• 90,000+ options available to satisfy buyer preferences
Pardee Homes: Competitive Landscape
DTP2844.ppt • 5/12/2005 • 62
We develop master plans that offer our customers a wide variety of opportunities• Housing• Employment centers• Shopping and civic uses• Schools• Recreational amenities
Pardee Homes: Competitive Advantage
DTP2844.ppt • 5/12/2005 • 63
We have proven problem-solving expertise in running the gauntlet of local, state and federal regulatory processes
Pardee Homes: Competitive Advantage
In our 84 year history we have never had an unprofitable year! In our 84 year history we have never had an unprofitable year!
Well-honed execution skills resulting in superior performance
DTP2844.ppt • 5/12/2005 • 64
Pardee Homes
DTP2844.ppt • 5/12/2005 • 65
Safety Is Good Business!
DTP2844.ppt • 5/12/2005 • 66
Pardee Safety History
Recordable Incident Rate (RIR)
0
1
2
3
4
5
1999 2000 2001 2002 2003 2004 2005.1
• Recordable incident rate is the number of incidents per 200,000 labor hours
.56.63.36.87
3.01
1.67
4.36
DTP2844.ppt • 5/12/2005 • 67
Local business, national scale
Unique local value propositions• Local land strategies
• Local design and construction
Share common values• Safety
• People
• Business conduct
WRECO Homebuilding Strategy
DTP2844.ppt • 5/12/2005 • 68
WRECO Homebuilding Strategy (cont.)
Share common support• HR administration, training and development• Information technology• National purchasing• CapitalShare common practices• Listen to the customer• Disciplined financial management – ROI focusLeverage scale of WRECO / WeyerhaeuserAligned culturally with Weyerhaeuser
DTP2844.ppt • 5/12/2005 • 69
What questionsdo you have?
DTP2844.ppt • 5/12/2005 • 70
Agenda
7:00 a.m. WRECO Overview Dan Fulton
7:30 a.m. Homebuilding Operations Dan Fulton (Moderator)Larry BurrowsWill HolderPeter OrserMike McGeeHal Struck
8:40 a.m. Break
8:50 a.m. Land and Land Development Dan Fulton (Moderator)Jon LashSteve MargolinSteve NardellaJoel MarshallJohn Osgood
DTP2844.ppt • 5/12/2005 • 71
Agenda
7:00 a.m. WRECO Overview Dan Fulton
7:30 a.m. Homebuilding Operations Dan Fulton (Moderator)Larry BurrowsWill HolderPeter OrserMike McGeeHal Struck
8:40 a.m. Break
8:50 a.m. Land and Land Development Dan Fulton (Moderator)Jon LashSteve MargolinSteve NardellaJoel MarshallJohn Osgood
DTP2844.ppt • 5/12/2005 • 72
Land is the Lifeblood of our Business
Land acquisition is managed as a process
Land is purchased in alignment with market specific strategies
Effective land acquisition requires a balance between opportunity, capital and risk
DTP2844.ppt • 5/12/2005 • 73
Land Acquisition Process Overview
Deal Look-Back
Contract Administration
Project Approval
Financial Analysis
Feasibility
Contracts
Land Leads
Land Strategy
DTP2844.ppt • 5/12/2005 • 74
Land Strategy Drives the Process
Main elements of land strategy• Understanding market attractiveness
– What is the opportunity?
• Plan to take advantage of opportunity
– What is the strategy?
• Strategy implementation
– How do we balance the opportunity, capital requirements and risk?
