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Morrison Homes Analyst/Investor Presentation

Morrison Homes Analyst/Investor Presentation. The Howard Hotel – London 14 April 2005. Morrison Homes Growth Strategy. Steve Parker President Morrison Homes. Morrison Growth Strategy 1. Growth markets large population growth employment growth inward migration Susan Jacobson-Kulak

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Morrison Homes Analyst/Investor Presentation

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  1. Morrison HomesAnalyst/Investor Presentation The Howard Hotel – London 14 April 2005

  2. Morrison HomesGrowth Strategy Steve Parker President Morrison Homes

  3. Morrison Growth Strategy 1 • Growth markets • large • population growth • employment growth • inward migration Susan Jacobson-Kulak Division President, Phoenix

  4. Morrison Growth Strategy 2 • Growth through satellite operations • reduces overhead costs • manages land and market risk • develops management • Successful track record • Jacksonville, Sarasota, Central Valley Bob Walter Senior Vice President, West

  5. Morrison Growth Strategy 3 • Growth through product development • lower price points • Townhomes • low-rise condominiums Mike Storey Division President, Tampa

  6. Morrison Growth Strategy 4 • Addressing underperforming businesses • sale of Atlanta assets in hand • Texas market showing improvement • Texas improvement plan well under way • a long way to go – but potential for longer term growth John Napolitan Executive Vice President

  7. US economy and housing market Bruce Van Stee Chief Financial Officer

  8. US market US economy 1st Quarter Forecast 200420052005 GDP Growth 4.4% 4.0% >3.5% Job Growth 2.2M .5M 2.0M Fed Funds Rate 2.25% 2.75% 3.75% 30 Year Fixed Mortgage Rate 5.75% 6.0% 6.5% CPI (excl. food/energy) 2.2% 2.4% - Consumer Confidence 102.7 102.4 -

  9. US market Morrison position within the US market (in thousands)2004 2004 Job Growth RankSingle Family PermitsRank Florida 281 1 185 1 California 217 2 147 3 Texas 121 3 148 2 Arizona 88 4 81 5 Colorado 47 9 39 12 754 600 National Results 2,200 1,600 Morrison Markets 34.3% 37.5%

  10. US market US housing market – near term • Strong first quarter demand • Inventory levels well controlled • Staged sales releases occurring in Phoenix, Orlando and Tampa as demand exceeds supply • Some moderating of price increases in markets where high price appreciation has occurred – Southern California, Las Vegas and parts of Northern California (Bay Area) • Mortgage rate increases will be offset by solid economic and job growth • Forecast for 2005 permit activity indicate a slight drop (3% to 4%) from 2004 record levels (1.6M)

  11. US market US housing market – longer term • Long term industry fundamentals still very strong • New household formations projected at 1.2M annually through 2020 • Homebuilding still highly fragmented business, market share of large public builders around 23% • Well capitalized builders have advantage as land market becomes more difficult

  12. Morrison HomesGrowth Strategy 1Growth Markets Susan Jacobson-Kulak Division President, Phoenix

  13. Growth markets Phoenix – the market Population 3,500,000 2004 Single Family Permits 60,825 % change from 2003 27.46% Position in US 1 Job growth: 2003 + 20,600 2004 + 40,800 2005 (projected) + 46,600 Morrison closings: 2004 542

  14. Growth markets Phoenix - key business strengths • Strong leadership and management team • Sound Morrison business practices and disciplines • Product offering - right price points and products • Effective and stable field staffing – both construction and sales • Good geographic coverage /land position

  15. Growth markets Phoenix geographic market

  16. Growth markets Phoenix – sales (units)

  17. Growth markets Phoenix PBIT & operating margin millions

  18. Growth markets Phoenix landbank (units)

  19. Growth markets Phoenix - potential for organic growth • Strong market to continue • Landbank in place to grow to 800 units in 2006 • Potential to increase growth to >1000 units by 2007 • Longer term potential for development of satellite operation in Tucson

  20. Morrison HomesGrowth Strategy 2Growth through satellite operations Bob Walter Senior Vice President, West

  21. Growth through satellite operations What is a satellite operation? • Profit center that is an extension of an existing Division • An organic growth strategy that leverages: • existing Division management and employee base • proven systems and procedures • architecture • sub-contractors • land sellers • Within 2 hour drive of the Division

  22. Growth through satellite operations

  23. Growth through satellite operations Sacramento and Central Valley revenue $ million 39% 31% 34% 0% 17%

  24. Growth through satellite operations Sacramento and Central Valley PBIT $ million 27% 31% 41% 16% 0%

  25. Growth through satellite operations Central Valley satellite • The Sacramento Division started the satellite operation and within 3 years turned it over to the new Central Valley Division Management Team. • The satellite initiative allowed us to enter the Central Valley market and grow the business organically by leveraging: • Sacramento Management Team’s experience and capability • proven systems and procedures • architecture • land seller relationships • sub-contractor relationships

