Investor Presentation · 09.01.2020 · compared to 9.7%. – Housing gross profit margin...

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Investor PresentationFourth Quarter 2019

Caledonia at Summerlin (Las Vegas)

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2 Investor Presentation

Forward-Looking Statements Items in this presentation, and statements by KB Home management in relation to this presentation or otherwise, may be “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements are based on current (at the time made) expectations and projections about future events and are subject to risks,uncertainties, and assumptions about our operations, economic and market factors, and the homebuilding industry, among other things. These statements are not guarantees of futureperformance. We do not have a specific policy or intent of updating or revising forward-looking statements. Actual events and results may differ materially from those expressed orforecasted in forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differmaterially from such forward-looking statements include, but are not limited to the following: general economic, employment and business conditions; population growth, householdformations and demographic trends; conditions in the capital, credit and financial markets; our ability to access external financing sources and raise capital through the issuance ofcommon stock, debt or other securities, and/or project financing, on favorable terms; the execution of any share repurchases pursuant to our board of directors’ authorization; materialand trade costs and availability; changes in interest rates; our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule; ourcompliance with the terms of our revolving credit facility; volatility in the market price of our common stock; weak or declining consumer confidence, either generally or specifically withrespect to purchasing homes; competition from other sellers of new and resale homes; weather events, significant natural disasters and other climate and environmental factors; anyfailure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations, and financial markets’ and businesses’ reactions to that failure;government actions, policies, programs and regulations directed at or affecting the housing market (including the tax benefits associated with purchasing and owning a home, and thestandards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, orconstruction activities; changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and interpretations issued with respectthereto; changes in U.S. trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with and retaliatory measurestaken by other countries; the adoption of new or amended financial accounting standards, including revenue recognition (ASC 606) and lease accounting standards, and the guidanceand/or interpretations with respect thereto; the availability and cost of land in desirable areas and our ability to timely develop acquired land parcels and open new home communities;our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; costs and/or charges arising from regulatory compliance requirements orfrom legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damageawards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations orpractices that are beyond our current expectations and/or accruals; our ability to use/realize the net deferred tax assets we have generated; our ability to successfully implement ourcurrent and planned strategies and initiatives related to our product, geographic and market positioning, gaining share and scale in our served markets and in entering into newmarkets; our operational and investment concentration in markets in California; consumer interest in our new home communities and products, particularly from first-time homebuyersand higher-income consumers; our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California; our ability tosuccessfully implement our Returns-Focused Growth Plan and other business strategies and achieve the associated financial and operational targets and objectives; income taxexpense volatility related to stock-based compensation; the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services; the performance of mortgagelenders to our homebuyers; the performance of KBHS Home Loans, LLC, our mortgage banking joint venture with Stearns Ventures, LLC; information technology failures and datasecurity breaches; and other events outside of our control. Please see our periodic reports and other filings with the Securities and Exchange Commission for a further discussion ofthese and other risks and uncertainties applicable to our business.

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WEST COASTCALIFORNIAWASHINGTON

SOUTHEASTFLORIDANORTH CAROLINA

KB Home (NYSE: KBH) – A Differentiated Story

TARGETED – Focused on first-time and first move-up buyers, the largest demand segment, which accounted for about 75% of our annual deliveries over the past 10+ years. Multiple drivers supporting favorable supply/demand dynamics.

Well positioned in the right markets with the right products and an operating model that appeals to customers. Our Returns-Focused Growth Plan provides a strategy and roadmap to continue to increase stockholder value.DIVERSIFIED – Existing geographic footprint offers potential for substantially larger scale. Markets selected for their long-term economic and demographic growth potential.

