About That Homebuilder Rally... [Housing Tracker]

by: Judy Weil

Quote of the Day 

"It wasn't life or death for us, but it [NOL] would have been nice for everyone. [NOL] is not a giveback by any stretch, it just accelerates the refunds that we would get anyway in the next four to five years to a time when companies need it more than they will when profits are on the upswing. It's a time value of money issue." - Albert Pisanelli, corporate tax director for Orleans Homebuilders, referring to the tax carry back provision (stands for Net-Operating-Loss Carry Back) that builders wanted included in the government housing stimulus package. Vociferous public opposition forced congress and homebuilders to abandon the provision. (Big Builder Online, June 30th) 

Homebuilder Stocks 

D.R. Horton Credit Line Reduced After 5th Change. “D.R. Horton Inc. homebuilder (NYSE:DHI) said on Tuesday its credit line with Wachovia Corp (NASDAQ:WB) has been reduced to $1.65 billion after renegotiating the facility for the fifth time since 2005, [and] the second [time] this year. SEC filing: DHI entered into the unsecured revolving credit agreement with Wachovia in December 2005. Vicki Bryan of research firm Gimme Credit: The builder had to renegotiate yet again because it couldn't meet its obligations under the previous facility of $2.25B. Bryan: "What people might not be realizing is that banks are really stepping back as far as D.R. Horton's access to credit.”  (Reuters UK, July 1st) 

Analyst Note: Homebuilders Face Headwinds.  “JP Morgan analyst Michael Rehaut on homebuilders: "The group's pullback is not only justified by deteriorating fundamentals, but also point to several incremental risks that have begun to emerge”: The slackening of some down payment assistance programs… Rehaut says those have become essential in the past 18 months, but legislation may modify or curtail some programs; Homebuilders' cash flow is likely to flatten or fall over the next 18 months as revenue continues to decline [from] sales at cut-rate prices and volumes that do not generate enough cash to cover operating costs. [And] higher interest rates for mortgages.”  (AP via Forbes, July 1st) 

Beazer Homes CEO Got $3.2M In 2007 Compensation.  “SEC filing: The CEO of homebuilder Beazer Homes USA (NYSE:BZH) received a compensation package last year valued at $3.2 million… In addition to a salary of $1.2M, Beazer President and CEO Ian J. McCarthy received stock awards that had an estimated value of $1.8M as part of his F2006 bonus, which the company granted in F2007. The executive also received other compensation valued at $219,522, including $200,000 in company deferred compensation contributions, $6,750 in matching retirement plan contributions and $12,772 for a car allowance. He did not receive a cash bonus or non-equity incentive plan compensation.”  (AP via CNN Money, July 1st) 

WCI Gets Note Call.  “WCI Communities (WCI), one of South Florida's largest developers, faces a crucial deadline with some holders of $125 million in debt asking for redemption by Aug. 5. At the end of Q1, WCI had less than half the money needed to pay off the notes… If WCI fails to pay off the notes, it risks triggering clauses in its other loans - and they all could come due at once… WCI said that "certain holders" of its 4% convertible senior subordinated notes will make it repurchase the notes at 100% of principal plus accrued interest.”  (South Florida Business Journal, July 1st) 

Toll Brothers (NYSE:TOL) NewsBite - Toll Brothers Up on Construction Spending Data.  “Toll Brothers Inc. (TOL) hit its 52-week high of $26.94 in July and set its 52-week low of $15.49 in January… Shares of housing stocks have been trading higher after the Commerce Department reported that construction spending dropped only 0.4% in May on strength in spending on hotels and office buildings… Technical indicators for the stock are bearish and steady while S&P gives TOL a positive buy rating. If you’re looking for a hedged play on this stock, consider an August bull-put credit spread below the $15 range. TOL stock could fall up to 20.8% before expiration and this position would still be profitable.”  (Market Intelligence Center, July 1st) 

Lennar Shares Hit 8-Year Low.  Lennar Corp. (NYSE:LEN) shares fell to a nearly eight-year low Tuesday [on] Goldman Sachs analyst Chris Hussey’s [note]: "We think it is important to pay particular attention to cash flow generation and the balance sheets… (Stock performance) has been predicated on balance sheet improvements as measured by net debt to capital ratios." Most builders have been slashing prices to generate sales/ revenue. Instead of… building homes no one wants, the companies have focused on paying down debt. The idea is to be unencumbered financially when the market rebounds. Hussey reiterated a "Sell" rating on Lennar and widened a 2008 loss estimate to $2.05/share from $1.85.”  (AP via Forbes, July 1st) 

