Special Situation: United Homes Group (UHG)
All signs point to a sale announcement in the next 6 months
An interesting announcement on 5/19/25 made this one actionable, in my opinion. They announced a change in leadership and a review of strategic alternatives. They also announced they hired Vestra Advisors, who specializes in M&A in the homebuilding space. All of this points to a likely sale announcement, likely within the next 6 months. I’ll explain why this appears attractive and why this opportunity exists below.
Background on United Homes Group
UHG is a regional homebuilder founded in 2004 operating primarily in South Carolina. They were originally Great Southern Homes until going public via SPAC in early 2023, becoming United Homes Group.
With 20/20 hindsight it is very clear that this company had no business going public and it has pretty much been a disaster since they did.
My opinion is that UHG didn’t have the scale, cost structure, or a good enough product to absorb the costs related to being public and stand up to the scrutiny of being public. It was also a tough time from a macro standpoint for them to go public with the Fed raising rates and demand for homes slowing.
Their founder also had control of the company owning a majority of the shares and there were enough related party transactions to make it seem like this was an “amateur” builder that probably shouldn’t be public.
Their messy capital structure
In addition to everything above, UHG also has had a complex capital structure that is likely deterring investors from getting involved. There are class A and B shares, earnout shares, warrants, stock warrants, stock options, RSUs (restricted stock units), PSUs (performance stock units) and convertible debt. Having fun yet?
Long story short, I’m adding 4.25 million shares to their share count and here is my calc and reasoning why:
This gets us to 62,852,388 shares for my calculations.
Why it appears that a sale is likely
On 12/11/24 the company redeemed the outstanding convertible notes that had an original principal amount of $80 million. They did this by issuing 10.2 million shares and paying $70 million to the convertible note holders to cover the principal and accrued interest.
The $70 million was raised by entering into a syndicated term loan with a handful of lenders and Kennedy Lewis acted as the administrative agent. KL’s involvement here is interesting for a few reasons, mainly due to the fact that they are the external manager of Millrose Properties.
Millrose is a public land banking company spun off from Lennar earlier this year. I’m very familiar with Millrose and 2 funds I manage hold large positions. Here is a writeup I did on Millrose.
As mentioned, KL is the manager and they are very connected in the homebuilding/landbanking world. It is not unreasonable to assume that they played a part in helping to get UHG a bit more saleable. And they could resurface later, which I’ll get to below.
On 12/20/24 Jamie Pirrello is hired as interim CEO and this is backdated to 10/1/24 when he began in this role. He’s a 30+ year veteran in the homebuilding industry having been in various roles within Century Communities, Interior Logic Group, UCP, NVR, Pulte, etc.
It appears he is an operations guy and has also led multiple companies through mergers. He spearheads an initiative at UHG to reduce costs by rebidding contracts with vendors, suppliers, contractors and also initiates a “product refresh.” The homes they were selling were not up to market standards apparently, and they were having to fight this by offering incentives and reducing the prices. This product refresh revamped their different offerings and appears to be received well by the market thus far.
As far as results go, the company mentioned on their March earnings call (going over 2024 results) that gross margins increased about 500 basis points on this refreshed product set compared to the backlog of legacy homes they are selling. And on their May earnings call (going over Q1) they mentioned this trend continuing, as well as more pre-sales taking place, which reduces the time that inventory is held and ultimately increases their return on capital.
It appears that somewhere around 24% is what their gross margins have been and will be moving forward, barring any external events changing this for better or worse. They also mentioned on the Q2 earnings call that they’ve identified over $3.5 million in direct construction cost savings and that these savings will begin to really ramp up in Q3 of this year.
