American Homestar Corporation

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American Homestar Corporation

2450 South Shore Boulevard
Suite 300
League City, Texas 77573
U.S.A.
(713) 334-9700
Fax: (713) 334-9737

Public Company
Incorporated: 1971 as Mobile America Housing Corporation
Employees: 1,317
Sales: $208.7 million (1996)
Stock Exchanges: New York
SICs: 2451 Mobile Homes; 5271 Mobile Home Dealers; 6719 Holding Companies, Not Elsewhere Classified

With its corporate headquarters located near Houston, Texas, American Homestar Corporation has become one of the leading producers of site-assembled manufactured housing in the United States. Committed to the goal of fulfilling the American dream of home ownership for working-class families, American Homestar designs, constructs, and markets pre-constructed homes through a growing network of over 300 retail outlets covering half of the 48 contiguous United States. Since its inception in 1971, the company has prevailed in a competitive market. Aggressive in its efforts to expand, it now dominates the industry in its core market areas: Louisiana, New Mexico, Arkansas, Oklahoma, and its home state of Texas.

Improved Quality and Changing Demographics Aid the Industry During the 1980s and 90s

Manufactured homes are complete single-family housing units fabricated in sections, or “floors.” Constructed in a factory and then trailered to a site of their owner’s choosing, they offer amenities comparable to those of site-built homes. While manufactured homes were once the focus of ridicule within the housing construction industry, they have successfully shed their association with the tacky, disordered trailer parks of the 1960s and 1970s. In fact, the quality and design of manufactured (as opposed to mobile) homes has improved to such an extent that the more upscale models have become almost indistinguishable from homes being constructed in newer, moderate-cost, single-family subdivisions in many parts of the country. According to the Manufactured Housing Institute, by 1996 there were 7.3 million manufactured homes in use in the United States, providing housing for over seven percent of the nation’s population.

In recent years, manufactured homes have made up the fastest-growing segment of home sales in the United States, accounting for 33 percent of all single-family home sales in 1996. This figure, up from 25 percent in 1991, reflects the growing need for affordable housing for first-time homebuyers earning less than $50,000 per year. For this growing segment of the U.S. population, manufactured housing is an attractive alternative to condominium ownership or home or apartment rental. With the average cost of a new home approaching $125,000 by 1996, the $43,460 price-tag on a mid-range American Homestar manufactured home is attractive, even when factoring in the cost of land.

Manufactured housing provides growing families with a stable neighborhood and the pride of home ownership. And, as U.S. home-buyer demographics continue to shift away from young families and towards single adults, married adults with no children, and growing numbers of affluent retirees, manufactured homes fit the requirements of these new homeowners as well. Such homes serve as comfortable, yet low cost, vacation housing as well as efficient, low-maintenance residences for elderly individuals. Resort areas in the southern and western states have also witnessed an increase in the development of entire manufactured-home subdivisions. By producing both single- and the larger, multi-section manufactured homes, which range in price between $21,300 and $99,400 (excluding land costs), American Homestar is able to satisfy all segments of the growing U.S. housing market.

Answering the Need for Affordable Housing Since 1971

Responding to the changing requirements of U.S. homebuyers, American Homestar was founded in 1971 as Mobile America Housing Corporation. Company founder and Texas native Finis Teeter, who had been selling manufactured housing since hiring on at Mobile Home Industries in 1969, decided to focus his area of operations in the southwest region. Establishing a 137,000-square-foot manufacturing facility in Fort Worth, Teeter began marketing middle-priced homes within the five-state area that has remained the company’s core market. Teeter responded to the obviously unsatisfied need for affordable housing by setting up a retail network throughout the Southwest. The year 1971 would prove to be a banner one for both Teeter and the manufactured housing industry as a whole as unit sales peaked throughout the nation.

The company reincorporated as American Homestar Corporation in 1983. While the next few years would be rocky indeed—the industry as a whole saw shipments of manufactured homes drop nationwide from 295,079 in 1983 to only 179,713 in 1991—Teeter and his company kept their footing until economic conditions across the nation began to stabilize.

But it was not only a national recessionary economy that affected the company. During the late 1980s, Texas experienced a dramatic decline in its own economic fortunes as the state’s oil industry went through the “bust” cycle after its earlier boom years. Within American Homestar’s core market area the number of manufactured home-makers shrank from 54 in 1984 to 6 by the early 1990s. However, the state has since begun a financial comeback; along with other southern states—which have traditionally served as the manufactured homes industry’s strongest sales territory—Texas has returned to its former glory, once again providing American Homestar with a lucrative market for its product.

