The past year was a very good one, indeed, for D.R. Horton (NYSE: DHI), and the nation’s largest homebuilder says it’s positioning itself to continue capitalizing on the intense demand for affordable houses.
The company was founded in 1978 in Fort Worth, Texas, and now operates in 90 markets in 29 states. D.R. Horton says it closed 71,168 homes in the 2020 calendar year, at prices ranging from $100,000 to more than $1 million.
Now the company is projecting that it will build between 80,000 and 82,000 new homes in its 2021 fiscal year, which just concluded its first quarter on Dec. 31. It’s also projecting $25.2 billion to $25.8 billion in consolidated revenue for the 2021 fiscal year, sharply higher than the $20.3 billion recorded in its 2020 fiscal year.
"We continue to see very strong demand and a limited supply of homes, especially at affordable price points, and we still have pricing power and are currently using very few sales incentives," Jessica Hansen, vice president of investor relations and communications, said in the Jan. 26 earnings call for the first quarter of the 2021 fiscal year.
Ramping up home starts and lots to build them on
D.R. Horton closed on 18,739 homes in the final three months of 2020, compared with 12,959 in the year-ago period, and saw its net income soar 84% to $792 million in 1Q2021 from $431 million in 1Q2020.
"Our average closing price for the quarter was up 2% from the prior year at $304,100 and the average size of our homes closed was down 2%, reflecting our ongoing efforts to keep our homes affordable," COO Michael Murray said in the earnings call. (By comparison, the National Association of Realtors reports that the national median price for a house in America at year’s end was $309,800.)
"We have accelerated our pace of home starts across most of our communities in the past few quarters to ensure we maintain an adequate number of homes to meet demand," Murray added.
D.R. Horton is also a majority owner of Forestar Group (NYSE: FOR), a producer of residential building lots that had two-thirds of its 77,500 inventory of lots year-end under contract to the homebuilder.
Diversifying beyond sales to homeowners
Along with selling completed homes under its D.R. Horton, Emerald Homes, Express Homes, and Freedom Homes brands, the company is also responding to continuing demand for affordable homes by ramping up its investments in multifamily and single-family rentals.
Murray said that as of Dec. 31, D.R. Horton had four multifamily projects in the leasing phase and another four under construction, totaling 2,325 units. The company plans to sell two of those later this year.
Single-family rental communities also are a new focus. D.R. Horton completed its first sale of one of those communities in late 2020, a 124-home transaction that brought in $31.8 million and resulted in a gain of $14 million, Murray said.
The company said it expects to sell another SFH rental community later this year and at year’s end held 13 of them with a total of 890 SFHs and owned, finished lots.
"We still expect our investment in single and multifamily rental platforms to more than double during fiscal 2021," the D.R. Horton COO said.
The Millionacres bottom line
The company has not only weathered the pandemic well but appears positioned for more growth ahead as it diversifies its product line to accommodate changes in demand and affordability that will come along as the nation recovers from the pandemic.
D.R. Horton stock closed at $82.18 on Feb. 12, close to its 52-week high of $84.41, and was yielding 0.97% after declaring a dividend of $0.20 a share on Jan. 26.
As a real estate stock that’s not a real estate investment trust (REIT), this investment would be more about growth rather than income, especially if it can keep hitting the right price points along the spectrum. Affordability, after all, is in the eye -- and the wallet -- of the beholder.