On 5/19/25 the company announced that they appointed a new CEO and are reviewing strategic alternatives:
United Homes Group, Inc. (the “Company”) (NASDAQ: UHG) today announced the appointment of John G. (Jack) Micenko, Jr., as Chief Executive Officer of the Company and Jeremy Pyle as co-Chief Operating Officer of the Company, and simultaneously therewith announced that its Board of Directors has appointed a special committee comprised solely of independent directors and initiated a review of strategic alternatives in order to explore ways to maximize shareholder value. The review will include a range of potential strategic alternatives, including a sale of the Company, a sale of assets, and a refinancing of existing indebtedness, among others. Mr. Micenko succeeds James M. (Jamie) Pirrello, who previously served as the Company’s Interim Chief Executive Officer, and will continue to serve as a member of the Company’s board of directors.
Jack Micenko appears to have a heavy background in M&A, and UHG also hired Vestra Advisors and Paul, Weiss. Vestra has been involved in a number of huge homebuilding mergers and Paul, Weiss is a law firm that specializes in this space as well.
All signs point to a merger taking place, now we get to valuation to determine if the potential upside is worth the downside of investing in a de-spac with a messy capital structure.
Valuation
I struggled for a while with this one and almost tossed into the “too hard” pile because I just couldn’t intelligently comp them. There is a terrific writeup on MicroCapClub of this, which is where I got this idea in the first place. Kudos to Christopher Plahm of Stonebridge Wealth Management for finding a gem (hopefully) here!
The author of that writeup looks at this based on an EBITDA multiple as well as the value of the ~7,500 lots they own or control through option agreements. I’m an asset guy so I’m not going to look at anything other than their lot pipeline as I think that is much safer to use to come to an estimated value. This should be conservative too as it ascribes no value to anything besides the lots they control.
However, there are a lot more variables at play here compared to valuing NOI-producing real estate, which is why I struggled here. NOI is easy to value as you simply apply a range of expected market cap rates to figure a range of values.
For lots purchased by a homebuilder, it is completely different. Obviously, values change depending on what the location is, and with many builders preferring to control lots via option agreements, it is even trickier as they don’t own the lots, they instead own the right to purchase the lots.
In my Millrose writeup I discuss this in greater detail, but I figured I’d give a quick overview of how land banking works with homebuilders. Homebuilders are more and more wanting to adopt a land-light model where they purchase lots on a “just in time” basis. To accomplish this, they work with a land bank that purchases the land and then writes an option agreement giving the builder the right, but not the obligation, to purchase the lots at a specified price by a specified date. The builder will have full control over this land during this process and develop the land as if they owned it, however it would not be on their balance sheet.
In exchange for this, the builder typically pays the land bank a non-refundable option deposit ranging from 5-20% of the takedown price (strike price) and pays them an ongoing monthly option premium. This shifts the market risk from the builder to the land bank and allows the builder to be much more capital-efficient.
In UHG’s case, as of 12/31/24 they owned 125 out of 7,690 lots, about 1.5% of their lot pipeline. This indicates they are extremely land-light.
Landsea, which is also a de-spac builder recently acquired and whom I am using as a comp here, owned 4,710 of the 10,516 lots they controlled as of their most recent filing, or 44.79%. Landsea was acquired for $1.2 billion. In this merger, Landsea’s per lot acquisition cost was about $114.2k on a $468k average sale price (ASP), which is a 24.4% ratio.
Now, UHG seems to have a few positives such as a more concentrated area their lots are located and strong presence in SC, whereas Landsea was geographically diverse. A builder wanting to develop or wanting to bolster their presence in SC would likely ascribe more value to UHG, all things equal. There are also efficiencies they’d pick up due to the lots being grouped closer together.
Landsea did not appear to go through the same sale process with a reputable advisor in Vestra that UHG is going through. Landsea wasn’t shopped much at all and the sale was prompted by an activist investor, so it is likely that they would have commanded a higher price had they had a formal sale process.
With all that said, if we still use the 24.4% lot/ASP ratio and apply to UHG’s estimated ASP of $350k, this gives us an offer price of $85,400/lot or ~$645.5 million. After backing out net debt of $95 million and warrant liability in a buyout scenario (SPAC shares are valued using Black-Scholes in a buyout --- way too confusing and over my head so just using a flat $25 million) we arrive at $520.5 million net to the common shareholders, or $8.28/share.
