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Presented by Jun Yuan (Jason) Chan, Michael De Renzo , Rob Jannusch and Harout Sahakian April 15 th , 2014

The Ryland Group, Inc. Presented by Jun Yuan (Jason) Chan, Michael De Renzo , Rob Jannusch and Harout Sahakian April 15 th , 2014. Agenda. Introduction Company Overview Macroeconomic Outlook Relevant Stock Market Prospects Financial Analysis Valuation Recommendation.

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Presented by Jun Yuan (Jason) Chan, Michael De Renzo , Rob Jannusch and Harout Sahakian April 15 th , 2014

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  1. The Ryland Group, Inc. Presented by Jun Yuan (Jason) Chan, Michael De Renzo, Rob Jannusch and HaroutSahakian April 15th, 2014

  2. Agenda • Introduction • Company Overview • Macroeconomic Outlook • Relevant Stock Market Prospects • Financial Analysis • Valuation • Recommendation

  3. Company Overview • Founded in 1967 • Homebuilder and mortgage finance company • Builds single family detached and attached homes on-site • The company uses direct acquisition and lot option purchase contracts to control lot inventory • On-site construction is done by independent contractors • Ticker: RYL (NYSE) • Market Cap: 1.8B • P/E: 5.7 • DIV Yield: .31% • Number of Employees: 1,395 Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  4. Full Service Real Estate Company Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  5. Operating Segments Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  6. Recent Financial Performance Ryland’s Closings & Closing Prices Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  7. Management’s Actions and Outlook Source: Ryland 2013 10-K Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  8. Macroeconomic Outlook– Key External Drivers • 30 –year Mortgage rates • Credit Availability • Employment Growth/Increase in Payrolls • Number of Households • Geographic Region Sources: http://clients1.ibisworld.com/reports/us/industry/currentperformance.aspx?entid=169#CP Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  9. Understanding Market Power Source: MarketLine, Ryland 2013 10-K, Bloomberg Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  10. Industry Overview – Real Estate Current Performance • Highly Turbulent • Case-Shiller Index increased by 13.5% in 2013 • Many Tax Credit and Pricing Opportunities Keys to Success • Opportunistic regions where growth is not priced in • Reduced cost structure • Tax subsidies and incentives • Access to reliable contractors • Good track record/success rate Sources: http://clients1.ibisworld.com/reports/us/industry/currentperformance.aspx?entid=169#CP Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  11. Industry Overview – Real Estate (Home Builders) Industry Trends • Prices undervalued by 30% relative to renting • Rise of institutional investors • Investors accounted for 21% of home purchases • Market for rentals growing • More competitors after 2008 Sources: http://clients1.ibisworld.com/reports/us/industry/currentperformance.aspx?entid=169#CP Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  12. Industry Analysis – Real Estate (Home Builders) Revenue Revenue Growth • Revenue increased from 2010 to 2014 with a CAGR of 9.32% • In addition, housing starts forecasted to grow 19.4% in 2015 and 12.5% in 2016 • Projected revenue growth frontloaded in 2015 and 2016 Sources: http://clients1.ibisworld.com/reports/us/industry/currentperformance.aspx?entid=169#CP Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  13. Porters’ Five Forces Sources: Marketline Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  14. Recent Stock Performance • Currently Ryland’s stock price is slightly below the 20 and 200 moving averages • Watch carefully for a stock price move in either direction Source: Yahoo Finance Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  15. Financial Ratio Analysis Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  16. Financial Ratio Analysis Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  17. Discount Rate Calculation 70% weight applied to CAPM, 30% weight applied to ROE Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  18. DCF Valuation Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  19. Comparable Companies • Ryland’s number of house closings is on the lower end compared to its competitors • Ryland’s average sales price and sales price range is in line with competitors Sources: Company 2013 10-Ks Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  20. Comparable Company Greenblatt Analysis • Ryland’s Greenblatt Ratios are higher than the peer group’s average and median values • As Ryland continues to recover from the recession its EBIT/Tangible Assets should trend upward Sources: Company 2013 10-Ks Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  21. Comparable Company Valuation Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  22. Recommendation • Ryland is currently trading at $39.02 • Ryland’s DCF intrinsic value: $26.83 • Ryland’s triangulated intrinsic value: $29.82 WATCH LIST

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