Executives
Tim Eller - Chairman & CEO
Cathy Smith - CFO
Mark Kemp - CAO
Analysts
Ivy Zelman - Zelman & Associates
David Goldberg - UBS
Nishu Sood - Deutsche Bank
Dan Oppenheim - Credit Suisse
Ken Zener - Macquarie Capital
Ray Huang - JPMorgan
Megan McGrath - Barclays Capital
Jay McCanless - FTN Equity
Alex Barron - Agency Trading Group
Eric Landry - Morningstar
Centex Corporation (CTX) F4Q09 (Qtr End 03/31/09) Earnings Call May 6, 2009 10:00 AM ET
Operator
Good morning and welcome to the Centex Corporation fiscal year 2009 fourth quarter Earnings Call with senior management.
Today's call will be recorded and transcribed. Today's call will also be simultaneously webcast at ir.centex.com. A copy of today's presentation is now available on the website. As usual, participants must download and advance their own slides during today's conference.
Continuing on slide 2. Centex wishes to emphasize to everyone listening on the call and via the Internet that certain statements made during the course of this call are forward-looking. These statements are not guarantees of future performance and are subject to significant risks and uncertainties that could cause actual results to differ materially from those discussed during the call.
For further information regarding these risks and uncertainties and other information, please refer to the forward-looking statements disclosure and the other information discussion on slide 3 in the presentation and to Centex's reports on Forms 10-K and 10-Q filed with the SEC.
All participants will be in a listen-only mode. There will be a question-and-answer session after management's remarks. (Operator Instructions). In the interest of time we will limit each person to one question and one follow-up question. If you have additional questions following today's call, please contact Matt Moyer, Vice President of Investor Relations at 214-981-5000.
I will now turn the call over to Tim Eller, Chairman and CEO. Please go ahead, Sir.
Tim Eller
Thank you Laurie, and good morning to everyone. Thanks for joining us for our fiscal year 2009 fourth quarter conference call. With me today is Cathy Smith, our Chief Financial Officer; Mark Kemp, our Chief Accounting Officer; and Matt Moyer, Head of Investor Relations.
I'll start our call today on slide 4 with some commentary on market trends and our performance during the fourth quarter, as well as for the full year. Next, Cathy will discuss details of our financial performance for the quarter and for the year. I'll also offer some closing comments about our merger integration planning with Pulte and then we'll address your questions about our operating results.
In the fourth quarter, and for the full year, we've consistently kept our focus on the fundamentals, selling homes, generating cash and restoring profitability. We've seen a steady monthly sales pace of two homes per active neighborhood throughout the quarter and a consistent pace of closings in each quarter through the year.
Similarly, we sustained a stable healthy backlog of nearly 4,200 homes which is among the industry strongest backlog positions in terms of volume, coupled with cancellation rate that continues to decline.
Margin and pricing pressures continued in most markets and our home building gross margins weakens sequentially from December but improved by 200 basis points year-over-year. The loss from continuing operations narrowed by more than half to $406 million.
The quarter's loss was substantially driven by land related impairments and charges which was a result of continued deterioration on pricing and outlook in certain major markets. I'm pleased that we've generated steady, positive cash flow from home building operations for seven straight quarters now. At fiscal year end, Centex held more than $1.77 billion in cash and equivalents, up from $638 million a year ago.
We are effectively managing inventory levels neighborhood-by-neighborhood to stay closely aligned with the dynamic local market demands. We kept our sights trained on the objective of restoring the organization to profitability by making continued progress and reducing cost for construction and overhead in the quarter, excluding one-time items.
We're well positioned to take advantage of attractively priced lots in land and we're seeing increasing opportunities to do so. We're also moving urgently and purposely to accomplish our proposed merger with Pulte which was announced in April. Our integration planning efforts are on track and running smoothly, and I'll discuss that progress further just before we begin the question-and-answer segment of our call today.
Turning to slide 5. After remaining firmly on the sideline in the December quarter, homebuyers cautiously returned in January, aspired to some extent by historically low interest rates, and they have continued to do so through the last month. For the first time in a decade, we sold more homes in April than March which is typically our best month.
Housing markets are more affordable today than ever before. Interest rates for a 30-year fixed conventional loan hover near 5%, levels not seen in 50 years. First time buyers can qualify for an $8,000 tax credit from the Federal Government, and a number of states are also offering credits. Buyers in this large segment are finding a once in a lifetime opportunity to stretch the purchasing power of their down payments.
