Monday, July 27, 2015

Wisdom Homes of America, Inc. (WOFA) Carving off a Growing Slice of the $4.1 Billion U.S. Manufactured Home Pie

A number of factors in the North American housing market are all continuing to coalesce, forming the sustained impetus for a decided shift among more and more consumers away from traditional stick-built houses, and towards more affordable manufactured homes. According to HUD-sponsored data collected by the U.S. Census Bureau in its periodical MHS (manufactured homes survey), the average sale price for a manufactured home is currently around $68,300, and sales have jumped around 23 percent from 2011 to 2014 (up 13.8 percent between 2013 and 2014 alone), clearly illustrating the underlying market dynamics. Consolidation within this market further illustrates the aforementioned dynamics, with deals like the $1.32 billion Green Courte Partners’ portfolio acquisition this time last year by Sun Communities Inc. (NYSE:SUI), consisting of 59 manufactured home communities across 19,000 sites in eleven states, being a major data point. According to a recent report published by Freedonia Group, U.S. demand for prefabricated housing is currently on track to grow by 15 percent per year through 2017, with manufactured housing taking up the lion’s share of the market.

Whether it is the ongoing surfeit of baby boomers retiring, the tightening of new locations for construction and rising construction costs, or the supply constraints exacerbated by elements like regional hydrocarbon development in the Bakken, Marcellus and Eagle Ford/Permian, the end result is the same: sustained demand for affordable manufactured housing. A trend which was recently highlighted by leading commercial real estate investment sales, financing, research and advisory services firm, Marcus & Millichap (NYSE: MMI), which sees continued housing demand from key energy producing regions throughout the foreseeable future. This trend is particularly evident in Texas where, despite rig counts still being off by roughly 60 percent from October, amid oil futures that have retreated to the sub $60 per barrel level, the latest Rig Data reports indicate the biggest gains last week since February of 2014, with a 21 rig uptick marking interest by producers for a return to development. And Texas isn’t just about the energy sector either, so the significant market diversity of the state’s economy is continuing to fuel a housing shortage, with home sales in North Texas recently hitting a new record for both the number of purchases and per unit price, at around 4 percent higher than last year.

In fact, prices across most of Texas’ major cities continue rising, with the Dallas-Fort Worth median price in particular growing almost 10 percent, more than double that of nationwide home prices, which are up by more than 5 percent this year, as buyers come back to the market in droves according to chief economist at the National Association of Realtors, Lawrence Yun. New housing starts in North Texas are 40 percent lower than in 2006 and yet home sales across the country have rebounded to just 25 percent below 2006 levels, indicating just how fast prices are rising, even as single-family home starts last year were just half of what they are in a typical year. Despite easy mortgage rates, many homeowners are also under too much debt on their properties to sell, making the market even tighter, and younger Americans are still finding themselves unable to get on the property ladder, due primarily to factors such as outstanding student loan debt. In many respects, and especially in states like Texas, this is a perfect storm for the housing market, and one which puts a bright spotlight on the manufactured homes segment.

Major sector players like Skyline Corp. (NYSE: SKY), which sold nearly 3,000 manufactured and modular homes last year, as well as Nobility Homes, Inc. (OTC: NOBH), which has an array of retail sales centers throughout Florida in addition to being a manufacturer, have been clocking in some impressive results, with SKY reporting a 28 percent uptick in sales for the first nine months of fiscal 2015, and NOBH seeing a 23 percent uptick for its most recent quarter. In the especially strong growth market of Texas, Wisdom Homes of America (OTC: WOFA), which is focused on manufactured home retail centers, manufactured home subdivisions, and mortgage origination within the space, is also seeing the upside. WOFA recently reported over $1.2 million in revenue for its second quarter, with 2015 guidance that is on track to hit upwards of $4 million, in what is the company’s first full year of owning/operating manufactured home retail centers in Texas. Also, currently less than ten percent of WOFA’s targeted client base is even in the energy recovery sector. As professional services and healthcare make up the vast majority of their targeted client base, the company should do quite well, irrespective of which way the hydrocarbon sector goes.

