Bank Refinance Is a Good Sign for Homebuilder - Housing Tracker

by: Judy Weil

Quote of the Day

“They go to their friends and neighbors and say, 'We just bought a new home,' and everybody says, 'What, are you crazy? Prices are dropping.’ “ – Robert Toll, CEO of homebuilder Toll Brothers, explaining high rates of homebuyer cancellations, the failed spring season and traffic levels that were “the worst that [they] have ever seen.” (MarketWatch, May 16th)

Homebuilder Stocks

Lennar Cut To 'BB' On Earnings Pressure Amid Worsening Housing Markets - S&P. “S&P Ratings Services downgraded Lennar Corp. (NYSE:LEN), saying the company's profitability is "very weak" so far in this housing downturn. S&P expects Lennar will face earnings pressure due to worsening operating conditions, particularly in its important California and Florida markets. S&P cut the corporate credit and senior unsecured debt ratings to 'BB' from 'BB+'. The outlook remains negative. "Lower home prices and a slower sales pace in many communities have contributed to very high impairments and other noncash charges, which have materially reduced shareholders' equity," the agency said.” (Interactive Investor, May 19th)

Home Construction & Furnishings. “Raymond James analyst Paul Puryear: The [homebuilder] rally may be short-lived: Puryear’s top pick for this year is luxury builder Toll Brothers (NYSE:TOL). He believes it will be easier for high-end buyers to obtain mortgages amid the credit-market turmoil… Goldman Sachs Group analyst Chris Hussey expects home sales and prices to be depressed for the remainder of 2008. Hussey [says] MDC Holdings Inc. (NYSE:MDC)… will prosper quickly when the market improves because it has relatively little debt…Wachovia Capital Markets Carl Reichardt’s top pick for 2008 is Ryland Group (NYSE:RYL) which has been able to generate large amounts of cash to pay down debt and prepare for the recovery.” (Wall St. Journal, May 19th)

The Week In Preview: Smooth Sailing Ahead. “Many people have thought of going back to living in a factory-built, modular home but did not know where to go for that special touch. Good news, as Palm Harbor Homes (PHHM) might actually have the answer. Yet, shares have been watered down of late as the housing market has been difficult on all components within the sector. Yes, even the luxury modular home companies. Interestingly, analysts are seeing a loss approaching $0.34/share on $123 million of revenues.” (Blogging Stocks, May 18th)

Developers Offering Incentives To Lure Buyers. “Florida: Meritage Homes Corp. (NYSE:MTH) is now offering to pay a year of home owners' association dues at Moody River Estates in North Fort Myers. Moody River Estates is a gated, 310-acre, riverside development, with 1,100 single-family, coach and carriage homes. The promotion began April 1 and will probably last through the end of May and savings can range from $5,000 for multi-family, to $6,000 for single-family homes, said Maria Atkins, a Meritage VP of sales… Meritage has also lowered prices on carriage homes by $25,000 and single-family dwellings by $50,000, with prices starting at $130,990 and $407,990, respectively.” (News Press, May 18th)

Update Set On Plan For Fire Station. Vacaville, Calif.: “Developer D.R. Horton (NYSE:DHI) wants to develop 48 acres in the project area with 201 single-family detached homes. The new small-lot and wide-shallow-lot arrangement is different from the cluster-style arrangement proposed before. With the revisions, D.R. Horton has said it is responding to changes in the housing market.” (The Reporter, May 18th)

Centex Sells Its Riverpark Housing Project In Oxnard. Calif.: Three Centex Homes (CTX) communities being developed at RiverPark in Oxnard are under new ownership. RSF Partners Inc. confirmed Friday that it and other firms involved in a joint venture purchased the designated sites for the Westerly, Promenade and Luminaria homes as part of a deal to buy a large portfolio of developed, partially-developed and undeveloped properties from Centex Corp. The deal… reduced Centex's total supply of lots by about 10%. The portfolio includes about 8,500 lots in 27 neighborhoods across 11 states, with the majority of those in California and Nevada.” (Ventura County Star, May 17th)