Core Business Strategy – KB2020Achieve Top 5 Position in our Served Markets

(Based on Homes Delivered)

CENTRALCOLORADOTEXAS

SOUTHWESTARIZONANEVADA

55%

22%

10%

13%

FY 2019 Buyer Profile(Based on Homes Delivered)

FIRST-TIME

1ST MOVE-UP

2ND MOVE-UP

ACTIVE ADULT

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KB Home (NYSE: KBH) – A Differentiated Story

UNIQUE – With a Built-to-Order (BTO) model, we sell and build the home the customer values. BTO provides flexibility to move with demand, which drives absorption. With a large backlog of sold homes, we can manage starts to achieve even-flow production at the community level, driving efficiencies in overhead and cost to build.

COMPELLING – Business strategy and roadmap in place to achieve returns-focused growth. Focused on continuing to grow revenues, profitability and returns. Strong operating cash flow has supported both land investment to drive future growth and debt reduction to help achieve our debt to capital target.

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Returns-Focused Growth Plan

Execute KB2020 – Our Core Business Strategy• Increase scale, expand market share primarily in

existing footprint

• Improve profitability per unit and operating income margin

Monetize Deferred Tax Asset• Accelerate utilization of DTA as pretax income

continues to grow

Improve Asset Efficiency• Improve absorption per community

• Improve inventory turns

• Continue reactivating communities

• Sell non-core assets

• Deploy excess cash

Growing Our Business While Increasing Returns

* Defined as homebuilding operating income margin, excluding inventory-related charges ** Original target was a net debt to capital ratio of 40% to 50%, which was lowered to 35% to 45%

(Nov. 2018), and further tightened to a debt to capital ratio of 35% to 45% (May 2019)

2016 Target 2019

Housing Revenues $3.58 billion >$5 billion $4.51 billion

HB Operating Income Margin* 5.7% 8% to 9% 7.7%

ROIC 5.2% >10% 9.5%

ROE 6.3% 10% to 15% 12.2%

Debt to Capital** 60.5% 35% to 45% 42.3%

Key Results

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Achieve a Top 5 positionin our served markets by building

communities that offer a compelling combination of affordability, choice and

personalization

KB2020 – Our Core Business Strategy

Customer

Land

Product

Operations

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• Continue targeting first-time and first move-up buyers (~75% of our annual deliveries for the last 10+ years)

• Offer products that are affordably priced for the median household income of the submarket

• Provide a distinctive ‘customer-first’ experience, focused on building relationships with buyers. We are an industry leader in customer satisfaction.

Customer• Invest in land positions within prime growth submarkets that

generally provide a 1-2 year supply of land/lots per product line, per community

• Grow primarily within existing geographic footprint –potential for significant upside

• Focus on individual assets generally offering 50-200 lots

Land

• Design products to maximize value to the customer

• Create a base product with a standardized set of functions and features at a competitive price per square foot

• Leverage standardized plans across regions/divisions

• Provide choice, enabling the customer to select lot, floor plan and elevation, then leverage the KB Home Design Studio for interior personalization

Product• Drive efficient, low-cost production through disciplined and

scalable operations using a Built-to-Order (BTO) model

• Significant advantages of BTO:

– Provides efficiencies in managing to an even-flow production process

– Reinforces our preferred position with subcontractors– Minimizes speculative inventory and margin variability– Provides greater predictability on deliveries

Operations

Solid Foundation Supporting Strategy

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9,829 11,871 21%

$3,576 $4,511 26%

$152 $331 118%

$149 $348 134%

$1.12 $2.85 154%

$1,723 $2,383 38%

$20.25 $26.60 31%

60.5% 42.3% 18.2 pps

5.2% 9.5% 4.3 pps

6.3% 12.2% 5.9 pps

Significant Progress Over Past Three Years($ in millions except EPS and BVPS)

Deliveries

Housing Revenues

HB Operating Income

Pretax Income

Diluted EPS

Book Value per Share

Stockholders’ Equity

Debt to Capital

Return on Invested Capital*

Return on Equity*

2016 2019 Improvement

*See Appendix: ROIC Calculation Detail and ROE Calculation Detail.