Let's combine a few of these factors that's been muted by rising unemployment, accelerating mortgage distress and rising foreclosures that have contributed to already high existing home inventories. These issues continue to dominate national headlines and pressure prices and margins. I'm encouraged that we have seen steady traffic levels in sales recovering modestly from the lows we experienced last quarter.
New single family housing starts are approaching record low levels or the month supply of new home inventories are still near historic highs. We're managing unsold inventory tightly at 2.6 houses per neighborhood. In our model, we're able to effectively balance our sold backlog with planned unsold inventory. To-be-built homes represented about half of our gross sales for the quarter.
Turning to slide 6. We believe our land positions represent a strategic benefit at this stage of the cycle. Nearly half of our lot position in active neighborhoods is fully developed which allows for minimal land spending and a potential for more cash flow generation. Centex is well positioned in relatively healthy housing markets like Texas and the Carolinas. And we have a significant market share among first time buyers, the largest customer segment in the marketplace.
Strength in these markets and segments will allow us to capture returns faster as we emerge from the trough of this cycle.
With that I'll turn it over to Cathy to take us through some of the specifics for the quarter.
Cathy Smith
Good morning. Our fourth quarter results have a little something for everyone. We saw a nice seasonal pickup in sales activity but pricing pressures and impairments continued. We improved our gross margin year-over-year, but saw another sequential decrease. We made big strives in reducing our overhead dollars, but saw SG&A as a percent of revenue increase.
In some, we made good progress on our stated goal. We sold homes, we generated cash and we worked toward restoring a profitability in the midst of a housing market that remains fairly challenged.
I'm on slide 7. Our homebuilding operations were cash flow positive for the seventh straight quarter. The continued cash generation is a result of our focus on the strongest market segment for the first time homebuyer. Also contributing to the positive cash results is our ability to utilize our fully developed lots as we continue to sell homes. Having approximately half of our active lots finished allows for reduced land development expense. These strategic choices are a benefit at this point of the cycle.
As I mentioned, our housing gross margin improved year-over-year by 200 basis points to 9.9% but declined sequentially by 360 basis points. Higher discount and incentives contributed to this sequential gross margin decline. We saw an increase in discounts and incentives from 7.3% last quarter to 9.8% this quarter. The housing market continues to be pressured by rising foreclosures and unemployment.
Additionally, we reduced our inventory home by nearly 250 or 15% from the December quarter. Inventory homes have weaker margins than to-be-built homes. That said, we were able to reduce our direct construction cost as a percentage of revenues year-over-year for the first time since the peak of the cycle.
This quarter we recorded $352 million in impairment and land related charges, including $288 million in land impairment, $9 million in optional walk-away cost, and $55 million of JV impairment. These charges were again concentrated in those areas with high foreclosures and continued price decline.
We had approximately $50 million each in Florida and California and $95 million in our remaining resort properties. The balance of the impairments was spread primarily among other coastal markets. While this number is by any description big, it is down sequentially and reflects our consistent methodical approach to land valuation that we viewed every quarter since this downturn began.
We also continue to narrow the profitability gap. Home building SG&A and corporate G&A were down year-over-year even before excluding $38 million total company-wide severance and lease abandonment charges. Home building SG&A was down nearly 50% to $132 million.
Corporate G&A was down about a million dollars but was down much more if you exclude the $8 million of severance recorded in the quarter. Year-over-year we have reduced our total headcount 61% to less than 2,500 employees. Efficiencies in our processes are clearly evident as we have reduced our field and corporate headcount while improving productivities.
Slide 8 provides the details around the home building operations for the fourth quarter. We closed 3,293 homes in the quarter, 54% fewer than last year. The average price of homes closed in the quarter declined 11% to $238,000. Total home building revenues were down 65% to $791 million.
Sales and units were down 58% year-over-year to 2,843 homes. On a per neighborhood basis sales were down 45% as average neighborhoods declined 22% to 485. Sales were steady in the quarter month-to-month and have been stronger in April. Our cancellation rate was 26% in the quarter, down considerably from the 55% cancellation rate we experienced last quarter.
Following the weaker sales pace, our backlog sale by 46% year-over-year to 4,178 units, valued at just under a $1 billion. Our backlog remains one of the strongest backlog positions in the industry. Our owned land position at fiscal year end was 57,289 lots. We also own options on 7,045 lots. Our combined owned and controlled lots are down 27% versus last year.
Our inventory of 20 plus thousand fully developed lot has been a big factor in our ability to minimize land development expenses and generate positive cash flow in each of the past two fiscal years. Let me take a few minutes to review the regional results.