The issue here is that Landsea owns 44.79% of their lots whereas UHG owns less than 2%. So, there are a lot more tangible assets in the case of Landsea. From here I spent the better part of 2 days thinking on this and trying to isolate the value of the option agreements.
Here’s a comparison of each company and what they had in their lots:
As of 3/31/25 UHG had paid $46.9M in option deposits for land, had $138.45M inventory and $336.8M remaining purchase obligations on their optioned land. Here's how this breaks down as percentages:
9% - deposits
64.5% - remaining purchase obligations
26.5% - inventory
For Landsea, as of 3/31/25 they had $87.4M in option deposits, $1,239M inventory and $650M remaining purchase obligations. Here's the breakdown:
4.4% - deposits
32.9% remaining purchase obligations
62.7% - inventory
My issue here is still the fact that Landsea had a good bit more “hard” assets than UHG. This is why I continued struggling with how to value this and almost passed on it. But then I realized there is a way to isolate the value of the options by looking at Millrose’s involvement in the Landsea acquisition. Millrose paid $522 million to support this transaction by purchasing lots to be land banked. While it doesn’t state the exact number of lots purchased by Millrose, I think it is safe to assume it is the ~5,800 that Landsea had optioned and did not own. Millrose is larger than most land banks and likely able to provide land banking services to the acquirer at a cheaper price than whatever Landsea was paying. Think of this like a refinance of their option agreements.
$522 million / 5,800 lots = $90k per lot for the options. Assuming the same $468k ASP for Landsea, this is a 19.2% lot/ASP ratio in this sale. Applying 19.2% ratio to UHG’s $350k ASP gets us to $67,200/lot. This equates to $504 million gross or $359 million net after backing out net debt and warrant liability mentioned above. This is $5.71/share to the common.
I believe this is conservative for a few reasons; 1) This transaction was solely for Landsea’s optioned lots whereas UHG owns ~1.5% of the 7,500 lots I’m using here. So now the script is flipped where in this comparison UHG has more “hard” assets. 2) As a percentage of their land costs, UHG has paid almost double the cost of deposits on their options, so this should be factored into things. 3) As mentioned earlier, UHG’s lots are a lot closer to each other and there are likely some cost efficiencies a large builder would pick up from this.
Sanity check on this valuation
Trying to put myself in the shoes of a buyer, if we take the implied EV of Landsea based on their $1.2 billion sale price, and add the $650 million in remaining purchase obligation from their option agreements, the total is $1,850 million. Based on their 10,516 lots this is about $176k per lot. Their total lot/ASP ratio in this scenario is 37.6%.
If we imply a $500 million EV for UHG and add $336.8 million in remaining purchase obligations, the total is $836.8 million. Based on their 7,500 lots this is $111.6k per lot and the lot/ASP ratio is 31.9%.
This indicates that my estimate above is cheaper when compared to Landsea’s recent acquisition. If we apply Landsea’s ratio here of 37.6% we arrive at a per share offer for UHG of $8.04. So, I believe that using a range of $5-6/share in a buyout scenario should be conservative.
Comments on the ratios above
I want to clarify from my math above that the ratios where Landsea is 37.6% and UHG is 31.9% are not meant to be their finished lot ratios as a percentage of ASP. They are simply meant to be a way to compare apples to apples the Landsea acquisition with a potential UHG acquisition. These ratios include fully-built homes as well as homes in progress, therefore the ratio is higher than what just the finished lots would cost.
Here is UHG’s inventory breakdown as of 3/31/25:
$6.155M - pre-acquisition land costs +
$21.467M - developed lots +
$36.344M - homes under construction +
$74.483M - finished homes =
$138.449 - total inventory
If we back out 50% of the "homes under construction" cost and 75% of the "finished homes" cost, which is $74M, this should get us closer to their lot cost.