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Investor Presentation9

Fourth Quarter 2019

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36%

17%20%

27%

11,871

28%

12%

17%

43%$4.9B

28%

13%17%

42%

33%

13%21%

33%

$1.8B

Regional Overview

• Principal markets:

– West Coast: California and Washington

– Southwest: Arizona and Nevada

– Central: Colorado and Texas

– Southeast: Florida and North Carolina

FY 2019 Homebuilding Revenues FY 2019 Homes Delivered

FY 2019 Net Order Value FY 2019 Backlog Value

Southwest

Southeast

West Coast Central

Southwest

Southeast

West Coast Central

Southwest

Southeast

West Coast Central

Southwest

Southeast

West Coast Central

$4.5B

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Fourth Quarter 2019 Highlights(all comparisons on a year-over-year basis)

• Revenues totaled $1.56 billion• Homebuilding operating income was $162.5 million

– Homebuilding operating income margin was 10.5%. Excluding inventory-related charges, homebuilding operating income margin was 10.7%, compared to 9.7%.

– Housing gross profit margin increased 150 basis points to 19.6%. Excluding inventory-related charges, housing gross profit margin increased 120 basis points to 19.9%.

– Selling, general and administrative expenses were 9.1% of housing revenues • Net income was $123.2 million, or $1.31 per diluted share• Net orders increased 38% to 2,777. Net order value increased 43% to $1.06

billion• Total liquidity of $1.23 billion included cash and cash equivalents of $453.8

million and available capacity of $781.1 million under our unsecured revolving credit facility

• Lots owned or under contract increased to 64,910, including 9,212 lots under contract with refundable deposits– Approximately 59% of the total lots were owned and 41% were under contract– The Company’s 38,039 owned lots represented an approximately 3.2 years’

supply based on homes delivered in 2019• The ratio of debt to capital improved 740 basis points to 42.3%, within our target

range under our Returns-Focused Growth Plan • Stockholders’ equity increased to $2.38 billion, and book value per share

increased by $2.59 to $26.60

Metric Q4 2019 Q4 2018 % Change

Housing Revenues $1.54 billion $1.34 billion 15%

Deliveries 3,929 3,389 16%

Average Selling Price $392,500 $395,200 -1%

Net Orders 2,777 2,013 38%

Net Order Value $1.1 billion $738 million 43%

Backlog Homes 5,078 4,108 24%

Backlog Value $1.8 billion $1.43 billion 26%

Ending Community Count 251 240 5%

Average Community Count 253 232 9%

Absorption (net orders per community, per month) 3.7 2.9 28%

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Housing Revenues

• Factors driving demand remain favorable, with job and wage growth, high consumer confidence, increasing household formation and demand from millennials. First-time buyer activity continues to provide us with a solid opportunity, given our expertise in serving this segment. Supply of resale homes remains low and there has been an underproduction of new homes over a multi-year period.

• While consumers’ heightened affordability concerns tempered homebuyer demand in the latter part of 2018 and the first quarter of 2019, our strong net order growth throughout the remainder of 2019 positioned us to deliver $4.5 billion in housing revenues in 2019

• Our Built-to-Order model provides incremental revenue from lot premiums, structural options and design studio upgrades

• Since 2016, annual housing revenues on a per community basis have increased 20% to $18.0 million, driving improved returns

($ in millions)

$4,335 $4,517 $4,511

2017 2018 2019

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Average Selling Price

$365

$390

$371$386

$402

$368

$411 $408

$381

$417

$395 $393

'17 '18 '19 '17 '18 '19 '17 '18 '19 '17 '18 '19

Second Quarter Third Quarter Fourth QuarterFirst Quarter

($ in thousands)