Develops Manufacturing and Sales Networks in the 1990s

By 1994, despite the setbacks caused by the local Texas economy, American Homestar ran three manufacturing plants located throughout the Dallas/Fort Worth area. Under the umbrella of National Housing Systems, Inc., the company retailed its homes in Arkansas, Colorado, Kansas, Louisiana, Missouri, New Mexico, Oklahoma, and Texas via 34 company-owned retail centers. These company-owned centers were supplemented by 103 independent retailers in the same core market area.

Due to the high cost of materials and storage, as well as the cyclical nature of the construction industry, factory-built homes are usually not manufactured until an order has been received, either from an independent retailer or one of American Homestar’s own sales centers. The average rate of production in the company is 23 floors per day; the decline in orders experienced by the slump in housing demand over the winter months is balanced by a corresponding increase in production during warmer weather. Sixty percent of total sales are generated by company-owned retailers, with the remainder written by its network of independents. New company-manufactured homes—medium to upper-priced houses that vary in features and design—comprise over 60 percent of the homes sold by American Homestar, which also resells used homes and homes from other manufacturers. Long-term company goals have continued to focus on increasing this percentage to 80 percent through enlargement of American Homestar’s own manufacturing facilities.

Vertical Integration Achieved

The implementation of a management strategy known as “Vertical Integration”—the ability to design, manufacture, market, deliver, and finance its product—has been the key to the success of several competitors in the manufactured home industry, notably the Knoxville, Tennessee-based Clayton Homes. Teeter also recognized the benefits of this means of developing structural efficiency early on, and has guided American Homestar in the direction of vertical integration. In light of Teeter’s success in this area, analysts have praised American Homestar as possessing one of the best-managed corporate organizations in the manufactured housing industry.

The company obtained a controlling interest in the newly formed Roadmaster Transport Company in 1992 as its first step towards vertical integration. Because of the specialized trucking needs of the manufactured home industry, Roadmaster was organized as a means of providing transit from factory to homesite. Deriving only a small percentage of its revenue from American Homestar—26 percent in 1996—Roadmaster generates most of its income by servicing other home manufacturers within its transit area. Under efficient management, it has become one of the largest transporters of manufactured homes in the southwest region.

1992: Merger with Oak Creek Homes

The year 1992 would be significant, not only for the company’s diversification into the transport business, but also for its timely merger with another home manufacturer. Recognizing the increased potential for profits with an increase in production and retail size, CEO Teeter formed a joint venture with Oak Creek Homes, a major supplier of homes to American Homestar retailers. Under the joint name of American Homestar, Oak Creek CEO and primary shareholder Laurence A. Dawson Jr. worked with Teeter to open two new manufacturing plants to capture the still-increasing demand for manufactured homes. The Lancaster manufacturing facility was opened in December 1992 to produce lower-priced homes; upper-medium and higher-priced homes would be constructed at the 94,000-square-foot Burleson plant beginning in May 1993. Oak Creek Homes was acquired by American Homestar in August 1993. Under the acquisition, all corporate operations were combined; Dawson would be named co-CEO and director alongside chairman and CEO Teeter.

Company Perspectives:

American Homestar Corporation is one of the nation’s leading, vertically integrated manufactured housing companies. The Company designs, produces, and retails manufactured homes. Through its subsidiaries, the Company provides installment financing, insurance and transportation services.

Providing its customers with adequate long-term financing for home purchases would also contribute to American Homestar’s goal of vertical integration. Through its 50 percent ownership of 21st Century Mortgage, which was formed in early 1996, the company reaped the profits of $47 million in home mortgages by the end of the mortgage company’s first fiscal year. Approximately half of the homes purchased through American Homestar retailers would eventually be financed by 21st Century. And through its ownership of Western Insurance Agency and Lifestar Reinsurance Ltd., the company was able to both service its customers’ property/casualty and credit life insurance needs and profit from yet another financial transaction on the way to owning a home.

1994: Company Goes Public

Company management’s efforts towards vertical integration paid off: while sales in 1992 had only contributed $27 million to revenues of $28.7 million, by 1994 they had reached $109 million, an increase of over 400 percent. Such rapid growth enabled American Homestar to consider an expansion of its sales territory through the acquisition of smaller manufactured homes producers. However, expansion into these new markets would necessitate an influx of capital. Accordingly, in July 1994 the company went public, offering 2 million shares on the New York over-the-counter market. While Teeter and Dawson would retain 45 percent of the company stock, the sale of the remaining 1.1 million shares would generate sufficient revenues to continue the implementation of their planned acquisition of other firms.

