Kaufman And Broad To Acquire Texas And Colorado Homebuilding Companies

LOS ANGELES, Calif. (March 2, 1998) -- Kaufman and Broad Home Corporation today announced that it has agreed to acquire Houston-based Hallmark Residential Group, Inc., the parent corporation of Dover Homes and Ideal Builders, and the assets of Denver-based PrideMark Homes. Both acquisitions are expected to close within thirty days. The acquisitions are expected to be modestly accretive to earnings per share in 1998, and significantly accretive in 1999.

 

"Both Hallmark and PrideMark fit perfectly with Kaufman and Broad's growth strategy," said Bruce Karatz, chairman and chief executive officer. "The acquisitions are focused in key markets, fulfilling our intentions to enter the Houston market in 1998, as well as greatly increasing our penetration in our existing Denver market."

HALLMARK

Hallmark is expected to deliver approximately 750 units and provide revenues of approximately $73 million in 1998. Under the terms of the transaction, Kaufman and Broad will pay a total of approximately $50 million in consideration for 100% of the equity in Hallmark, which comprises the homebuilding operations of the Mischer family and Eddie B. Franz of Houston. The agreements include access to a total of approximately 4,700 lots in the Houston market, 2,700 of which will be purchased through options from Hallmark-related entities. Hallmark's 90 employees will form the core of Kaufman and Broad's entry into the Houston market. "Kaufman and Broad has proved itself to be a true innovator in the homebuilding industry," said Walter Mischer, Sr., Hallmark's founder. "This transaction will facilitate the delivery of more affordable homes than ever before, and we look forward to a long and mutually rewarding relationship with Kaufman and Broad as we develop additional lots in this market."

Kaufman and Broad is targeting to deliver approximately 1,000 new homes in Houston in fiscal 1999, its first full year of operations in that market. Beyond the 4,700 lots available through this transaction, the company expects to benefit from a continuing relationship with the Mischer family in acquiring additional lots developed by them. Kaufman and Broad expects to employ its KB2000 operating model (including a large new home showroom scheduled to open soon in Houston) to maximize its margins, as well as benefit from increased pretax income related to mortgage loans provided by Kaufman and Broad Mortgage Company ("KB Home Mortgage Company").

PRIDEMARK

PrideMark delivered approximately 600 entry level and first time move-up homes in the Denver and Northern Colorado area in 1997, making it the fifth largest home builder in the market. Under the terms of the agreement, Kaufman and Broad agreed to pay a total of approximately $65 million in consideration for substantially all of the homebuilding assets owned by PrideMark. Principally, this includes approximately 5,500 lots owned or controlled by PrideMark in the Denver area.

"We were looking for a buyer who would build on what we have accomplished in Denver - someone with a compatible philosophy and who also offers a superior product to the marketplace," explains Michael Messina, PrideMark's founder and president. "We have always had the greatest respect for Kaufman and Broad, a company which has demonstrated the strength of its commitment to developing the regional market and creating a lasting presence in the community. Also, being acquired by a large public company with Kaufman and Broad's track record creates exciting opportunities for our employees."

Kaufman and Broad expects to deliver an incremental 1,000 homes in the Denver metropolitan area in 1999 as a result of this transaction. The newly acquired lots complement Kaufman and Broad's existing lot positions in Denver. Together with growth plans in place for Kaufman and Broad's existing operations, the combined deliveries for the expanded division could exceed 2,000 units in 1999. In addition to substantial fixed cost savings and incremental pretax income generated by Kaufman and Broad Mortgage Company, the implementation of the KB2000 business model should enable a strong gross margin contribution to the division's results.

"The acquisition of PrideMark will enable Kaufman and Broad to substantially realize a key strategic goal of raising our penetration of the Denver market to a dominant level," Karatz said. "We look forward to working with the employees of PrideMark to maximize our combined success."

Kaufman and Broad has an ongoing strategy of analyzing potential acquisitions of homebuilders. The two acquisitions announced today are consistent with this strategy, and the company is currently analyzing additional acquisitions of a similar size and nature. Both acquisitions announced today are subject to due diligence and final documentation.

"By acquiring Hallmark and PrideMark, we will set a prominent milestone in our western expansion," said Karatz. "Both companies share Kaufman and Broad's focus on providing families with quality homes that are also affordable. We value the distinctive histories and personalities of both organizations and plan to continue their long traditions."

Donaldson, Lufkin & Jenrette Securities Corporation acted as the financial advisor to Kaufman and Broad in these transactions. Los Angeles-based Kaufman and Broad Home Corporation is the largest home builder in the West, with domestic operating divisions in California, Texas, Nevada, Arizona, Colorado, Utah and New Mexico. The Company is also among the largest builders in metropolitan Paris, France.

For More Information Contact:
Kate Mulhearn
(310) 231-4015
kmulhearn@kbhome.com