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$318 $309

Q4 19 Q4 18

$301 $290

Q4 19 Q4 18

4% -1%

-11%-5% 5%3%

$322 $307

FY 19 FY 18

$287 $298

Q4 19 Q4 18

$293 $287

FY 19 FY 18

$294 $297

FY 19 FY 18

$592$662

FY 19 FY 18

$598 $632

Q4 19 Q4 18

Average Selling Price by Region($ in thousands)

West Coast

Central Southeast

Southwest

-4% 2%

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Homebuilding Operating Income Margin*

3.6%

5.6%

4.3%

5.6%

7.3%

5.5%

7.4%

9.3%

7.8%

9.9% 9.7%

10.7%

'17 '18 '19 '17 '18 '19 '17 '18 '19 '17 '18 '19

Second Quarter Third Quarter Fourth QuarterFirst Quarter*Excludes inventory-related charges. See Appendix: Reconciliation of Non-GAAP Financial Measures.

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Housing Gross Profit Margin – Reported

14.6%

16.1%17.1%

15.4%

17.1% 17.2%16.2%

18.0%18.5% 18.1% 18.1%

19.6%

'17 '18 '19 '17 '18 '19 '17 '18 '19 '17 '18 '19

Second Quarter Third Quarter Fourth QuarterFirst QuarterAs a result of adopting ASC 606, the Company changed the classification and timing of certain model complex costs beginning in fiscal 2019. These changes favorably impacted our housing gross profit margin and negatively impacted our SG&A expense ratio in each quarter of fiscal 2019.

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Housing Gross Profit Margin – Adjusted*

15.1%

16.7%17.6%

16.0%

17.7% 17.6%16.9%

18.7% 18.9% 18.6% 18.7%19.9%

19.9%21.4% 21.3% 21.0%

22.2%21.3% 21.7%

23.1%22.3%

23.5%22.8% 23.1%

'17 '18 '19 '17 '18 '19 '17 '18 '19 '17 '18 '19


*Excludes inventory-related charges and amortization of previously capitalized interest. See Appendix: Reconciliation of Non-GAAP Financial Measures.As a result of adopting ASC 606, the Company changed the classification and timing of certain model complex costs beginning in fiscal 2019. These changes favorably impacted our housing gross profit margin and negatively impacted our SG&A expense ratio in each quarter of fiscal 2019.

Gross Margin excluding inventory-related charges Amortization of previously capitalized interest a

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SG&A Expense Ratio

11.5%*11.0%*

13.4%

10.4%* 10.4%

12.1%

9.6%* 9.4%*

11.1%

8.7%* 9.0% 9.1%

'17 '18 '19 '17 '18 '19 '17 '18 '19 '17 '18 '19

Second Quarter Third Quarter Fourth QuarterFirst Quarter*Represents year-over-year record low quarterly ratiosAs a result of adopting ASC 606, the Company changed the classification and timing of certain model complex costs beginning in fiscal 2019. These changes favorably impacted our housing gross profit margin and negatively impacted our SG&A expense ratio in each quarter of fiscal 2019.

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Healthy Land Portfolio

41%

59%

40%

20%

17%

23%

• With a returns-focused growth approach, we are continuing to invest in land acquisition and development to support future revenue and earnings growth

• Total inventory of approximately $3.7 billion at November 30, 2019

• Lots owned or under contract totaled 64,910 at November 30, 2019 as compared to 64,812 at November 30, 2018

– Lots optioned as of November 30, 2019 and 2018 includes 9,212 lots and 11,185 lots, respectively, under contract with refundable deposits

Southwest11,191

Lot Position at November 30, 2019

Lots by Region at November 30, 2019

West Coast15,186

Central25,871

Southeast12,662

Owned38,039

Optioned26,871

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Average Community Count

238 238 234 228 222 215 217232

244252 255 253

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2017 2018 2019

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Net Order Value

$1,085

$1,173

$1,022

$1,384 $1,362

$1,533

$1,072$1,018

$1,276

$935

$738

$1,059

'17 '18 '19 '17 '18 '19 '17 '18 '19 '17 '18 '19


($ in millions)