Slide 9 details sales and closings by region. In our east region, sales were down 57%. The coastal Carolina's and DC metro continues to be relatively better than the rest of the region. In the central region, our Texas divisions were the better performers. And in the west region, sales were down 70%. As we all know, inland California, Phoenix and Nevada continue to be among the nation's most challenged markets.
Similar to sales, year-over-year closings were down across the board reflecting the challenging market environment and the reductions in active neighborhoods.
Moving to slide 10. The current conditions in the housing market highlight even more of the strength of our strategic choices as they are yielding the expected positive results. Our business model emphasizes selling to a backlog and then building to a cadence. However, we can be flexible and as witnessed by our 71% backlog conversion, we have managed a conservative level of inventory homes to meet the needs of those buyers that desire a home quickly.
In the quarter, we reduced our direct construction cost by 11% per unit year-over-year. Our operators and trade partners are working hard to take advantage of the efficiencies gained in our production cadence model, as volumes return these efficiencies should become even more meaningful.
We are seeing more opportunities to acquire land and lots on a cash slide basis. These lots are targeted to serve the first time homebuyer and have good implied margins. As these new lots become a bigger mix of the business, we would expect margins to improve.
For the fiscal year just ended, we spent approximately $300 million on land acquisition and development with the majority being on the latter. We are currently projecting to spend even less in fiscal year 2010. Our obligatory land spend is roughly $200 million if we don't buy any additional land.
We ended the quarter with cash and cash equivalents including restricted cash of $1.77 billion. This represents our intent focus on generating positive operating cash flow in each and every neighborhood, and our low cash needs for land acquisition and development expenditures.
I'll now turn the call back to Tim for his concluding remarks.
Tim Eller
Thanks, Cathy. Now I'll conclude on slide 11. Our fundamental themes have remained consistent throughout this business cycle. We stayed focus on selling homes, generating cash and restoring profitability. We experienced a steady sales pace in the fourth quarter and maintained a consistent healthy backlog albeit with continued pricing and margin pressures.
Our cash position has improved. We made good progress driving overhead and direct construction cost down, and we're beginning to make opportunistic purchases of lover cost lots and land.
Housing market conditions remain turbulent with signs of optimism tempered by ongoing challenges. Nationwide, we see the highest levels of affordability and lowest mortgage rates in decades. New home inventories and new home construction are in record low territory. Inventories for existing homes remain high as foreclosures amount.
In these conditions, we believe continuing to focus on consistent execution of our strategy is the right approach. Our company has reached this point well positioned in several areas of relative strength. Our strong land positions will afford the best opportunities to generate cash and growth when conditions improve. We are already beginning to acquire lots in land. These will result in faster asset returns and higher cash flows.
We're focused on our largest customer segments, the first time and first move up buyers. Liquidity and low rates and the conventional mortgage markets are drawing a slow but steady stream of buyers from the sidelines into our neighborhoods.
Regarding our proposed merger with Pulte, we only have a limited amount of information to share at this time because so many decisions remain in progress. But since the announcement in April, we've been working diligently to assemble the transition teams and plan the integration. We're moving forward quickly and I'm pleased to report that planning is rigorous underway.
We believe the combination with Pulte will establish the industries leading home builder by a number of important measures. Most importantly, we believe the proposed merger will allow Centex shareholders to participate in the upside potential of a stronger better positioned combined company that will be able to immediately benefit from significant synergy opportunities.
And now Laurie, let's address questions regarding our operational results.
Question-and-Answer Session
Operator
(Operator Instructions). Our first question comes from Ivy Zelman, Zelman & Associates.
Ivy Zelman - Zelman & Associates
Tim you spoke about the improvement in sales activity which is obviously nice to report. One of the concerns that I think we all have to realize is at some point the government is not going to continue to provide the tax incentives with whether it would be fiscal and/or state wide like in California. And it looks as if California might be on pace for that absorption of that $100 million to possibly be sometime in the summer in July, maybe even sooner.
So the real issue I think that we ponder is what happens when there is no longer that incentive? And are you operating your business assuming that that pace of self activity in California continues where that clearly is a start performer on a relative basis? And then my second question relates to the buyers. We're hearing coffee table chatter that investors are back. And I'd like to know what percent of your sales are coming from investors?
Tim Eller
Good questions. So let me tackle the latter one first. As far as I know, very, very little of our sales are investors. Our sense is that investors are primarily in the foreclosure market which is a good thing. And the values in that market are quite compelling. So the quicker that they provide some stability to that market in this stage of the cycle, investor sales in the resale market might actually be okay because my sense is that there are longer term holders than they were at the peak of the cycle.
