A Whole New Type of Homebuilder

IRVINE, CA—With the merger between Weyerhaeuser Real Estate Company (WRECO), Weyerhaeuser's homebuilding business and an indirect wholly owned subsidiary, and TRI Pointe Homes now complete, the door is now open for both entities to enjoy the upside of the housing recovery. GlobeSt.com spoke with Doug Bauer, TRI Pointe's CEO, about the impact this merger will have on his firm and what he sees for the housing sector going forward.

GlobeSt.com: What can you tell us about the WRECO merger and what it means for your firm?

Bauer: It's a great opportunity for our shareholders and the new institutional shareholders who came over from Weyerhaeuser to share in the housing recovery for the next few years. Where I see the industry is: there's positive job growth, low supply and really good interest rates, and the number of households is growing. The shareholders in TRI Pointe now have a diversified company building housing in the US and can enjoy the recovery. My job is to ramp up the volume and ramp up the earnings as a homebuilder form what was a timber-and-products REIT.

There are two key highlights to the transaction. First, we're obviously picking up 27,000 lots from Weyerhaeuser, and we have 3,000 lots, so among the six companies we have over 30,000 lots to build on. But what's more important, I have a deeper appreciation over the last eight months of this Reverse Morris Trust of what I would argue are some of the best homebuilders in their regional markets. The key to being a successful homebuilder is not only land, but people. These people are pretty fired up because they're going from being part of a Fortune 100 company and being part of a balance sheet to being the balance sheet. It's been really exciting for us to finally get this thing closed.

GlobeSt.com: How will the merger impact the real estate industry?

Bauer: In January 2013, we went public. We were the first new company to go public, and people said we started the wave. Maybe we did. A lot of S1s filed right after us looked quite a bit the same. This merger moves TRI Pointe from being a small-cap, small regional player to being a large/mid-cap player. Our market cap at $2.6 billion puts us in the top 10 of US homebuilders and gives us plenty of financial muscle, and we have regional companies that are nimble and have the chance to be very successful. I've been doing this for 25 years, and I've always wanted to build this family of regional companies. I've known Weyerhaeuser for years, and I've been very fond of how they're structured.

There are two kinds of homebuilders: the big public firms and the smaller regional companies. The big public firms have deep pockets, and the regional-scale and smaller firms are more nimble and have the relationships. But what if there were a different kind of company? We're structured a publicly traded company with regional brands in some of the best housing markets, and we have the financial resources, purchasing clout and operational sophistication to run this thing. We have the history and track record to do this.

GlobeSt.com: What does the merger mean for the housing sector going forward?

Bauer: We don't make the market—the market is made for us. We take what the market gives us. So now, we're going to be a bigger part of the market. The combined companies have combined deliveries through March 2015 of more than 3,400 closings. You can be a significant player, but you're only going to do as well as the market allows you to play. Our business is really a cyclical business that's very dependent on job growth, household formation growth, low land supply and great interest rates. When you look at that, I think the next three to five years should be pretty normal and see pretty good growth. Growth of 20% a year is not sustainable because people's pocketbooks can't keep up with it. But there's good organic demand, and supply is in check.