Homebuilders: Lennar Tries Commissions, Smart Cars [Housing Tracker]

by: Judy Weil

Homebuilder Stocks 

Carroll Creek Condos Auctioned At Profit. “Five of nine Carroll Creek luxury condominiums in Maxwell Place sold for between $350,000-$463,000 at K. Hovnanian's "close-out" auction Saturday. None of the downtown Frederick units, including one sold just before the auction, sold at a loss, a K. Hovnanian (NYSE:HOV) spokeswoman said Tuesday. An investor was expected to bid on the remaining four units this week.” (Maryland Gazette, Aug. 14)

Toll Brothers Warns Investors. “Toll Brothers (NYSE:TOL) said in a preliminary report Wednesday that its home building sales fell 34.0% in FQ3, amid a prolonged housing slump. It also expects $100M-$200.0 million in write-downs during the quarter, related to operating communities, land options and joint ventures… The company's home building sales for… its third quarter, fell to $796.5M from $1.21 billion last year. Analysts expected, on average, third-quarter sales of $717.6M. Yet-to-be-fulfilled orders fell 52.0% to $1.8B from $3.7B a year ago. Net contracts, or gross contracts minus cancellations, fell 35.0% to $469.7M from $727.0M a year ago. Toll Brothers said it was not comfortable providing guidance.” (Forbes, Aug. 13)

Lennar Sweetens The Commission Pot. “Homebuilder Lennar Corp. is hoping to give its new home communities and bottom line a boost with higher agent commissions and gas rebates… Lennar (NYSE:LEN)  is offering a tiered commission schedule through Aug. 31: 3% commission for the first sale, 4% on the second and 5% on the third and subsequent sales. An additional 1% bonus is payable if the sale is from existing inventory… Prior to the downturn, most single-family homebuilders… would not give brokers the time of day... For every new home prospect registered at a Lennar community, the introducing agent will get a $50 gas rebate card.” (South Florida Business Journal, Aug. 13)

Homebuilder Stocks Down Even After Relatively Positive Notes From Citi. “Shares of homebuilder stocks are down in early trading, even after several positive notes and initiation of coverage from Citi today… Citi initiated coverage on Pulte Homes (NYSE:PHM) and Toll Bros. with a 'Buy' & Centex (CTX-OLD), D.R. Horton (NYSE:DHI), KB Home (NYSE:KBH), Lennar, M.D.C. Holdings (NYSE:MDC), and Ryland (NYSE:RYL) with a Hold. (NOTE - 1 year ago, all of these stocks traded in the $30-40 range and now all but 3 are trading in the mid-teens. RYL and TOL are trading slightly over $20/share and MDC has held up the best only down about 20% from its 52-wk high of $48)” (Street Insider, Aug. 13)

Homebuilder Giving Away Free Smart Cars. Tampa: “You buy a select home in one of Lennar’s select communities and they throw in a Smart car to sweeten the deal. Lennar has 22 communities in areas like New Tampa, Riverview and Lakeland to name a few. John and Edna Miller bought their new home in a Lennar community in Riverview before the promotion started. The Miller's say they're not second guessing their decision to go ahead and buy because they say they got all kinds of special incentives.” (Tampa Bays 10, Aug. 13)

Avatar Has $6.5 Million 2nd-QTR Loss. “Avatar Holdings Inc. (AVTR) on Monday reported a net loss of $6,540,000 (-$0.77 per diluted share) for Q2’08 on a 69.3% drop in revenues to $24,930,000. There were no earnings estimates for the company as it is not currently followed by any of the major Wall Street home building analysts. DuringQ2, Avatar closed on 70 homes, a 68.5% decrease from the 222 homes closed during Q2’07. Dollar volume thus decreased by 74.3% to $18,055,000. New orders, net of cancellations, fell 48% to 66, with the dollar volume down 33.2% to $17,980,000.” (Big Builder Online, Aug. 12)