Back to your question on the tax credit. It's an interesting conundrum because very few of our sales right now, based on the data that we have through our mortgage operators are utilizing the federal tax credit. You are right in the sense that a lot of buyers in California are using the California tax credit. That's really a first come first serve tax credit that will be available until the amount is used up, which I think is getting probably close to now.
I don't expect that the exploration of the tax credit in November on a federal basis will have much of an impact in our sales. What we're seeing is just really first time buyers who are seeing a historic opportunity with interest rates and affordability levels to take advantage of buying their first home.
Just looking back at our sales statistics, over 50% of our sales in this last quarter were first time buyers. About 35% or so were first time move up.
Operator
Our next question comes from David Goldberg, UBS.
David Goldberg - UBS
First question is really about whether you think that your buyers are first shopping foreclosure homes and then coming to your communities or if you think there is some clear differentiation between the first time buyer segments? Do you think entry level buyers are just new homebuyers or do you think they shop foreclosures, maybe can't find what they want but get an idea on price at what they want and then come to your community?
Tim Eller
Some of both of course, David. First of all, half of our sales were to be built homes. It's unlikely that those buyers are actively in the foreclosure market. That leaves the other half where inventory homes which certainly people and buyers tend to look at the spectrum of properties available to them but I think it continues to be compelling that buying a new home is a desirable outcome for a lot of people as opposed to a foreclosure. But there will continue to be a demand for new homes, but the inventory of foreclosures does need to be clear, we are the first to admit that.
David Goldberg - UBS
The follow-up question is in relation to the comments on the availability of land and starting to see some parcels that are priced attractively. I'm really trying to get an idea of maybe A, what's the magnitude of the amount of parcels that are out there that are priced attractively? And the quality of the land underlying them? If that's not significant enough to move the needle, how much do you think pricing needs to fall? And what is out there in terms of quality loss to make the deal sensible for you?
Tim Eller
We're finding more, but it's kind of a moderate stream of opportunities, maybe even a minimal stream of opportunities at this stage. It's all dependent on the banks and the banks willingness and ability to put properties out to the market at a market level rate. So first of all, I think the banks balance sheets need to be pretty stable for them to have the confidence to do that, that seems to be happening. We're looking at more and more properties that are being offered by banks now which tends to be more and more realistic in terms and prices.
So we've had some attractive acquisitions in the Carolina's and in Texas. I should note that the number of properties that are out there, particularly finished lots is not that large. So those properties will probably go first along with some of the B properties. But the A properties will be at a little higher price than the Bs, we're seeing opportunities in both right now. It's not a large stream, I think it will become larger through this year.
David Goldberg - UBS
Any actual size of the deals? Are they big land acquisitions, big parcels or smaller stuff that we can back on the market?
Tim Eller
We're seeing both. For example, in Dallas, we tied up three parcels, all developed lots ranging from 58 to 150 lots. In the coastal Carolina market we tied up a property for a very, very small deposit that consisted of 650 lots. So we are seeing the range.
Operator
Our next question comes from Nishu Sood, Deutsche Bank.
Nishu Sood - Deutsche Bank
I wanted to focus in on the impairment number. Cathy, you mentioned that it's down town sequentially from last quarter, but still a significant number. Fourth quarter, you could safely describe it as abysmal for most people. Now you're talking about a steadier sales pace, healthier backlog, I was wondering if you could focus in on some of the assumptions maybe community-wise, region-wise, what tripped in the first quarter given that things are certainly better than they were in the fourth quarter that led to such a large impairment number?
Cathy Smith
It's the same methodology we've continued to use which is we look at what the cash flow stream is for that asset for the life of the asset. What we saw this last quarter were a little bit of more concentration in those areas with foreclosure and price decline, so Florida and California continue. They were kind of more specific three assets of our resort properties that we still have and had to address and other than that it was really spread. Predominantly coastal market, both coast, east and west, but it was really spread and it's just that little bit more price pressure over the life of the asset that we're experiencing and/or anticipate to experience that caused it.
Tim Eller
We do look at the outlook and the outlook did deteriorate slightly from fourth quarter calendar to first quarter calendar, at least with the third-party we use. So that weighs into some extent as well.
Nishu Sood - Deutsche Bank
In terms of the severance and lease abandonment, some of the other charges that we're seeing flow through the income statement, are those charges that would have happened anyway irrespective of the merger or are there other things within Centex in anticipation of the merger later this year?
