The Ryland Group, Inc. - Company Profile, Information, Business Description, History, Background Information on The Ryland Group, Inc.

2425 Park Sorrento, Suite 400
Calabasas, California 91302

Company Perspectives:

Ryland's mission is to become a dominant high-volume production homebuilder and provide the highest level of satisfaction to its customers, employees, and shareholders. The company's strategy to accomplish this consists of: focusing on entry-level buyers, first-time and second-time move-up buyers, and active adults seeking retirement housing;

providing homebuyers with the best value from a product and price standpoint; building upon the strength of our national brand and our reputation for customer service; maintaining geographic diversification; following a decentralized operating strategy in order to capitalize on the company's extensive local market knowledge; conducting all of our activities responsibly and with integrity.

History of The Ryland Group, Inc.

A leading homebuilder in the United States, The Ryland Group, Inc., has operations in about 21 markets in 14 states and Washington, D.C. With an average selling price of about $190,000, the company's homes are geared toward entry-level buyers and first- and second-time move-up buyers, as well as active retirees. The Ryland Group also offers mortgage-related services, ranging from escrow and title search services to homeowners insurance. The majority of loans handled by the company are for homes constructed by The Ryland Group.

Early Years As a Homebuilder: Late 1960s--70s

What became The Ryland Group was originally named after its founder, James P. Ryan, an energetic real estate entrepreneur who established the James P. Ryan Company in Columbia, Maryland, in 1967. Columbia was a new, planned community of 220 single-family-homes situated midway between Washington, D.C., and Baltimore, Maryland. Ryan created the name 'Ryland Homes' when he chanced upon a sign that was supposed to say 'Maryland,' but on which the first two letters had been covered; 'Ryland' struck him as the ideal name for his homes.

Operating in a dynamic and highly volatile housing market, Ryland developed a marketing strategy targeted toward the middle class or up-and-coming middle class: homes were built with only brand-name construction materials and appliances and sold in the middle range, starting at $20,000. Ryland sought to be a highly focused home building business rather than a development company speculating in land dealing or the development of 'raw' land. In its first year of operation, the company concluded 48 sales and made a modest profit of $12.7 million.

In 1970 the company changed its name to The Ryland Group, Inc., and the following year the company went public. That same year Ryland broke ground on another planned community, Peachtree City, outside of Atlanta, Georgia. Here Ryland Homes, with their careful attention to detail, frequent inspections at crucial phases of building, and use of only premium brand name materials and appliances (Anderson windows, Armstrong floor coverings, Owens Corning Fiberglass, General Electric stoves and refrigerators), struck a balance between cost, quality, and choice that was extremely popular with consumers. The customer could select from 15 different floor plans and from a variety of different housing styles that often reflected regional tastes. Ryland also was building a variety of homes, from single-family dwellings to townhomes (the 'townhome' concept was pioneered by Ryland) to condominiums, just as the last was growing in popularity. Ryland's building venture prospered, and more than 75 percent of its employees became stockholders.

The next several years saw further expansion into Texas. Ryland manufacturing centers, initially called Ryland Building Systems (later integrated into the Ryland Homes division in 1992), were also constructed at this time, providing preassembled, factory supervised home building components to the home site. By 1977 Ryland had penetrated the Midwestern market as well as the Philadelphia area, and had completed its 10,000th home. A mere eight years later, in 1985, Ryland celebrated the completion of its 50,000th home.

Diversification and Continued Growth: Late 1970s--Early 1990s

The purchase in 1978 of Crest Communities in Cincinnati, Ohio, launched Ryland's mortgage operations, modestly begun through Crest's subsidiary Crest Financial Services. From there Ryland Mortgage Company grew to become one of the nation's largest mortgage-finance companies, offering a full range of mortgage financing with branches in 18 states. In 1981, with the acquisition of Guardian Mortgage Company, RMC introduced full loan servicing. By the early 1990s, RMC was handling more than $2 billion in mortgage loans on an annual basis. In 1982 RMC formed Ryland Acceptance Corporation (which became a wholly owned subsidiary of RMC in 1987), an administrator and distributor of mortgage-backed securities.

During the 1990s Ryland entered the booming Florida and California home building markets. In the latter, the M.J. Brock Corporation, with divisions in Los Angeles and Sacramento, was acquired in 1986. Ryland homes were marketed in California under the Brock or Larchmont Homes labels, and by the early 1990s 40 percent of the company's business derived from southern California. At that time, however, the savings and loans scandal and the recession of the early 1990s struck California especially hard and moderated returns from land investment in the Golden State.

