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Basics of Standard Pacific

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Jun. 30 2015, Updated 5:05 p.m. ET

Standard Pacific focuses on move-up buyers

Founded in 1965, Standard Pacific (SPF) is a Southern California–based builder with operations in California, Florida, the Carolinas, Texas, Arizona, and Colorado. Its homes primarily target move-up buyers, although the company also operates in the entry-level and luxury segments. Standard Pacific is merging with Ryland (RYL) in order to diversify its geographic exposure.

Standard Pacific’s operations are divided into 15 operating divisions addressing 25 different markets. Approximately 80% of its homes are single-family detached, with the balance being single-family attached—primarily townhomes and condos with eight or fewer units.

Standard Pacific homes are known for using high-quality materials and for striking architecture. The company customizes homes to the tastes of particular localities.

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Finance operations

Standard Pacific also originates mortgages. Last year, 81% of its customers financed through the company. Due to the often-extended timelines to close on new construction and the difficulty in hedging much over six months, many mortgage originators are reluctant to let a customer lock a loan for the required period. Homebuilders are a natural supply of these loans. Incorporating financing into the closing process makes it run much more smoothly.

Standard Pacific Mortgage sells all its production into the secondary market, servicing released, and it doesn’t hold mortgages as an investment.

Land acquisition

Standard Pacific generally acquires undeveloped land zoned for residential use. It typically buys and holds land for cash, although it uses options as well. For large projects, it will undertake joint ventures with third parties.

Comparables

The best comps for Standard Pacific are Lennar (LEN) and KB Home (KBH). Both have a West Coast focus and concentrate on the move-up homebuyer. While they do service first-time homebuyers, they hold a smaller portion of that segment than builders like D.R. Horton (DHI) or PulteGroup (PHM). Finally, while it maintains a luxury presence, Toll Brothers (TOL) isn’t really a good comp.

Investors who want diversified exposure to the homebuilding sector should look at the S&P SPDR Homebuilder ETF (XHB).

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