Housing Market Tracker - Homebuilder Outlook

Quote of the Day

"The vultures are all over. We have lots of people talking to us, and it's going to happen truly very soon. Time is not on my side. Like old fish, they don't smell any better with time." – Lewis B. Freeman, court-appointed liquidator of America's First Homes assets. (Big Builder Online, Jan. 15th)

Homebuilders, Housing Stocks and Housing-Related Stocks

Toll Brothers Named Builder of the Year "Toll Brothers (TOL) has been named 2007 Builder of the Year by the Texas Association of Builders. To be awarded this accolade, a company must demonstrate excellence in all aspects of homebuilding and innovation in numerous areas of operation, including design, management, marketing, community relations, and customer satisfaction. Each year the Texas Association of Builders recognizes the best in the residential construction industry with the Star Awards... Toll Brothers is currently building in 17 single-family detached and attached communities throughout Dallas/Fort Worth, Austin, and San Antonio." (Austin Daily Business News, Jan. 17th)

WCI Amends Credit And Loan Agreement; Shares Rally In After-Hours Trade "Homebuilder WCI Communities (WCI)... said it has successfully amended its senior secured revolving credit agreement and term loan agreement. The amendments, which extend through June 30, 2009... provide WCI with 'greater operating and financial flexibility to allow the company to continue to manage its business during this industry downturn.' The company also reduced the total commitment available under the revolver and the outstanding amount of the term loan, converted a portion of the revolver to non-revolving status, and agreed to increase the pricing on the loans. WCI shares surged almost 19% in after-hours trade after closing... up 15% at $2.44." (CNN Money, Jan. 16th)

S&P Equity Research Upgrades Meritage Homes (MTH) to Hold "S&P Equity Research upgrades Meritage Homes (MTH) from Sell to Hold. S&P analyst, K. Leon, says, "Down over 50% since December, MTH shares are trading below our 12-month target price of $12 based on 0.5X ratio of price to book value, in line with small homebuilder peers. [Despite] cumulative asset impairment charges of $421M since Q1'06 and $217M taken in Q3... there's a good chance of new impairments in Q4... that would reduce our book value estimate of $24. Other risks... include prolonged weakness in MTH's key California and Southwest markets and weaker employment trends." (Street Insider, Jan. 16th)

S&P Cuts Hovnanian Preferred Stock To Default "Standard & Poor's on Wednesday cut Hovnanian Enterprises Inc's (HOV) preferred stock to default after the homebuilder failed to pay a scheduled quarterly dividend. The rating agency also placed Hovnanian's debt ratings on review for downgrade, pending negotiations... to amend its credit facility. The company failed to pay a quarterly dividend on its $140 million series A preferred stock on Tuesday due to terms in its bonds that restrict dividend payments when its breaks certain ratios, in this case known as fixed-charge coverage... S&P has a corporate credit and senior unsecured debt rating of "B-plus" on Hovnanian, four levels below investment grade." (Reuters, Jan. 16th)

Ohio Home Builder Announces New Green Building Program "Dominion Homes (DHOM), a leading central Ohio homebuilder, is using environmentally friendly green building techniques in building new homes. Dominion Home's environmentally responsible products and building specifications are designed to help home buyers make eco-friendly decisions. "From increasing energy efficiency to reducing dependence on natural resources, living green is easier than you think and can actually save you money," said Douglas G. Borror, Chairman and CEO of Dominion Homes." (Press Release, Jan. 16th)

Toll Brothers Manischewitz Building Plan OK'd "The Jersey City Planning Board tonight gave its unanimous approval of the Toll Brothers plan to build three high-rise towers on the Manischewitz property in the Powerhouse Arts District... The Toll Brothers plans calls for three towers -- 30 stories, 35 stories and 40 stories -- as well as a 550-seat performance arts center. The developer promised to keep the facade on two walls of the historic building." (NJ.com, Jan. 16th)

Homebuyers Say Builder Misstated School District "Alisa Frady put down $20,000 in earnest money for a new home in Mooresville in the Iredell-Statesville Schools, the same district her children now attend. But it turns out that the Pecan Hills subdivision is in the Mooresville Graded School District. Frady and others say Ryan Homes (NVR), builder of Pecan Hills, gave them wrong information. Late Tuesday, Ryan Homes verbally agreed to release the Fradys and another couple from their contracts." (Charlotte Observer, Jan. 16th)

Kimball Hill Homes Loses $221 Million in Fiscal 2007 "In its 10-k SEC filing... which had been delayed for several weeks, Kimball Hill reported that it's lost $220.5 million in the year ended Sept. 30, 2007, exacerbated by $240M in impairment charges. Its revenue for the year fell 23.1%, to $894.7M, as its deliveries declined by 20.1% to 3,246 units, and its new orders dropped by 8.5% to 3,081 units. The value of Kimball Hill's backlog declined 29.3% to $148.7M... Kimball Hill's operations incurred negative cash flow of $17.1M, and its net worth fell below levels for one of the covenants in its senior credit facility." (Builder Online, Jan. 15th)

70-80 Laid Off In City "Nationwide Custom Homes, an affiliate of Palm Harbor Homes Inc. (PHHM), is laying off between 70-80 employees in Martinsville, said Andy Miller, president of the Martinsville facility... Miller: Nationwide experienced more than a 30% decline in 2007 in sales in the region served by the Martinsville facility... Sales of modular homes followed the [downward national] trend... [and] is expected to continue in 2008... The company is downsizing its work force because the “order rate is not sufficient.” In PHHM's Q2 report ending Sept. 2007, F2008 net loss was listed at $98.1 million compared to a F2007 net loss of $5.3M." (Martinsville Bulletin, Jan. 15th)

Hovnanian Chairman Buys Shares "The chairman of homebuilder Hovnanian Enterprises Inc. bought 379,100 shares of stock, according to SEC filings Monday. In Form 4s filed with the SEC, Kevork Hovnanian reported he bought the shares for $5.08-$5.50 apiece on Thursday and Friday. Insiders file Form 4s with the SEC to report transactions in their companies' shares. Open market purchases and sales must be reported within two business days of the transaction." (Forbes, Jan. 15th)

Standard Pacific: The First Major Homebuilder to Go? "Standard Pacific (SPF), I believe, is one of the prime homebuilding candidates for a restructuring or bankruptcy this year. The builder carries some of the largest joint-venture risk of any other homebuilder, with significant exposure to the California housing market... [It] has already been forced in recent quarters to supply capital to weak jv's in California. The builder is on the hook for $500 million of recourse exposure to joint venture debt, according to SPF regulatory filings... [after] already violating several debt covenants. The final piece of the puzzle... is SPF actually solvent - can its assets cover its liabilities?" (Trader Mark in Seeking Alpha, Jan. 14th)

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