Pulte's CEO: Tax Breaks For Buyers Can Fix Housing Slump.  “Pulte CEO Richard Dugas Jr.: Pulte has cut employment by 60%, from more than 12,000 a couple of years ago to 5,000 today… Pulte (NYSE:PHM) has written off $3.7-billion worth of land values… Dugas: Homebuilders have cut prices 10%-20%, but can't afford to cut further because of the rising cost of materials such as steel and oil-based products, such as shingles and plastic pipe... The company expects to have $2B by the end of this year… Dugas: "We have increased our market share from 8% to 12% or 14% in the Phoenix area during this downturn… because a lot of competitors have fallen.”  (Detroit Free Press, July 1st) 

Standard Pacific Gets Cash Infusion.  “Standard Pacific (SPF) closed phase one of its deal with MatlinPatterson Global Advisors Monday, June 30, which will provide a $530 million cash infusion into the heavily indebted company. MatlinPatterson bought approximately $381M of new SPF senior convertible preferred stock, which, subject to shareholder approval, would convert into 125 million shares of the company's common stock at $3.05/share. In addition, MatlinPatterson traded $128.5M of the company's bond debt it owned in return for warrants to acquire more preferred stock that would potentially convert into 89.4 million shares of common stock at the exercise price of $4.10/share.”  (Big Builder Online, June 30th) 

M/I Homes: Over-Punished by the Markets.  “M/I Homes (MHO) is trading at a healthy discount of 58% to its book value. MHO's debt-to-capital level sits at just 30%, while others… are flirting with much higher debt levels… MHO has a large percentage of its business in Florida… But even if MHO requires writedowns of the same magnitude as what it had last quarter ($22 million) for the next four quarters, it would still be trading at a 35% discount to book value for common shareholders. At its slow sales pace of last quarter, it would get through its inventory in about one and a half years.”  (Saj Karsan in Seeking Alpha, June 30th) 

Celebrity Development Buys Douglas County Home Sites.  Colorado: “Celebrity Development of Colorado LLC said Monday it purchased the remaining developable land at the Pradera golf course community in Douglas County [from] homebuilder D.R. Horton, Inc… Terms of the purchase were not disclosed. Celebrity Development, affiliated with Celebrity Custom Homes, acquired 14 home sites ready for building and 86 sites scheduled for future development, [it said]… At Pradera, D.R. Horton built single-family homes starting in the low-$280,000s and duplexes called "golf villas" with prices beginning in the upper $400,000s.”  (Denver Business Journal, June 30th) 

Big Builders At Odds With NAHB.  “Executives at the nation's largest homebuilders… have become vocal critics of the NAHB... Earlier this year, an ad hoc group of financial executives from big builders, including Beazer, Centex (CTX), Hovnanian (NYSE:HOV) , KB (NYSE:KBH), Lennar, M.D.C. (NYSE:MDC), M/I, Meritage (NYSE:MTH), Orleans (OHB), Pulte, Shea, Standard Pacific, Toll and TOUSA (TOA) hired an independent lobbying firm, C2 Group to represent them… Big builders [were upset] the NAHB [couldn’t] get Congress to agree to a tax carry-back provision in… housing relief legislation; [Big builders were unaware of] the NAHB February [decision to] freeze PAC spending for congressional campaigns until legislators [helped] the housing industry; The broader (NAHB) membership… have a whole different profile [than big builders.]”  (Big Builder Online, June 30th) 

Deland's Victoria Park Enjoys Sales Uptick.  “Central Florida: Sales in Victoria Park, the big master planned community in DeLand, picked up substantially during H2’08, according to developer St. Joe Co. (NYSE:JOE) Five builders sold 50 homes during H2. That's not a lot… but it was still five times more homes than they sold there during H2’07… [Since] sales first began in November 2000… more than 1,000 homes have been built and sold in Victoria Park by St. Joe and builders [like] Beazer Homes... St. Joe stopped building homes under its own brand last year to focus on its development, land sales and property management businesses.”  (Orlando Sentinel, June 30th) 

KW Funds Take Lennar Out of Multifamily Investment.  California: “Three funds sponsored by Kennedy Wilson have acquired Lennar Corp.’s interest in two apartment-to-condo conversion projects in this East Bay city. The assets are the Marina Cove and Marina Shores developments, a combined 712-unit development with 515 units still available for sale two years after they hit the market. The purchase price was not immediately available.  The buyer was a combination of KW’s Bay Fund Opportunity LLC, KW BASGF II and KW Fund III. In buying Lennar’s stake, the funds become co-owners of the assets with Emerald Fund Inc., a San Francisco-based condominium/multifamily specialist.”  (

Globe St.
, June 29th) 

Builder Briefs: Centex Offers New Homes In Salem.  Oregon: “Centex Homes  is selling homes at South Nottingham, a 19-home subdivision in southeast Salem near Nottingham Woods, another Centex community. South Nottingham is on

Baxter Road
, across from the new Wes Bennett Park and within walking distance of Pringle Elementary School. Homes offered at South Nottingham range in size from 2,268 to 2,987 square feet, with three to four bedrooms and two-car garages. Home sites back to a natural wetland area. Base prices range from $267,000 to $297,000.”  (The Oregonian, June 29th) 

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

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