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Backlog Value

$1,794

$1,967

$1,658

$2,181$2,237

$2,173$2,116

$2,035

$2,297

$1,660

$1,434

$1,814

'17 '18 '19 '17 '18 '19 '17 '18 '19 '17 '18 '19


($ in millions)

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Net Orders per Community per Month

3.6

4.2

3.7

4.8

5.5 5.4

3.7

4.14.3

3.4

2.9

3.7

'17 '18 '19 '17 '18 '19 '17 '18 '19 '17 '18 '19


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Generating Significant Levels of Gross Operating Cash Flow

$2,029 $2,110$1,875

($1,516)

($1,888)($1,624)

$513

$222 $251

Gross Cash provided by Operating Activities Land Acquisition and Development Investment Net Cash provided by Operating Activities(As Reported)

2017 2018 2019

($ in millions)

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Completed $300 million refinancing – Issued $300 million of 4.80% Senior Notes due 2029 – Redeemed all $350 million of 8.00% Senior Notes due 2020– Utilized cash on hand to reduce debt by $50 million– Extended weighted average life of Senior Notes from 2.2 years at the

beginning of 2019 to 4.9 years following this refinancing

Expanded revolving credit facilityIncreased the borrowing capacity to $800 million from $500 million and extended the maturity date to Oct. 2023 from Jul. 2021

Tightened leverage ratio targetNow 35% to 45% debt to capital (from a net debt to capital target in the same range)

Obtained new $50 million unsecured letter of credit facility

Completed $400 million refinancing– Issued $300 million of 6.875% Senior Notes due 2027 – Issued an additional $100 million of existing 7.625% Senior Notes due 2023 – Redeemed all $400 million of 4.75% Senior Notes due 2019 on Mar. 8,

2019

Repaid $230 million of debt1.375% Convertible Senior Notes at maturity on Feb. 1, 2019

Improving Our Capital Structure

54.3%

45.4%41.6%

35.2%

2016 2017 2018 2019

Net Debt to Capital*

**See Appendix: Reconciliation of Non-GAAP Financial Measures

2019 Accomplishments60.5%

54.7%49.7%

42.3%

2016 2017 2018 2019

Debt to Capital

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Liquidity and Debt Maturity Profile

• Total liquidity at November 30, 2019 was $1.23 billion, including $453.8 million in cash and cash equivalents and $781.1 million in availability under our unsecured revolving credit facility

– Our $800 million unsecured revolving credit facility, which has a $250 million letter of credit sublimit, matures in Oct. 2023. The borrowing availability can be increased to $1 billion, subject to additional lender commitments. There were no cash borrowings on our credit facility at November 30, 2019.

– We have a $50 million unsecured letter of credit facility, which complements the capacity on our revolving credit facility, thereby enhancing our overall liquidity

• On Jul. 18, 2019, Moody's Investors Service upgraded its corporate credit rating and rating on our senior unsecured notes to Ba3 from B1, and revised the outlook to stable from positive

• On Jan. 29, 2019, S&P Global Ratings revised its outlook to positive from stable and maintained its corporate credit rating and rating on our senior unsecured notes of BB-

$450$350 $350 $300 $300

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Senior Notes Maturity ProfileNovember 30, 2019

($ in millions)

Coupon 7.0% 7.5% 7.625% 6.875% 4.8%

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The Sustainable Difference

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Dedication to Sustainable Homebuilding Leads to Lower Cost of Homeownership

Over

600,000Homes

Delivered

Over137,000

ENERGY STAR Homes

$780 Million Utility Bill Savings 4.8 Billion

Pounds Less CO2 Emissions

15,500WaterSense and WaterSmart Homes

0.6 Million WaterSense Products

100,000Enhanced Air Filters

50,000Smart Thermostats

1.5 Billion Gallons of Water Conserved Annually

9,800Solar Homes

8578

7265

60 57 55 52

2007 2009 2011 2013 2015 2017 2018 2019

KB Home Average HERS Score

Average KB Home 2019Typical Used Home

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KB Home Energy Performance Guide®

