Homebuilder Troubles, Large and Small [Housing Tracker]

by: Judy Weil

Quote of the Day

“Clearly, to me we've come down more than we're going to have to come down on a going forward basis." – D.R. Horton CEO Don Tomnitz. (AP, June 4th)

Homebuilder Stocks

Old Home Styles Are New Again. “In the down market, housing developers around the country are moving away from mansions and going back to building affordable family homes that can compete with rentals. KB Homes (NYSE:KBH) is returning to its roots by creating low-cost, small homes, using the same facades as their old tract houses but cutting the size, and price, of the homes in half. Young entry-level buyers used to be priced out of the housing market, but are now finding that buying is as cheap as renting as prices fall.” (The Real Deal, June 4th)

KB Sues MacFarlane Over Shuttered Developments. “KB Home [is suing] real estate management company MacFarlane Partners LLC, [saying] it has incurred more than $50 million in damages because of MacFarlane's failure to pay its share of costs [for] three residential projects in LA, Anaheim and Irvine, California... KB also accused MacFarlane of breach of fiduciary duty and contract interference… [The developments] were supposed to be jointly developed starting in 2005-2006 but MacFarlane failed to pay its part, KB says. MacFarlane said in January that it would no longer be a part of or fund any of the projects, the lawsuit said.” (Los Angeles Business Journal, June 4th)

D.R. Horton, Inc. (NYSE:DHI), America's Builder, Announces Receipt of Requisite Consents and Revocation Deadline With Respect to Its 9.75 Percent Senior Subordinated Notes Due 2010. “D.R. Horton, Inc., in connection with its previously announced offer to exchange any and all of its outstanding 9.75% Senior Subordinated Notes due 2010 (the "Existing Notes") for newly issued 9.75% Senior Notes due 2010 (the "New Notes") and related solicitation of consents to an amendment to the indenture governing the Existing Notes that would eliminate many of the restrictive covenants applicable to the Existing Notes, today announced that it has received tenders and consents in a sufficient number to approve the amendment to the indenture governing the Existing Notes.” (Press Release, June 4th)

Developers Pushing Overhaul Of State Laws. “A coalition of developers and business leaders plan to offer a legislative package… which would dramatically change New Jersey’s approach to real estate and economic development. The 12 bills would concede some development boundaries in exchange for incentives and concessions from the state... Residential and commercial real estate has ground to a virtual halt in NJ… Jeff Tittel, executive director of the NJ Sierra Club: "If these bills get passed, it will be a coup d'etat for the builders of NJ. They're trying to use a downturn in the economy to push through their dream list." (NJ Star Ledger, June 4th)

M.D.C. Holdings Well Positioned for Market Recovery. “M.D.C. Holdings (NYSE:MDC) CFO Gary Reece, who is scheduled to step down at the end of June… told analysts and investors at the J.P. Morgan third annual Basics and Industrials Conference in New York that M.D.C. has maintained a strong cash position and a relatively short land position through the current downturn, while aggressively cutting general expenses by shrinking its employee head count from more than 4,000 to around 1,800. Reece: "We run our company as an investment-grade company, and we are proud of the fact that we have that investment-grade rating with all three rating agencies today." (Big Builder Online, June 4th)

Lawsuit Targets Shift In Plan To Allow Towers. “A neighborhood group has filed a lawsuit to invalidate a city council amendment made to the Jersey City's Powerhouse Arts District development plan that would allow developer Toll Brothers (NYSE:TOL) to build three towers of 30 or more stories - two of them at the site of the old Manischewitz factory… The original redevelopment plan approved in 2004 called for projects limited to 10 stories filled with spacious "live/work" units for artists. This plan calls for 950 residential units, 12 of which would be live/work units, and 32 affordable housing units. Toll is also providing $2.8 million for affordable housing.” (NJ.com, June 4th)

Toll Brothers' Earnings Prove There's No Case for Homebuilders. “Toll Brothers FG2’08 conference call: “Ivy Zelman - Zelman & Associates: One of the issues today is that improvement costs in some markets are actually higher than the cost of finished lots....what builders will do as a big conundrum of having undeveloped land that in order to develop it, it would actually exceed the cost of finished lots? Robert I. Toll, CEO: “Obviously if you can buy lots for less than you can improve the lot, you would probably buy the lots. But…We have plenty of improved lots, so we haven’t reached a problem yet. But you are absolutely right -- if it cost you more to improve than it does to buy improved, why the hell would you improve a lot?" (Eric Fox in Seeking Alpha, June 4th)