Cathy Smith
Those are all charges that would have happened regardless. Those are all plans we had in place as part of our continuing to structure our company with the right sized cost structure for the volumes we're seeing. We would have seen those regardless.
Operator
We'll go next to Dan Oppenheim, Credit Suisse.
Dan Oppenheim - Credit Suisse
I was just wondering in terms of the orders being steady over the course of the quarter. On your last call you talked about how numbers were much better than October and November. How much do you think there is pent-up demand that really hit in January? Normally we wouldn't expect the orders to be so steady for the three-months. Is that correct?
Tim Eller
I think so. I think first time buyers particularly need three things; they need a down payment, they need credit to qualify, and they need confidence. And certainly their confidence was shaken in October and November, so that certainly led a lot of them to choose the sidelines. Just as importantly though, if you recall back in October and November, credit quality became even more important than credit standards tightened, particularly in FHA and Fannie Mae and Freddie Mac loans as well.
We were hit with a number of things in that period of time. That settled down in December, we saw it come back. To some extent I think there was pent-up demand but I think we're also just seeing the benefits of low interest rates right now as well. And buyers adjusting to the notion that their credit quality has to improve and it is, and they are saving for their down payment as their balance sheets improve.
Dan Oppenheim - Credit Suisse
Follow-up on one of the questions relating to competing with foreclosures and people looking at spec homes or to-be-built homes. Is that on new orders or is that on close?
Tim Eller
New gross orders.
Dan Oppenheim - Credit Suisse
And if we were to look at it in terms of the closings, how would that look?
Tim Eller
It would certainly be about the same but we don't see any difference in cancellation between to-be-built's and stand-in inventory.
Operator
Our next question comes from Ken Zener with Macquarie Capital.
Ken Zener - Macquarie Capital
In the past you've talked about margin spread between the canceled and backlog units being roughly 400 to 500 basis points. Is that what you saw in the quarter?
Cathy Smith
Yes, still consistent there.
Ken Zener - Macquarie Capital
Did you guys conviction that your backlog margins would be going up into more that midteen range? Is that sill consistent with what you are seeing in terms of your conviction with the less building that you would see margin stability or given the price deflation that you are seeing quarter-over-quarter and backlog, is that changed?
Tim Eller
Absent external factors Ken, we would expect to see our gross margins improving. But so much right now is due to external factors, it's hard to sort it out. So closings that are going to occur this first fiscal quarter for us are certainly impacted by the events back in October and November. So it will take sometime to see that occur but it should occur, absent the external factors.
Operator
Our next question comes from Michael Rehaut with JPMorgan.
Ray Huang - JPMorgan
This is actually Ray Huang for Mike. Just to follow-up on the comments you had made about the to-be-built homes representing about half of the gross orders. What was that number last quarter versus a year ago? How should this impact your gross margins going forward?
Mark Kemp
That's higher than both last quarter and a year ago. A year ago, if you recall, our backlog conversion was much higher in the March quarter. We sold quite a few more specs a year ago in our March quarter. And then in December we saw more inventory home sales as well.
Ray Huang - JPMorgan
Do you guys have a number of the completed specs this quarter and also what was last quarter?
Tim Eller
It is about 2.5 per neighborhood, total of about 100 roughly. That's a number that's pretty consistent right now, frankly a number that you'll see us most likely maintain as [we doesn't meet] our unsold inventory into our production process. What we're doing now is, we have inventory homes that are generally at every stage of construction, we've identified targeted unsold inventory for each neighborhood which varies by neighborhood. So very few of them are going to actually be finished.
Mark Kemp
Specifically we have 1,258 total inventory units, about half are finished. And total homes under construction of 4,318 including 700 models.
Operator
Our next question comes from Megan McGrath, Barclays Capital.
Megan McGrath - Barclays Capital
I just wanted to follow-up on your comments around incentives in the quarter. Just curious, what you needed to offer incrementally this quarter to your buyers to get them to close the deal? And if it's any different or just the actual incentives are just a little bit more expensive?
Cathy Smith
Incentives, we saw those go up again this quarter as we continue to see some pressures. And that was a couple of hundred basis points. I don't think I could expand specifically on where those incentives are coming from but I did see them go up sequentially in the quarter.
Megan McGrath - Barclays Capital
If you were to compare your can rate which went down pretty significantly this quarter from last quarter, I would assume but maybe this isn't right, that folks are still pretty worried about their employment situation in the first quarter. What are you hearing from your buyers that was different in 1Q versus 4Q?