• Similar to an MPG sticker on new cars• The KB Home EPG® provides:⁻ Estimated monthly energy costs for every new KB home⁻ Information on the home's relative energy efficiency compared to a typical

new or resale home, reflecting a lower monthly cost of homeownership

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Summary

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Executing on our Returns-Focused Growth Plan

10.4%* 9.5%

5.2%

7.4%

2016 2017 2018 2019

Return on Invested Capital

14.4%*12.2%

6.3%

10.0%

2016 2017 2018 2019

Return on Equity

*Excludes the impact to net income of the 2018 non-cash charge of $112.5 million due to the TCJA.See Appendix: ROIC Calculation Detail and ROE Calculation Detail

• Since launching our Returns-Focused Growth Plan in 2016, we have generated significant cash from operations, which we allocated in a balanced way to invest $5.0 billion in land acquisition and development, repay approximately $850 million in debt and return $73 million in capital to stockholders in the form of dividends and share repurchases

• The investment in our future growth is being realized in our expanding community count. In 2019, average community count was up 12% and ending community count was up 5%, both on a year over year basis.

• The progress we have made in reducing our debt is two-fold:– Meaningfully reducing the amount of interest amortized per home

delivered, creating a tailwind to our housing gross profit margin. In 2019, the favorable impact to this gross margin from the interest reduction was 90 basis points year over year.

– Reducing our leverage ratio. In 2019, our debt to capital ratio improved 740 basis points year over year to 42.3%, solidly within our targeted debt to capital range of 35% to 45%, which we tightened in May 2019 from a net debt to capital target in the same range.

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Appendix

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ROIC Calculation Detail ($ in thousands)

(a) Net income for 2018 excluded the non-cash charge of $112.5 million related to the TCJA, which was enacted in December 2017.(b) Represents the total adjustments to net income multiplied by the Company’s effective tax rates, which were 29.3% for 2016; 37.7% for 2017; 23.1% for 2018; and 22.8% for 2019. The rate

for 2018 excluded the impact from the TCJA-related charge. (c) Average notes payable and stockholders’ equity for the trailing five quarters.

Net Operating Profit After Tax 2016 2017 2018 2019

Net income (a) $ 105,615 $ 180,595 $ 282,865 $ 268,775

Adjustments:

Interest (income) expense, net 5,371 (618) (3,514) (2,158)

Loss on early extinguishment of debt -- 5,685 -- 6,800

Amortization of previously capitalized interest 161,285 215,396 202,760 156,803

Income tax impact (b) (48,800) (83,100) (46,000) (36,800)

Net operating profit after tax $ 223,471 $ 317,958 $ 436,111 $ 393,420

Average Invested Capital (Book Value)

Average notes payable $ 2,627,689 $ 2,496,389 $ 2,232,331 $ 1,945,458

Average stockholders’ equity 1,669,731 1,799,849 1,959,425 2,211,312

Average invested capital (c) $ 4,297,420 $ 4,296,238 $ 4,191,756 $ 4,156,770

Return on Invested Capital 5.2% 7.4% 10.4% 9.5%

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ROE Calculation Detail ($ in thousands)

(a) Income tax expense for 2018 excluded the non-cash charge of $112.5 million related to the TCJA, which was enacted in December 2017.(b) Average stockholders’ equity for the trailing five quarters.