New Brighton Northwest Quadrant / Four homebuilders to pitch plans for New Brighton. Minnesota: “Four developers, [K. Hovnanian Homes (NYSE:HOV), Ryland Homes, Stuart Management Corp. and Sherman Associates Inc.,] have lined up to build homes in New Brighton… in the Northwest Quadrant — 100 acres of former commercial and industrial land near Interstates 694 and 35W that the city has spent millions cleaning up… City Administrator Dean Lotter: They've suggested a mix of rental and senior housing, as well as owner-occupied town homes, said Grant Fernelius, community-development director. It's possible that the chosen builder — or builders — could begin construction yet this year, Lotter said.” (Pioneer Press, May 17th)

WCI Golf Community Is Sold To Investors. “WCI Communities Inc. (WCI) on Thursday sold its 470-acre golf course community Tuscany Reserve in North Naples to foreign investment group AB Naples LLC… It will take about a year to assess the project and get it in shape, said Rainer Filthaut of IRC International Realty Corp., who's handling the project for AB Naples. WCI started planning work on the project in 2001. It is permitted for up to 530 homes and condominiums, of which 30 have been built. AB has two condos and a villa for sale, Filthaut said.” (News Press, May 16th)

Pulte Tries To Reassure Investors. "Pulte Homes CEO and President Richard Dugas Jr.: “This is one of the worse housing markets we've seen in decades.” He was speaking to a couple dozen of Pulte's investors at the home builder's annual shareholders meeting held Thursday morning at The Community House in Birmingham… Activists with a two-pronged message for Pulte provided a backdrop to the annual meeting. Led by the AFL-CIO labor group, about 100 protesters took to the streets surrounding The Community House to express their displeasure with what they called shoddy construction and unfair labor conditions in Pulte-built neighborhoods in Arizona and Nevada.” (Detroit News, May 16th)

Pulte Homes Signs $30M Lease in Scottsdale. “Pulte Homes has signed a 10-year, 96,000-square-foot lease to anchor the first phase of the Terra Verde Corporate Campus in Scottsdale, AZ. Pulte will relocate from its current Arizona headquarters in Raintree Corporate Center in the fall of 2009. The lease is valued at approximately $30 million. Currently under construction, Phase I of Terra Verde Corporate Campus is south of the southwest corner of Loop 101 and Bell Road. The three-story office building will total 183,984 square feet. Phase I is expected to deliver in Q2’09. When complete, the campus will have three buildings totaling roughly 500,000-sf.” (CoStar Group, May 16th)

Hovnanian Will Repay Bank Debt. “Hovnanian Enterprises plans to sell as much as $600 million of notes to repay bank debt. The five-year second-lien notes would be secured by "substantially all the assets owned by the company,” said Hovnanian. Sale of the notes will replace an existing $900M bank facility, reducing it to $300M. Vicki Bryan, senior high-yield bond analyst for New York-based Gimme Credit LLC: “It's very unusual for a homebuilder to get a deal done like this in a possible recessionary environment. It shows a lot of confidence in Hovnanian." Hovnanian raised $133M in a share sale earlier this month.” (Asbury Park Press, May 17th)

Hovnanian's $600 Mln Senior Secured Notes Rated 'Ba3' - Moody's. “Moody's Investors Service said it assigned a 'Ba3' rating to the proposed new $600 million, five-year, senior secured notes of K. Hovnanian Enterprises Inc. based on the company's ongoing losses, high debt leverage, elevated inventory levels, and cash flow generation that only recently turned positive. At the same time, Moody's affirmed the company's existing ratings, including the corporate family rating of 'B3', senior unsecured notes rating of 'Caa1', senior subordinated debt rating of 'Caa2', and preferred stock rating of 'Caa3'. The rating outlook remains negative, reflecting Moody's expectation that the very weak macro environment will pressure Hovnanian's credit metrics as 2008 and 2009 unfold.” (Forbes, May 16th)

Firm Pays $9.9M For 31 Palm Coast Condos. “Commercial Alliance Group Inc. purchased 31 condominiums in Palm Coast for $9.9 million. The condo units, part of the Palm Coast Resort, was acquired from Centex Homes. Stirling Sotheby's International Realty represented the buyer. CAG Realty Services LLC represented the seller and Centex Realty Inc. served as the transaction broker on the deal, which closed May 9. Commercial Alliance Group intends to sell the condos, but will offer the units on a nightly basis through a hospitality group until then, according to a news release.” (Orlando Business Journal, May 16th)