DTP2844.ppt • 5/12/2005 • 75
Land Strategy / Key Measurements
Number of years supply in lot pipeline• Lots owned or to be acquired via specific performance contract
• Lots under option contract
Compliance with internal debt limits
Achieves target returns
DTP2844.ppt • 5/12/2005 • 76
Land Financing Alternatives
Wholly owned
Option contract
Joint venture• Landowner
• Homebuilder partner
• Financial partner
DTP2844.ppt • 5/12/2005 • 77
Typical Land-related Roles
Acquisitions / deal-maker
Planning and entitlements
Development operations
Feasibility analyst
DTP2844.ppt • 5/12/2005 • 78
Selling Land is an Integral Part of our Strategy
In large mixed-use master plan communities, we routinely sell the non-residential properties to other developers
“Improve our hand in land”Land Revenue as a Percent of Total Revenue
13% 11% 13% 12%18%
0%10%20%30%40%50%60%70%80%90%
100%
2001 2002 2003 2004 2005.1
Land
Rev
enue
Per
cent
age
Land Revenue
DTP2844.ppt • 5/12/2005 • 79
Land Acquisition Key Controls
Standard underwriting package, including common financial analysis model
Risk-adjusted minimum hurdle rates
Annual and 5-year planning process
All deals require approval of WRECO’s President and CEO
DTP2844.ppt • 5/12/2005 • 80
Land Regulation
Growth Management
Comprehensive Plan
Permitting
DTP2844.ppt • 5/12/2005 • 81
Land Acquisition Process Overview
Deal Look-Back
Contract Administration
Project Approval
Financial Analysis
Feasibility
Contracts
Land Leads
Land Strategy
DTP2844.ppt • 5/12/2005 • 82
Land Planning Optimization
Land planning is closely related to the entitlement process and technology has provided tools to quickly analyze alternatives• Linear Programming (financial optimization)
• Computer Simulation (physical optimization)
DTP2844.ppt • 5/12/2005 • 83
Land Planning Optimization
Linear Programming for Land Use Optimization
1200 Acres
DTP2844.ppt • 5/12/2005 • 84
Land Planning Optimization
Computer Simulation
Digitized Topography
DTP2844.ppt • 5/12/2005 • 85
Land Planning Optimization
Computer Simulation
Street Pattern
DTP2844.ppt • 5/12/2005 • 86
Land Planning Optimization
Computer Simulation
Lot Layout
DTP2844.ppt • 5/12/2005 • 87
Land Planning Optimization
Computer Simulation
DTP2844.ppt • 5/12/2005 • 88
Land Acquisition Process Overview
Deal Look-Back
Contract Administration
Project Approval
Financial Analysis
Feasibility
Contracts
Land Leads
Land Strategy
DTP2844.ppt • 5/12/2005 • 89
Agenda
10:10 a.m. Construction Practices and Trends Mark GrayCarlos Guilherme
11:10 a.m. South Village Case Study Alan ShapiroJohn Monacci
11:30 a.m. Meeting Adjourns Dan Fulton
Noon Depart for South Village Tour
3:30 p.m. Return to airport
DTP2844.ppt • 5/12/2005 • 90
WRECO and Weyerhaeuser Wood Products
DTP2844.ppt • 5/12/2005 • 91
Presentation Outline
Overview of building practices
Major trends in home construction
WRECO / WY responses to these trends
DTP2844.ppt • 5/12/2005 • 92
2004 Total Third Party Sales $9.8 Billion
Softwood Lumber40%
Engineered Lumber Products
15%
Oriented Strand Board14%
Plywood / Veneer10%
Other Products21%
Leading Producer of Residential Building Materials
DTP2844.ppt • 5/12/2005 • 93
Focused on the New Residential Market
New Res50%
R&R19%
Industrial23%
Export5%
Non Res3%
DTP2844.ppt • 5/12/2005 • 94
Value of WRECO / Wood Products Relationship
Collaborate to gain superior information• Trends in home construction
• Better understanding of product usage requirement
• Sources for product innovation
Jointly develop and trial innovations — products and building methods
Joint marketing opportunities (Sales centers, Extreme, etc.)
DTP2844.ppt • 5/12/2005 • 95
Use of Weyerhaeuser Products
100% of WRECO’s wood floor systems use Weyerhaeuser products% of 2004 Closings
WY Floor System (TJ and Structurwood)
83%
TJ4%
Structurwood13%
Only
Only
DTP2844.ppt • 5/12/2005 • 96
Overview of building practices
Major trends in home construction
WRECO / Weyerhaeuser responses to these trends
Presentation Outline
DTP2844.ppt • 5/12/2005 • 97
Cost Breakdown of Large Builders*
Profit13%
Other2%
Constuction Labor21%
Marketing/Advert.5%
Overhead6%
Financing2%
Land and related24%
Materials & Indirect27%
* Average of 6th through 25th builderSource: Professional Builder Magazine, May 2005
% of Home Sale Price
DTP2844.ppt • 5/12/2005 • 98
Basements / Crawl Spaces / Slab On-grade
Trendmaker Winchester
QuadrantPardee
DTP2844.ppt • 5/12/2005 • 99
Wall Panelization and Traditional Site Frame
Trendmaker Winchester
QuadrantPardee
DTP2844.ppt • 5/12/2005 • 100