Net Income 2016 2017 2018 2019

Pretax income $ 149,315 $ 289,995 $ 367,965 $ 348,175

Income tax expense (a) (43,700) (109,400) (85,100) (79,400)

Net income $ 105,615 $ 180,595 $ 282,865 $ 268,775

Average stockholders’ equity (b) $ 1,669,731 $ 1,799,849 $ 1,959,425 $ 2,211,312

Return on equity 6.3% 10.0% 14.4% 12.2%

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Reconciliation of Non-GAAP Financial Measures

The Company believes these non-GAAP financial measures, which assist management in making certain decisions, are relevant and useful to investors in understanding its operations and in providing meaningful period-to-period comparisons, and may be helpful in comparing the Company with other homebuilding companies to the extent they provide similar information.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Housing Gross Profit Margin

Housing Gross Profit Margin - As Reported 14.6% 15.4% 16.2% 18.1% 16.1% 17.1% 18.0% 18.1% 17.1% 17.2% 18.5% 19.6%Housing inventory-related charges 0.5 0.6 0.7 0.5 0.6 0.6 0.7 0.6 0.5 0.4 0.4 0.3

Housing gross profit margin excluding inventory-related charges 15.1 16.0 16.9 18.6 16.7 17.7 18.7 18.7 17.6 17.6 18.9 19.9 Amortization of previously capitalized interest 4.8 5.0 4.8 4.9 4.7 4.5 4.4 4.1 3.7 3.7 3.4 3.2

Housing Gross Profit Margin - As Adjusted 19.9% 21.0% 21.7% 23.5% 21.4% 22.2% 23.1% 22.8% 21.3% 21.3% 22.3% 23.1%

Homebuilding Operating Income Margin

Homebuilding Operating Income Margin - As Reported 3.1% 5.0% 6.7% 9.4% 5.1% 6.8% 8.6% 9.1% 3.9% 5.1% 7.4% 10.5%Homebuilding inventory-related charges 0.5 0.6 0.7 0.5 0.5 0.5 0.7 0.6 0.4 0.4 0.4 0.2

Homebuilding operating income margin excluding inventory-related charges 3.6% 5.6% 7.4% 9.9% 5.6% 7.3% 9.3% 9.7% 4.3% 5.5% 7.8% 10.7%

2017 2018 2019

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Reconciliation of Non-GAAP Financial Measures (Continued)($ in thousands)

The Company believes these non-GAAP financial measures, which assist management in making certain strategic decisions, are relevant and useful to investors in understanding its operations and in providing meaningful period-to-period comparisons, and may be helpful in comparing the Company with other homebuilding companies to the extent they provide similar information.

2016 2017 2018 2019

Ratio of Debt to CapitalNotes payable $ 2,640,149 $ 2,324,845 $ 2,060,263 $ 1,748,747

Stockholders’ equity 1,723,145 1,926,311 2,087,500 2,383,122

Total capital $ 4,363,294 $ 4,251,156 $ 4,147,763 $ 4,131,869

Ratio of debt to capital 60.5% 54.7% 49.7% 42.3%

Ratio of Net Debt to CapitalNotes payable $ 2,640,149 $ 2,324,845 $ 2,060,263 $ 1,748,747

Less: Cash and cash equivalents (592,086) (720,630) (574,359) (453,814)

Net debt 2,048,063 1,604,215 1,485,904 1,294,933

Stockholders’ equity 1,723,145 1,926,311 2,087,500 2,383,122

Total capital $ 3,771,208 $ 3,530,526 $ 3,573,404 $ 3,678,055

Ratio of net debt to capital 54.3% 45.4% 41.6% 35.2%

November 30,

© 2

019

KBHo

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Deferred Tax Asset Value and Protection

• At November 30, 2019, KB Home had net deferred tax assets (DTA) of approximately $364 million

• To support the realization of the DTA, KB Home has undertaken a number of steps to avoid experiencing an “ownership change” under federal tax laws

• The primary protection is a Rights Agreement approved by stockholders in 2009 and in 2018 (which extended the latest expiration to April 30, 2021). The Rights Agreement provides authority for the distribution of dilutive stock purchase rights in connection with an acquisition of 4.9% or more of KB Home’s outstanding common stock.

• At November 30, 2019, there were 89.6 million shares of common stock outstanding

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