Cathy Smith
Some of what we're seeing on can rate is so low that we continue to pursue high quality buyers. Last quarter, the December quarter was such an aberration with everyone being so worried in October and November about the larger macro economic world. Some of that settled down and we continued to pursue high quality buyers until our can rate consistently came down through the quarter and we ended at 26% as we said.
Tim Eller
I think Megan, we're just seeing the power of low interest rates as well. So customers, especially first time buyers who are secure or feel they are secure are very active. Certainly there is still a lot of worries out there in terms of the job markets and unemployment, but the way the news has stopped getting worse every week, it actually feels a little bit better.
Operator
We'll go next to Jay McCanless, FTN Equity.
Jay McCanless - FTN Equity
With almost 85% that you showed in entry level or first move up construction this quarter, I wanted to see if besides California if there are some other states you can identify where some of these programs along with federal tax credit are coming online?
Mark Kemp
There has been proposals in Missouri and in Georgia, and one other state. They are being discussed in a number of states right now.
Jay McCanless - FTN Equity
Okay. As you try to up that percentage from 85% to whatever the goal is, do you expect incentives that you'll have to give in first quarter, second quarter may move up from where they are now?
Mark Kemp
So much depends on the external world on that. I'd say with the interest rates today, I would suggest that we're seeing lower incentives from what they were a few months ago. But that could change fairly quickly. Right now they seem to be trending down but that could change.
Operator
Our next question comes from Alex Barron, Agency Trading Group.
Alex Barron - Agency Trading Group
I wanted to ask did you guys give the benefit to gross margin from previous impairments?
Cathy Smith
No. We stopped doing that several quarters ago. It became more and more difficult to try to track.
Alex Barron - Agency Trading Group
How do you go about computing the tax refund if you don't track that?
Cathy Smith
We can see what land gets transacted, closings every single quarter. So we do have a good understanding there. But if you are asking what the benefit to gross margin is, that is more and more difficult as we re-productize, re-plan development and sell assets.
Operator
Our next question comes from Rob Stevenson, Fox-Pitt Kelton.
Unidentified Analyst
Hi, this is actually Nick on for Rob. A quick question on the forecast that you provided either in the S4, you have net income forecast. Is that assuming that you utilized deferred tax assets in 2012-2013 and pay zero taxes?
Cathy Smith
We essentially assumed that we wouldn't be a tax payer, largely. Am I answering your question?
Unidentified Analyst
That was all I needed.
Operator
(Operator Instructions). Our next question comes from Eric Landry, Morningstar.
Eric Landry - Morningstar
Tim, I heard a competitor who was talking more asset [light builder], talking earlier this week. And I was hoping to get your opinion on exactly what an asset light builder is going to look like if everyone is going to that model? And secondarily, who is going to hold on this land when everyone is asset light?
Tim Eller
Every cycle plays out a little bit differently, so I don't know who the land holders are going to be this time around. Certainly, the banks are the land holders right now to a large major, either [NREO] or in work out. And historically, they've held the land until they had a balance sheet that enabled them to sell. And then they sold to those who had credit to finance and buy.
So another element of your question is where is the credit going to be and where is the capital going to come from? I can't predict that right now because I don't know, but I do know that the banks are going to have a lot of land to dispose of. There is not going to be a lot of builders remaining to build that land out. So I think it's quite possible that a number of builders can be asset life simply because there is going to be way more supply of land than there will be capability to utilize that in production.
I think it's a very compatible strategy for a lot of builders. The property I talked about in coastal Carolina's is a large parcel, partially developed lots that are very attractive prices at very attractive terms that we can take down over a number of years. I just think we're going to see more and more those types of transactions.
Eric Landry - Morningstar
At what point will you consider yourself to be asset line? When we look at the balance sheet, was that two inventory terms a year or what? At what point do you think you'll be there?
Tim Eller
Two to two and a half actually, in previous cycles coming up two and a half asset turns was very achievable.
Operator
Ladies and gentlemen, we have reached the end of our allotted time for questions. I will now turn the call over to Tim Eller for his closing remarks.
Tim Eller
This may be the last opportunity for me to speak to you in this forum as Chairman and CEO of Centex. So let me say that I've enjoyed our interactions over the years. I appreciate the professionalism of each and every one of you who analyzes this industry and follows Centex, you do a great job for investors. And thanks to all of you for joining us today.
Operator
This concludes Centex's fiscal year 2009 fourth quarter earnings conference call. Thank you for your participation.
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