Homebuilder Earnings Reports and Other Struggles - Housing Tracker

Quote of the Day

"We are in the middle of the worst housing market in modern history." – Centex spokesman Eric Bruner. (Detroit News, Apr. 28th)

Homebuilder Financials and Bankruptcies

Housing Slump Hits Builders. “Now, half-built subdivisions dot the Metro Detroit region, construction workers are fleeing south and companies from family-owned shops to global firms like Pulte Homes Inc. are bracing for what could be their worst year yet… Centex Corp. (CTX), has decided to leave Michigan altogether. The company has built 4,400 homes in Metro Detroit since 2001 but no longer sees prospects here… Last year, Pulte closed on 499 homes in Michigan, less than half the number of the previous year.” (Detroit News, Apr. 28th)

Calpers-Linked Land Partnership Gets Default Notice. LandSource Communities Development LLC, a partnership that involves the California Public Employees' Retirement System, received a default notice Tuesday [on $1B of debt], amid talks to restructure $1.24 billion of debt. The partnership owns 15,000 acres in Southern California… Hundreds of lenders, including banks and institutional investors, hold the syndicated debt… MW Housing Partners, which includes Calpers, took a 68% financial stake in LandSource in early 2007... Cerberus Capital Management's LNR Property Corp. unit has a 16% stake, and homebuilder Lennar (LEN) has a 16% stake. Lennar and LNR operate the management of LandSource. None of these equity partners is liable for the debt if LandSource defaults.” (Wall St. Journal, Apr. 26th)

What Analyst Ratings Really Mean. “When a stock goes from one of those very rare sell ratings up to a neutral, that is a strong buy. When a rating is lowered from a buy to a neutral or a hold, that's a very strong sell… Then, there's the Toll Brothers (TOL) example… A big brokerage firm had an outperform rating on Toll when its price was $29, but the price target was $23. Well, what they were trying to say was, the stock will go down six points all right, but it won't go down as much as rest of the homebuilding stocks… In that case, an outperform meant sell!” (Washington Post, Apr. 25th)

Kimball Hill Homes Says It's Talking With Potential Investors. “Kimball Hill Inc. filed for Chapter 11 bankruptcy protection [and] said it has debts of more than $631 million, assets of $795M, [and] $60M in cash, which it said is enough to fund operations… About 500 people work for Kimball Hill, with about 135 in Illinois and the rest in California, Florida, Nevada and Texas. Kimball Hill has cut its workforce by more than half over the past year… Kimball Hill CFO Edward Madell said 26 potential financial backers are evaluating the company [and that] KH is terminating operations in Ohio, Oregon, Washington, Wisconsin and Florida because they are unprofitable.” (Chicago Tribune, Apr. 25th)

Judge Okays Kimball Hill Bankruptcy Plan. “After filing a bankruptcy petition… in the U.S. Bankruptcy Court, Illinois, Kimball Hill Homes received court approvals… [which] will allow the company to continue normal operations. On Thursday, Judge Susan Sonderby granted permission to continue customer programs and warranties, pay employee wages and benefits, establish procedures to pay valid lien claims in the ordinary course of business and to sell homes free and clear of all liens. In addition, the company was authorized to immediately use $35 million of cash to support normal operations.” (Big Builder Online, Apr. 25th)

Ryland Shares Fall As Analysts Take Dim View Of Loss. “Ryland Homes (RYL) reported that its net loss widened to $29.3 million, or $0.69/share. The loss included $27.4M in charges related to the declining value of land, homes and joint ventures. Homebuilding revenue fell 42% to $399.5M. The result was better than Wall Street expected… Lehman Brothers analyst Megan Talbott McGrath narrowed her loss forecast to $1.53/share from $3.30/share, citing comments from management that most charges related to inventory are in the past. She expects the company will take about $100M in charges combined in 2008." (Chron.com, Apr. 25th)