  26. Growth through satellite operations Sacramento Including Central Valley Central Valley Supported by Sacramento Sacramento Sacramento Central Valley Operations Sales Construction Finance Purchasing Warranty Operations Sales Construction Finance Purchasing Warranty Operations Sales Construction Operations Sales Construction Finance Purchasing Warranty Operations Sales Construction Finance Purchasing Warranty Finance Purchasing Warranty Central Valley transitions to full Division responsibility over 3 years 2000/2001 2002/2003 2004

  27. Growth through satellite operations Key findings • We can use this strategy to continue to grow into new markets • This satellite strategy also provides a development opportunity for our future Division leaders

  28. Growth through satellite operations FRESNO Single Family Permits Single Family Permits 2002 2002 3,642 3,776 2003 2003 4,479 4,229 2004 2004 5,381 4,890 What’s next? RENO

  29. Morrison HomesGrowth Strategy 3Growth through product development Mike Storey Division President, Tampa

  30. Growth through product development Why Townhomes? • To meet market demand • To stay a step ahead of the competition • To maintain product in largest price segments • Orlando low $200’s • Tampa high $100’s • Opportunity to move into prime inner-city and infill locations • Higher density products offsets higher land costs • More controllable business

  31. Growth through product development Resulting benefits • Greystone • 130 sales in 13 months, 10 per month • all sales through lottery • price increase with every building release • over $40,000 since opening • average sale price now over $250,000 • current sales at 40% gross margin • over 150 closings projected for 2005

  32. Growth through product development Resulting benefits • Alexandria Place • 40 sales in 7 months, 6 per month • sales through lottery system • price increase with every building release • over $30,000 since opening • average sale price now over $170,000 • current sales at 32% gross margin • over 70 closings projected for 2005

  33. Growth through product development Resulting benefits • Townhomes exceed expectations in all financial and performance measurements • True market demand exceeds actual absorptions and has been managed through • controlled monthly releases,and • sales holds, as necessary • Improved health and safety conformance • Improved production and construction staging efficiency

  34. Growth through product development Going forward • Townhomes • Orlando Division • 12 future Townhome communities planned • Tampa Division • 5 future Townhome communities planned • several others under negotiation • future growth into other Morrison Divisions

  35. Growth through product development Going forward • Condominiums • condominium communities rapidly gaining market share in response to demand • Orlando and Tampa Divisions evaluating potential for low-rise condominiums • to maintain and expand presence in target price points • to address higher inner-city land prices • avoids legal liability associated with high rise

  36. Growth through product development Why are Morrison Townhomes so successful?

  37. Growth through product development • 30 foot wide (1,405-2,215 sq. ft.) • Two-car garage • Designed for the upscale homebuyer • Architecturally rich details including varied roof lines, dormers and appealing window configurations Greystone Orlando, Florida

  38. Growth through product development Greystone Orlando, Florida

  39. Growth through product development High quality amenities add to the value of inner market location

  40. Growth through product development Alexandria Place Tampa, Florida • 20 foot wide (1,527-1,790 sq. ft.) • One-car garage • Designed for first time buyers • Smaller designs do not sacrifice architectural appeal

  41. Growth through product development Why Morrison Townhomes? • Buyers do not sacrifice design quality of a single family home • Buyers gain • value • a desirable location and • a carefree lifestyle

  42. Morrison HomesGrowth Strategy 4Addressing underperforming businessesJohn NapolitanExecutive Vice President

  43. Addressing underperforming businesses Austin – the market Population 1,400,000 2004 Single Family Permits 12,600 % change from 2003 +12% Position in US 24 Job growth: 2003 -6,100 2004 4,500 2005 (projected) 17,000 Morrison closings: 2004 228

  44. Addressing underperforming businesses Austin - key improvement areas • Leadership and management • Expansion to lower price points • Re-position from ‘semi-custom’ builder • Sales staffing and sales execution • Install business processes for high production

  45. Addressing underperforming businesses Austin Division YTD 2005 Results Change from 2004 Sales +83% Closings +43% Sales Proceeding +102%

  46. Addressing underperforming businesses Houston – the market Population 4,600,000 2004 Single Family Permits 42,500 % change from 2003 +17% Position in US 5 Job growth: 2003 -16,300 2004 17,300 2005(projected) 43,000 Morrison closings: 2004 303

  47. Addressing underperforming businesses Houston - key improvement areas • Leadership and management • Expansion to lower price points • Expand geographic coverage from northwest segment • Update and rationalize product offerings • Sales staffing and sales execution • Re-build a number of key business processes

  48. Addressing underperforming businesses Houston Division YTD 2005 Results Change from 2004 Sales Flat Closings +80% Sales Proceeding Flat

  49. Addressing underperforming businesses Dallas / Ft. Worth – the market Population 6,000,000 2004 Single Family Permits 44,000 % change from 2003 +10% Position in US 4 Job growth: 2003 -28,500 2004 12,400 2005(projected) 57,000 Morrison closings: 2004 127

  50. Addressing underperforming businesses Dallas - key improvement areas • Leadership and management • Install proven Morrison business practices and disciplines • Expansion to lower price points • Update and rationalize product offerings • Sales staffing and sales execution • Drive frontline margin improvement

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