Beazer Homes Posts Wider Losses In 1Q, 2Q. “Homebuilder Beazer Homes USA Inc. (NYSE:BZH) reported a FQ1 net loss of $138.2 million, or $3.59/share, including [writedowns] of $168.5M [and] joint venture [impairments] of $12.8M. In FQ1’07, Beazer posted a net loss of $79.9M, or $2.09/share. Revenue fell to $503.1M from $802.5M in FQ1’07. Analysts were expecting a loss of $2.05/share on revenue of $528M. Q1 home closings fell to 2,006 from 2,664. New orders dropped to 1,252 homes from 1,783. Beazer reported an FQ2’08 net loss from continuing operations of $228.7M, or $5.93/share, including impairments [and] writedowns of $187.9M; joint venture impairments… of $31.7M; and goodwill impairment charges of $48.1M. For FQ2’07, net loss from continuing operations totaled $58.1M, or $1.51/share. Revenue fell to $405.4M from $823.6M.” (Forbes, May 16th)

The Early Edge. “[In its FQ1/FQ2 report,] homebuilder Beazer Homes noted that it has pending asset sales with estimated net cash proceeds in excess of $100 million, which are expected to close over the next 120 days. BZH noted that the cumulative impact of its restatement for periods in the years 1998-2006 resulted in a $27.6M increase in retained earnings. BZH's earnings errors were attributed to inappropriate accumulation of reserves or accrued liabilities associated with land development and house costs.” (Schaeffer Research, May 16th)

Lampert Takes Stake in KB, Centex. “[Thursday,] Edward S. Lampert, founder of semi-namesake ESL Investments and chairman of Sears Holdings Corp., purchased a small interest in both Centex Corp. and KB Home (NYSE:KBH). According to a SEC filing, Lampert bought 747,600 shares of Centex and 605,000 shares of KB Home. Lampert [is] the latest high-powered, high-profile investor to look for a value play in the struggling public home builders. Last year, Carl Icahn ratcheted up his interest in WCI Communities to a 14.6% stake… in January while Warren Buffet claimed a position in Hovnanian Enterprises in July.” (Big Builder Online, May 16th)

Report Claims Pulte Contractors Abusive. “Poor working conditions prevail for employees of Pulte Homes subcontractors in Las Vegas and Phoenix, according to a… 17-page report compiled by religious leaders from Chicago-based Interfaith Worker Justice who discovered a "disturbing pattern of injustice and abuse" among contractors used to build homes for Pulte. They visited Pulte developments and talked to workers about a number of problems, including unsafe working conditions, nonpayment of overtime, lack of affordable health care and benefits, and wages so low they had to work 60-70 hours a week to make ends meet.” (Big Builder Online, May 15th)

Orleans Homebuilders Posts $56 Million Loss. “Residential homebuilder Orleans Homebuilders, Inc. (OHB) reported a $55.7 million loss during its FQ3 on revenues of $109M. The average selling price for homes delivered in FQ3’08 was $449,000 compared to $424,000 in FQ3’07. Orleans’ cancellation rate [was] approximately 31% during FQ3… New orders decreased 40% to $121.2M (266 homes) compared to $201.1M (437 homes) for FQ3’07. The company said the outlook for housing remains weak in the near term, but that it has refocused its portfolio to so that 88% of it lots are now in its primary Northern and Southern markets.” (Builder Online, May 15th)

NVR Chairman Sells 41,000 Shares Of Common Stock. “The chairman of homebuilder and mortgage banker NVR Inc. (NYSE:NVR) sold 41,000 shares of common stock, according to a SEC filing. In a Form 4 filed with the SEC Wednesday, Dwight C. Schar reported selling the shares on Monday and Tuesday for $610.29 to $610.39 apiece. Insiders file Form 4s with the SEC to report transactions in their companies' shares… within two business days of the transaction.” (AP via, May 15th)

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