Formulating reorganization strategies were only a means to an end. American Homestar approached the year 2000 with several strategic goals, which included opening between eight to ten new retail centers through 1999, expanding its current network of independent retailers and strengthening retailer loyalties to its product, and further expanding its manufacturing capacity. The company also focused on maximizing the profit opportunities inherent in its vertical structure through earning manufacturing, retailing, and financial service profits on every home sold. The company’s continued policy of aggressive acquisitions would ensure ever-increasing market opportunities for both its mortgage and insurance sectors.

By the mid-1990s American Homestar was reporting annual average growth rates of between 15 and 18 percent, with 1995 revenues of $187 million and sales in its core market area cresting between 35 and 45 percent. Sales of new homes for 1995 were reported at 3,127 units, evenly distributed between single-and multi-floored home models. Branching out into its first retail sales location in the state of Louisiana, the company worked towards its goal of establishing 40 new retail centers by 1997. And the September 1995 investment of $2.5 million in 21st Century Life, a venture with partners Vanderbilt Mortgage & Finance and Clayton Homes, would reap $22,000 in net income by the following year.

Aggressive Expansion Reaps Rewards

In 1996 American Homestar more than doubled the size of its manufacturing capacity through the acquisition of three firms: Guerdon Homes, Inc., which sells and produces manufactured homes within a 13-state region; Henderson, North Carolina’s Heartland Homes, Inc.; and the 15-member Manu-Fac, Inc., retailer network, also located in North Carolina. This expansion made the company a major industry presence in 24 states through the addition of 215 new independent retailers and five additional manufacturing locations to its operations. Guerdon and Heartland, both manufacturers of upscale double-section homes, were predicted to especially enhance the company’s overall sales figures. The trend within the manufactured home industry has been towards such larger, multi-section homes, which accounted for almost half of the industry’s 1996 sales. These more upscale homes—sometimes boasting three bedrooms, luxury amenities, or innovative architectural elements—have become an increasingly attractive alternative to buyers considering more expensive site-built homes. With American Homestar’s traditional mid-price homes serving both ends of the country’s new homebuyer demographic profile (first-time homebuyers and retirees), the addition of multi-section homes was seen to be an effective way to expand company market share.

Reflecting an industry-wide trend towards consolidation, the acquisitions of Guerdon and Heartland made American Homestar an industry leader, not only in its core southwest and south central regions, but in the Pacific Northwest, Rocky Mountain area, and the southeastern United States as well. By the second quarter of fiscal 1997, with the multi-stage acquisition of Guerdon Homes completed, the company had diversified its geographical base to the point where it could boast 48 company-owned retail centers and 300 independent dealerships servicing customers in 24 states, with eight manufacturing plants at their disposal. Through this dramatic increase in its sales base, coupled with a 100 percent increase in its manufacturing capabilities, American Homestar seemed poised on the brink of rapid financial growth.

Looking Towards the Future

In both 1996 and 1997, American Homestar announced a 5-for-4 split of its stock, increasing its common shares outstanding and generating new funds for the continued implementation of its plan for aggressive expansion. Praising the company’s stock—one of the lowest-valued stocks in the industry—as one of the best picks of 1997, industry analysts expected the company’s earnings to rise at an annual rate of 20 percent into the next century. Company goals for fiscal 1997, which included the addition of ten new retail facilities, reflected such an optimistic outlook. By the first quarter of fiscal 1997, three new retail outlets had already been established; by the second quarter American Homestar had reported record gains as revenues rose 76 percent from 1996 levels to $89.3 million.

According to the industry’s Manufactured Housing Institute, the 370,000 manufactured homes shipped in 1996—a 9 percent increase over the previous year and a 37 percent increase over the previous decade—generated $14 billion in sales for the industry. American Homestar’s piece of this growing pie was $208 million, generated through the manufacture and sale of 3,593 new homes. While housing analysts have noted that fluctuations in the interest rate, as well as excess inventories caused by slow orders, might affect the manufactured home industry as it began its process of maturation, the nation’s improving economic conditions and the product’s value within the overall housing market would seem to ensure that American Homestar’s long-range forecast is a bright one.

Principal Subsidiaries

Associated Retailers Group, Inc.; 21st Century Mortgage; Roadmaster Transport Company; Western Insurance Agency; Lifestar Reinsurance, Ltd. Nationwide Housing Systems.