Exterior Sheathing and Roofing
TrendmakerTrendmaker WinchesterWinchester
PardeePardee Quadrant Quadrant
DTP2844.ppt • 5/12/2005 • 101
Regional Differences Will Persist
• Building practices / code requirements
• Builder concentration
• Propensity to prefabrication
• Labor availability
• Relative structure supply chain participants
Regionally distinct models will
continue to exist in the near term
Regionally distinct models will
continue to exist in the near term
DTP2844.ppt • 5/12/2005 • 102
Overview of building practices
Major trends in home construction
WRECO / Weyerhaeuser responses to these trends
Presentation Outline
DTP2844.ppt • 5/12/2005 • 103
Trends in Homebuilding Industry
Tightening Labor Markets
Enabling Technology
Builder and Dealer
Consolidation
Improving Componentization
Economics
Position to Profit in this New
Environment
Position to Profit in this New
Environment
DTP2844.ppt • 5/12/2005 • 104
Builders Continue to Consolidate
0
5
10
15
20
25
30
35
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Top 100
Production Builder Market Share% of total closings
Source: Builder Magazine
Top 10
DTP2844.ppt • 5/12/2005 • 105
Greater Use of Components
DTP2844.ppt • 5/12/2005 • 106
Other Componentized Practices
DTP2844.ppt • 5/12/2005 • 107
Enabled by Technology
DTP2844.ppt • 5/12/2005 • 108
Industry Trends
More components to reduce cost, cycle time and improving quality
Improved coordination across the supply channel
Production builders will lead this change
Basis of competition for suppliers will change from products to solutions
Balance common processes with unique regional needs
DTP2844.ppt • 5/12/2005 • 109
Overview of building practices
Major trends in home construction
WRECO / Weyerhaeuser responses to these trends
Presentation Outline
DTP2844.ppt • 5/12/2005 • 110
Positioning Initiatives
Clear focus on the residential market
Developing new value proposition• Innovating on products• Enabling software• Market presence
Investing in world class technology
Operating excellence throughout the delivery chain
Bringing the full value of WY integration• Homebuilding/Manufacturing• Systems creation• Manufacturing/Timberlands
DTP2844.ppt • 5/12/2005 • 111
What questionsdo you have?
DTP2844.ppt • 5/12/2005 • 112
Agenda
10:10 a.m. Construction Practices and Trends Mark GrayCarlos Guilherme
11:10 a.m. South Village Case Study Alan ShapiroJohn Monacci
11:30 a.m. Meeting Adjourns Dan Fulton
Noon Depart for South Village Tour
3:30 p.m. Return to airport
DTP2844.ppt • 5/12/2005 • 113
South Riding, Loudoun County Virginia
DTP2844.ppt • 5/12/2005 • 114
Winchester Homes: How We Arrived Here — South Riding Story
Winchester Purchased 102 “Premium” Lots from South Riding Developer Trafalger House
Sales Begin at South Village
1996–1998 2003–Current
Identified Adjacent Parcels (428 Lots) to Continue Successful Program
1999
DTP2844.ppt • 5/12/2005 • 115
Winchester Homes:Map of South Riding and Vicinity
DTP2844.ppt • 5/12/2005 • 116
South Riding: Overview
South Village Commons
Retreat At South Village
DTP2844.ppt • 5/12/2005 • 117
Winchester Homes: Hub and Spoke Strategy
Coming Spring‘06
Coming Spring ‘07
DTP2844.ppt • 5/12/2005 • 118
South Village: Commons and Retreat
Retreat At South Village
South Village
Commons
DTP2844.ppt • 5/12/2005 • 119
South Village: Commons Site Plan
DTP2844.ppt • 5/12/2005 • 120
South Village: Commons Home Styles3,000–3,500 s.f. High $700,000 2,300 s.f. Low $500,000
2,600 s.f. Low $500,000
3,200–3,500 s.f. Mid $700,000
DTP2844.ppt • 5/12/2005 • 121
South Village: Retreat Site Plan
DTP2844.ppt • 5/12/2005 • 122
South Village: Retreat Home Styles
2,900-4,500 s.f. Low $800,000
3,000-3,500 s.f. High $700,000
DTP2844.ppt • 5/12/2005 • 123
South Village: Our Successes
268 Sales since community start (2003)
43% Average increase in price — Townhomes
40% Average increase in price — Single Family
96% Willingness To refer*
74% Highly enthusiastic customer rating*
42% Homeowner referral rating*
* Source: Woodland/O’Brien & Associates
DTP2844.ppt • 5/12/2005 • 124
Agenda
10:10 a.m. Construction Practices and Trends Mark GrayCarlos Guilherme
11:10 a.m. South Village Case Study Alan ShapiroJohn Monacci
11:30 a.m. Meeting Adjourns Dan Fulton
Noon Depart for South Village Tour
3:30 p.m. Return to airport
DTP2844.ppt • 5/12/2005 • 125
Thank You
Check out of room (if not already done)
Take luggage to curbside
Pick up box lunch on designated table
Board bus no later than Noon
Enjoy your day, travel safely!
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