Fortunately, at the same time Ryland was expanding in California, it was also vigorously penetrating markets in Arizona, Colorado, Georgia, and North and South Carolina. In 1987 Ryland crossed the $1 billion mark in revenues; that same year founder James P. Ryan retired from the board of directors. In 1989 Ryland established the Cornerstone Title Company, a wholly owned subsidiary of RMC in Columbia, Maryland, that administered real estate closings.

Market analysts gave Ryland credit for its geographical diversity, which enabled the company to compensate for difficulties in California and other local markets experiencing periodic difficulties. Ryland expanded into the Midwest as well as expanding its activities in the Southwest.

With mortgage interests declining during the recession, Ryland Mortgage Company had record profits, derived largely from entering the 'spot loan' origination market. The savings and loans crisis, which culminated in the federal government taking over the ailing financial institutions and selling off their assets one by one, also became and advantage for RMC. Ryland's powerful mortgage servicing division, one of the largest in the country, benefitted from the federal government's assumption of mortgage servicing contracts when S & L home mortgages were taken over by the government; by the early 1990s, they comprised approximately 50 percent of RMC's mortgage servicing portfolio.

With the worst of the recession over by 1993, the company was stronger than ever. The housing market had recovered completely, with the exception of California and Florida. Thanks to Ryland's geographical diversity and its conservative business philosophy, it had not only weathered the recession (earnings climbed a phenomenal 191 percent between 1991 and 1992) but, unlike many of its competitors, company finances were in the black. Annual revenues still topped $1 billion. The company's four manufacturing centers, which produce the basic materials (lumber and trim) for all Ryland homes except those in the western states, were working over capacity. Ever attuned to the marketplace, the company shifted its marketing strategy in the 1990s to larger homes that did not necessarily cater to first-time home buyers. The average price of a Ryland home climbed to more than $150,000, with resulting larger profit margins.

In February 1991, Ryland Homes was asked to build single-family housing units in Israel because of that country's massive influx of immigrants from Russia. Unlike Israeli stone houses, which take an average of 18 months to build, Ryland homes could be assembled in a matter of weeks. Eventually, 1,300 housing shells were carefully packed in crates for assembling in Israel. In so doing, Ryland became the biggest American manufacturer of Israeli homes, earning a profit of $13 million.

Also in 1991 the company formed a new subsidiary, Ryland Trading Ltd., to specialize in building Ryland homes for the overseas market, with a particular eye toward market opportunities in Eastern Europe and the former Soviet Union. The federal government even contributed $400,000 in two grants to Ryland Trading Ltd. to encourage it to study housing-market opportunities and the construction of housing factories in the former Soviet Union.

The result was the first U.S. housing project in newly renamed St. Petersburg, Russia, which had not seen the completion of new private housing in more than 70 years. In 1992 Ryland, in a joint venture with Russian companies, began a housing settlement outside of the city consisting of American-style homes priced at $150,000 and up. The homes were targeted toward the increasingly large contingent of foreign businessmen and women in Russia. In a very short time Ryland Trading Ltd. had also expanded its joint-venture portfolios with Mexico, Spain, Turkey, and Senegal.

New Directions in the Mid- to Late 1990s

Though Ryland appeared to be on track, the company struggled with the effects of its expansion efforts and the economic recession, and Ryland posted a net loss of $2.7 million for fiscal 1993. R. Chad Dreier, who joined Ryland in November 1993 as president and CEO and became chairman in 1994, implemented a restructuring strategy that turned Ryland's efforts back to its core business of building homes. Dreier planned to de-emphasize Ryland's mortgage banking operations, believing that over the long term, the company would meet with the highest profits and the most success by concentrating on home construction, managing costs more effectively, and establishing a strong national profile. Ryland also intended to increase customer satisfaction, which had declined from a high of about 85 percent in the late 1980s to less than 70 percent in the early 1990s, by introducing new home models and allowing more customer customization.

In 1995 Ryland sold its Institutional Financial Services division, which handled a $46 billion portfolio, to Norwest Bank Minnesota. The divestment of the division, a leading private issuer and administrator of mortgage-backed securities, was in keeping with Ryland's strategy to concentrate on homebuilding and retail mortgage finance services. The following year Crestar Financial Corp. acquired Ryland's wholesale mortgage banking operations, known as Ryland Funding Group.