So, If we back out UHG's cash of $28M and $74M for inventory, here is how the math shakes out: $500M EV based on offer price - $102M inventory/cash adjustment + $336.8 future cash outlays = $734.8M / 7,500 lots = $98,000/lot or 28% lot/ASP.
Still seems high, but some things to consider: 1) A large builder such as Lennar would pick up cost efficiencies on the remaining lots immediately driving this down to their true cost %. Their expected sale price too would likely be higher as UHG's pre-refresh offering is pretty much baked into these numbers. 2) Since all costs are capitalized in homebuilding, including interest, this skews things. Lennar is going to get much cheaper debt and land banking, so their costs here would be driven down. 3) What is the value in picking up 7,500 lots in one fell swoop as opposed to doing it all incrementally?
Below is also a report I had Gemini do when I was doing a deep dive on Millrose several months ago. 28% is towards the top end, but when you factor in the economies of scale the large builders get as well as the cheaper cost of capital, it is likely lower which gets us into pretty much all these ranges. And again, using Landsea as a comp makes this appear cheap unless there is something we are all missing that Landsea had that UHG does not have.
Estimated timeframe for merger to occur
On a podcast with the founder of Vestra, he mentions that from cradle to grave these deals generally take 4-6 months to be finalized. With this being announced at the end of May, if UHG is to sell, it is likely this gets announced by the end of the year.
Could this make the most sense for Lennar?
We are getting into a bit of speculation here, but Lennar has a special arrangement with Millrose where they are provided land banking that is currently around 300 basis points below the interest rate other builders are charged.
They also have a heavy presence in SC. So, the stars may have aligned for Lennar to be the right buyer here that can get the most competitive. With UHG having almost all their lots controlled via options, Lennar could have Millrose buy all of them and effectively refinance the option agreements at a much lower rate than another builder could.
And with Kennedy Lewis involved with both Lennar, Millrose and UHG it seems like this could be a deal that gets done.
Insider buying
In December, when UHG began working with Kennedy Lewis, there was a secondary offering at $5/share and 1.448 million were sold to insiders. And again, right after the strategic alternatives announcement in May, the Neiri family (founder) bought 708k shares around $2. Good sign.
Risks
The risk here is simply that a deal doesn’t get done and UHG continues as a going concern. I would not want to own UHG as a going concern, but with the improved margins due to cost cutting measures and enhanced product offering, it seems like they will be doing better than they are currently doing.
With a large founding shareholder backing this and an improved business, it doesn’t seem like they would go under anytime soon. And their debt doesn’t mature until August 2027 so there is time to refinance.
The share price would almost certainly drop by 20-30% give or take if they announced they weren’t selling, but I see this as an unlikely event given their rhetoric and actions lately.
Bottom line
I see this as a worthy bet from a risk-reward standpoint. It appears likely a sale will occur and it is more than likely higher than the current price this is trading for. Land is a finite resource and getting more and more scarce for large builders who need a huge pipeline of lots. 7,500 lots mostly in a business-friendly and growing state such as South Carolina is certainly worth something to a large builder such as Lennar, Pulte, or DR Horton.
Valuing this is tricky and I am not super confident in how precise it is. However, when I zoom out it appears that an offer to shareholders in the $5-6 range should be attainable, if not conservative, especially when compared to the recent Landsea deal and how UHG is going through a formal sale process.
While I’m certainly not going to back the truck up on this one, it does appear to be asymmetric in regards to upside and downside.
Important: This information is for general purposes only and is not financial advice. Always seek professional guidance for investment decisions. Any opinions expressed are solely those of the author.
Thanks for the write and deeper context from the land banking perspective. What are you're thought on the macro backdrop? Majority of the lots like 50% or more are in the midlands SC where most Great Southern Homes are currently listed below 300k. Do some scrolling on zillow filtered to "Great Southern Homes"