The Ryland Group Notes Some "Bright Spots". “CEO Chad Dreier: Ryland ended Q1’08 with 3,485 units in backlog, up 21.5% from Q4’07 but still representing a 28.8% year-over-year decline… The company beat analysts’ expectations for land-related charges; [taking] inventory and valuation adjustments of $18.1 million, JV impairments of $7.2M, and option deposit and feasibility write-offs of $2.1M… Ryland’s cancellation rate [was] 27%, [down] from 46% in 4Q2007. Dreier attributed the decrease to a shift in focus from move-up buyers to entry-level buyers, which now account for roughly two-thirds of buyers… Ryland’s spec count totals 686, down from approximately 1,800 a year ago… Ryland [also cut] construction costs and labor.” (Builder Online, Apr. 24th)

S&P Equity Research Downgrades Pulte Homes (PHM) to Sell. “S&P analyst, K. Leon: "Pulte Homes posts $2.75 Q1 loss vs. $0.34 EPS, after asset impairments of $664M, wider than our $0.50 loss estimate. Despite having $1B in cash, PHM has booked asset writedowns near $3.8B since the beginning of '06, which gives us concern that the company may be lagging the turnaround improvements of its peers. Q1's net new order values declined 50% year-over-year. We are widening our '08 loss estimate to $3.00 from $0.35 loss, but are keeping our '09 $0.50 EPS estimate. Applying a forward price-to-book of 0.8X, near peers, we are lowering our 12-month target price to $12 from $14." (Street Insider, Apr. 24th)

MDC Holdings Loss Deeper Than Expected. “U.S. homebuilder MDC Holdings Inc (MDC) reported a deeper-than-expected net loss in Q1, as it wrote down the value of land and homes in process and saw revenue tumble 45%. The company recorded a net loss of $72.8 million, or $1.58/share, versus a loss of $94.4M, or $2.07/share, a year earlier. The loss in the most recent quarter included $54.8M of asset impairments and $1.7M in write-offs for options on land it no longer plans to acquire. Analysts on average had expected a loss of $0.92/share. Revenue came to $406.1M, down 45M from $745.1M a year ago.” (Reuters, Apr. 24th)

Pulte Execs Downplay $663M Charge. “After [unloading] its least desirable land positions, Pulte Homes has decided to hold onto almost all the land it has now, mothballing projects that haven't been started. Pulte CEO Richard Dugas: With more than $1 billion in cash in the bank, no balance on its revolver loan, and a relatively low debt load, Pulte can afford to do that. Plus, executives said, Pulte has chosen to focus on bringing in cash by improving operations, reducing inventory, limiting future land investments, and selling lots and land on a local basis as warranted, which it said brings better prices than bulk sales.” (Big Builder Online, Apr. 24th)

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Comments

[johnthebear]

Any clue on how REITs earnings reports will look later this week? IYR could be very volitile if they show significantly lower expectations for the coming year.

[johnthebear]

You may find it interesting, a comment in London:

"This is the first housing recession that resulted from the inability to get a house financed,

rather than due to high unemployment or high interest rates."

House prices tripled in England in the last 10 years, much like many markets here in the US.

Like the US, they have fired a lot of people working in the home finance area that pushed the paper needed to close the loans. Many thousands of these fine people who had nothing to do with the loan approval process are now walking the street looking for a job. These people are needed to make the mortgage business function, but there are no lenders willing to hire. Lending standards are higher now, appraisals will get more close looks and many appraisers will likewise go without.

Does not look good for the next few years as unemployment rises and vacancies rise in commercial property.

I feel sorry for those losing their homes and jobs. I wish I could see a light at the end of the tunnel... instead I can only see the train coming my way and I wonder how to protect my meager retirement benefits. The state pension plan I rely on has been playing the same game as the banks, playing the spreads on interest rates and buying over priced commercial real estate. I hope the folks in my state will agree to a tax increase to cover the unfunded liability of the pension plans. Then there is social security. Sure wish I had control of my investments in SS rather than have the idiots in Washington manage my future. Too bad grand kids, the dems have really fixed it for us and they have no idea how stupid they are and the average American public is even more stupid than the dems that sell this crap.