Ryland's streamlining began to pay off in 1996, when the company reported net earnings of about $16 million, up from a net loss of $2.6 million in fiscal 1995. Still, the company faced many challenges, including a relatively slow housing market that led to declines in both Ryland's number of homes built (8,388, a decline of 6.2 percent compared to closings in 1994) and new home orders (7,838, a fall of 14.2 percent). In 1997 Ryland upped its net income to $22 million, but the number of closings was flat, at 8,377 houses built.

Continuing to improve operations and sticking with its focus on the business of home construction, Ryland sold $2.7 billion in mortgages to PNC Mortgage Corp. of America in 1998, leaving Ryland with a loan servicing balance of about $800 million. The company planned to continue offering home loans to buyers of Ryland homes but felt increasing competition in the home financing business made remaining in the business risky and potentially unprofitable. While shedding some mortgages, Ryland also made some gains--the company acquired Regency Communities, a Florida homebuilder, and Thomas Builders of Baltimore. The Regency purchase provided Ryland with a strong foothold in the growing retirement market in Florida.

Net earnings for fiscal 1998 nearly doubled to $40 million, up from $22 million in fiscal 1997. The number of homes built rose to 8,994 homes, and Ryland appeared securely back on track. Earnings during the first quarter of 1999 jumped 116 percent compared to first-quarter earnings in 1998, marking the sixth consecutive quarter of increased earnings. 1999 was certainly proof that Ryland could do better, as the company reported record earnings of $66.7 million on revenues of $2 billion for the full year. The number of houses built surged 13 percent to 10,193 homes, and new orders increased by 10 percent.

The company made a major change in 1999 when it decided to move its mortgage subsidiary to southern California. Corporate headquarters soon followed, completing the relocation in 2000. California was known as a leader in homebuilding innovation, and Ryland hoped to capitalize on the connection and keep a closer eye on homebuilding trends. The move apparently did not affect Ryland's bottom line, and the company continued to report recording earnings and strong sales. For the first nine months of 2000, Ryland reported consolidated net earnings of $50.7 million, up from $45.9 million for the first nine months of 1999. The company planned to keep the momentum going in the 21st century by keeping in tune with customers' lifestyles and wishes, which included the possibility of building more townhouse communities and retirement communities targeted toward 'active adults' and expanding into new housing markets, such as the rapidly growing markets of Las Vegas, St. Louis, Detroit, and Nashville. 'We're proud of our product now, of what we're doing,' CEO Dreier told the Baltimore Sun, adding, 'We've had bumps in the road and bad days, but we've now created a pride that we know we're going to do better in the future.'

Principal Subsidiaries: Ryland Mortgage Company; Cornerstone Title Company; RH of Indiana LP; RH of Texas LP; Ryland Homes of Arizona, Inc.; Ryland Homes of California; Ryland Homes of Florida, Inc.

Principal Competitors: Pulte Corp.; Centex Corp.; Kaufman & Broad Home Corp.; D.R. Horton, Inc.; Lennar Corp.


Additional Details

Further Reference

Blumenthal, Robyn G., 'Ryland Group Inc. Indicates Net Rose in Third Quarter,' Wall Street Journal, October 12, 1992, p. B6.Fink, Ronald, 'Ryland Group: the Contracyclical Developer?,' Financial World, March 3, 1992, p. 15.Henry, Kristine, 'Ryland Homes' Earnings Leap 128%,' Baltimore Sun, July 24, 1998, p. 2C.Kaplan, Peter, 'Ryland Leads Home Builders in Work Abroad,' Baltimore Business Journal, February 21, 1992, p. 3.Kyriakos, Marianne, 'Getting Focused at Ryland,' Washington Post, December 13, 1993, p. F8.McQuaid, Kevin L., 'Ryland Group Announces Sale of $2.7 Billion in Mortgages,' Baltimore Sun, April 4, 1998, p. 12C.------, 'Ryland Posts Another Gain,' Baltimore Sun, February 4, 1997, p. 1C.------, 'Ryland Raises Roof after Turnaround,' Baltimore Sun, April 18, 1999, p. 1D.------, 'Ryland Undergoes Alterations,' Baltimore Sun, January 15, 1995, p. 1D.Salmon, Jacqueline L., 'Ryland Group's Tough Year,' Washington Post, November 15, 1993, p. F5.Snow, Katherine, 'Russian Houses to Carry `Made in USA' Label,' Business Journal Charlotte, September 21, 1992, p. 1.Wells, Melanie, 'Builders Still Falling as Market Hits Bottom (Washington Area Residential Real Estate Market),' Washington Business Journal, September 2, 1991, p. 13.

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