Toll Brothers, Hovnanian Post Quarterly Loss. “Toll homebuilder, said it swung to a loss of $93.7 million, or $0.59/share, for FQ2’08. This included after-tax write-downs of $174.6M, or $1.06/share. Hovnanian (NYSE:HOV) said it lost $340.7M, or $5.29/share, in the period. Wall Street was looking for a loss of $2.64/share. The company took $251M in pre-tax charges in its FQ2, mostly from land impairments. Revenue was $776.4M in the latest period, down from $1.1 billion a year ago. Homebuilders have been taking charges as a result of falling land prices and home values, as well as their exposure to joint ventures.” (MarketWatch, June 4th)

Home Builder Lennar’s San Francisco Treat. “About 60% of City voters soundly supported a measure that will allow homebuilder Lennar (NYSE:LEN) to develop a 770-acre property into housing, retail shops, offices and possibly a new stadium for the San Francisco 49ers. The project… will give the builder a massive foothold in the still robust San Francisco housing market… Lennar is getting the land, which includes the former Hunters Point Navy shipyard, from the city for a nominal fee. That means the company can tie up the property at a relatively low cost until it’s ready to start building houses. In exchange, the builder has agreed to provide thousands of affordable rental and for-sale homes.” (Wall St., June 4th)

Downturn Hits Home Building Salaries. “Specialty Consultants' 2008 Home Building Compensation Report: Salary ranges were scaled back for a number of management positions... Division presidents… saw their fixed compensation shrink. James McGuire, managing director for Specialty Consultants, an executive search firm: During housing's boom times, the competition for top talent drove companies to increase base salaries… WCI Communities (WCI), Pulte Homes (NYSE:PHM), and The Ryland Group… (NYSE:RYL) became notorious for giving out the fattest. As the market has slowed, management teams have been downwardly adjusting base salaries to realign them with slower market conditions… Performance bonuses and base salaries have diminished, [and] so have the number of division presidents.” (Big Builder Online, June 3rd)

Beazer Homes Pulling Out Of State. “Beazer Homes (NYSE:BZH), one of the most troubled home builders in an ailing industry, is pulling out of Colorado. The company builds in the suburbs of Denver and in Colorado Springs. Larry Hotz, a long-time broker for Kentwood Co., said he received an internal memo from Beazer saying it will close its Colorado operation Oct. 31. Others, including consultant S. Robert August and broker Gary Bauer, said they received information that Beazer would close shop by June 30 in Denver and Colorado Springs.” (Rocky Mountain News, June 3rd)

Toll Brothers Swings To Hefty 2Q Loss On Write-Downs. “Toll Brothers itself will continue to offer incentives to get people to buy homes - a concession uncharacteristic of the builder that speaks to the severity of the housing market. But Deutsche Bank analyst Nishu Sood said the builder should more aggressively discount because "by holding prices the company is just delaying the inevitable as prices are unlikely to revisit boom time levels for a prolonged period." The company hasn't written off as much as other builders, and as such has a higher share of these charges to come, he wrote in a research note.” (Big Builder Online, June 3rd)

Class Action Lawsuit Against WCI Communities, Inc. and The Resort at Singer Island Properties, Inc. “The law firm of Beasley Hauser Kramer Leonard & Galardi, P.A. ("Beasley Hauser") announces this revised notice that on January 23, 2008, a securities class action lawsuit, entitled "Paul Mastrella, Samuel Lasorda, George Melillo, Michael Occhiato and Brian Shaver, Plaintiffs, v. Wci Communities, Inc. and The Resort At Singer Island Properties, Inc., Defendants" was filed against WCI Communities, Inc. and The Resort at Singer Island Properties, Inc. (collectively, the "Defendants"). The named plaintiffs are represented by Beasley Hauser.” (Earthtimes.org, June 3rd)

Biggest Small-Cap Gainers And Losers In Monday's Trading. “Palm Harbor Homes, Inc. (PHHM) is down 17.3% to $6.26 even though the Addison, Tex.-based maker and marketer of factory-built homes has not issued a new announcement.” (Smallcap Investor, June 2nd)

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