With a strong footprint already established in Texas, where the company has retail centers in Rhome, Tyler and Jacksboro, and recently signed a three year lease for a new retail center in Kerrville, Wisdom Homes of America is well on its way to achieving its strategic goal of opening 30 retail centers over the next five years. Each center is expected to sell around three homes a month, generating some $2.3 million a year per center, or $69 million in all. The company’s subdivision and manufactured home communities approach in particular is worth noting, as it offers buyers an extremely affordable turnkey option that also generates more revenue for WOFA itself, given the increased margins from both the lot and unit sales (revenues of around $65,000 on average per house and $20,000 profit per lot). The company intends to turn out around six projects a year moving forward as well, with approximately 30 to 40 residential lots per project, which will save individual homebuyers as much as 60 percent over comparable options. The mortgage origination space for non-prime manufactured home loans, currently dominated by Berkshire Hathaway (NYSE: BRK.A; BRK.B) component Clayton Homes’ 21st Mortgage Corp., collectively representing over 870 manufactured home retail centers across the U.S. and some $1.5 billion a year in home mortgages, is another key target for Wisdom Homes of America as the company continues its expansion.

The company has done a good job already establishing its brand presence in Texas, and recently announced that the structural and financial modeling for its soon-to-open retail center in Sherman, where the company will also be selling land-home packages in the Sherman residential subdivision, should be ready any day now. The company also recently expanded the footprint of its Tyler retail center, increasing the footprint of the outdoor showroom by around 40 percent in order to be able to display some 55 percent more models. A move which was due in large part to consistent traffic flow from potential homebuyers.

A great deal of the success of WOFA’s model is attributable to the company’s veteran management team, led by chairman and CEO, Jim Pakulis, a serial entrepreneur with over three decades of frontline experience in high-growth sectors ranging from real estate and finance, to healthcare and internet technology. Pakulis was instrumental in defining WOFA’s strategic and operational vision, having previously been president of Pacific West Funding Corp., a Utah-based real estate financing firm, where he handled everything from structured non-residential and development project finance sourcing, to day-to-day accounting, operational, legal, and compliance duties. Pakulis helped WOFA (formerly SearchCore) transition from operating the most successful medical cannabis finder site in the sector, to manufactured home retail center operations in 2012, selling the site after having seen annual revenues rise from nothing, to $16 million in just two years time. Pakulis also brings a great deal of experience structuring complex framework and expansion strategies in the difficult healthcare sector, having served as an advisor to outsourced healthcare clinic management company Synergistic Resources and having been crucial to numerous acquisitions, as well as the business model transition from fee-for-service to managed health care, at outsourced clinic management and operation services company CliniCorp.

The president of Wisdom Homes of America, Brent Nelms, who came onboard in early 2014, brought a massive infusion of manufactured and modular housing industry experience with him. With over 30 years in the manufactured housing game, including having been VP of the Genesis Homes division of the sector’s second largest manufacturer, Champion Homes, Nelms is able to exploit his substantial set of experiential knowledge for WOFA, having brought 33 manufactured home retail centers to fruition, representing over $100 million in annual revenues. Former president of Texas and Oklahoma manufactured homes retailer Miracle Housing, as well as VP and GM at Nelmstar, the biggest independent manufactured homes retailer in Texas from 2006 to 2007, where he personally oversaw nine retail locations, Nelms is the kind of sector guru that will ensure Wisdom Homes of America stays on course. With intimate knowledge garnered over his career of markets that span the entire country, Nelms, a former licensed realtor in Texas who was named Realtor of the Year by REMAX in 2011, is in a prime position to assist WOFA in successfully executing its strategic expansion.

Director and CFO of WOFA, Munit Johal, is similarly capable when it comes to helping the company achieve victory. With nearly three decades of experience spanning accounting, banking, finance and management on both the public and private sides of the business, Johal came to the company fresh from a diversified real estate holding company where he was also CFO, Secured Diversified Investment. Having cut his teeth at the Federal Home Loan Bank of San Francisco’s Federal Home Loan Board as a senior analytical manager, Johal is eminently qualified to play a key role in WOFA’s mortgage origination business, harnessing a tremendous amount of experience in not only having managed a large staff, but having monitored bank activities and enforcement actions for a variety of bank holding companies and lending institutions in the sub $500 million range.

Investors can look forward to further details on the company’s ever-expanding retail and subdivision presence in the near future, and should keep an ear to the ground for more news about this rapidly emerging manufactured homes player.

To get a closer look at the company, visit www.wisdomhomesofamerica.com

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