Lee County Will Sue Centex Homes Over Road Deal. Florida: “Lee County attorneys [will] sue Centex Homes over what they say is a broken agreement on Three Oaks Parkway. Centex made a deal with the county to realign the new road through its project in Bonita Springs. The county agreed to build a curve into the road south of Terry Street and Centex agreed to share drainage work and provide an easement west of Three Oaks. The company instead sold the land, assistant county attorney John Renner said, and did not pass along the easement. The county must now condemn the needed land from the new owner, who doesn’t want to sell it, and sue Centex for the cost.” (Naples News, Aug. 12)

Housing Plans Now Call For Apartments. Pennsylvania: “Apartments and town houses are planned for a proposed development south of Freemansburg Avenue that had been pegged for single-family homes eight years ago… Whitehall Township-based developer Abraham Atiyeh: The demand for luxury apartments is really high in the Lehigh Valley now. People can't afford to buy (houses) right now and the luxury apartments are a good option." The town houses will be built by Ryan Homes (NYSE:NVR) and the apartments by Woodmont Mews, which are currently building a 204-apartment complex across from Martin Tower in Bethlehem.” (Lehigh Valley Live, Aug. 12)

Centex To Close Colorado Operations. “The Genesis Group real estate research firm: Homebuilder Centex Homes is expected to close its Colorado operations by the spring of 2009. Centex “has been calling homebuyers [with homes] under contract to notify them that the company plans to close operations in Colorado.” Denver Business Journal: Centex’s Colorado division was the Denver area’s 10th largest homebuilder in 2007 by 2006 dollar volume, selling 408 houses for $117.4 million. In Colorado, the builder has 11 projects… For H1’08, Centex was one of the Colorado Front Range’s top 10 builders with 136 new-home sales.” (Dallas Business Journal, Aug. 12)

Martha Stewart Comes To Town Tuesday. “Martha Stewart will be in Denver next Tuesday to celebrate the one-year anniversary of KB Home Stapleton II: Homes Created with Martha Stewart. The public can enter to win a chance to attend the exclusive event by visiting any Colorado-area KB Home community between now and Saturday… Those chosen to attend the catered event will participate in a cupcake-decorating contest judged by Stewart. Winners will receive gift baskets from Martha Stewart Living Omnimedia and KB Home.” (Denver Post, Aug. 12)

Bond Market Into The Breach. “While the market for “covenant-lite” loans has dried up in the last 18 months, at least three companies have found a way to loosen their financial restrictions by floating bonds, as bonds typically carry more forgiving indentures than bank debt. These companies are also using bond proceeds to retire bank loans that hinder their operations by barring them from raising more debt and restricting asset sales, among other things.  The three companies that have floated bonds for such purposes since May… have all taken a beating in the wake of the housing crisis. Hovnanian is a home builder, Ply Gem makes windows and vinyl siding, and Nortek manufactures air conditioners, medicine cabinets and other goods for the home.” (Financial Week, Aug. 11)

Ryland Cuts Costs in Weak Market. “Ryland has sufficient liquidity and cash generating ability to get through the remainder of 2008. In June, the company amended its revolving credit facility by reducing its borrowing capacity from $750 million to $550M and by modifying several of its covenants, which included decreasing the base amount of its minimum consolidated tangible net worth covenant to $600M, adjusting the permitted leverage ratio and the ratio of unsold land to its consolidated tangible net worth and changing its pricing structure. The maturity date [remains] January 2011… To stave off further margin deterioration from price concessions and heightened incentive use, RYL has the luxury of economies of scale, whereby it can squeeze suppliers and subcontractors for lower prices.” (Zack’s.com, Aug. 11)

Pulte Homes Seeking Sponsors for N.C. Children’s Promise Charity Golf Classic.
Raleigh, N.C.: “Pulte Homes of Raleigh will host its first ever Pulte Homes Charity Golf Classic benefiting the N.C. Children’s Promise, a nonprofit organization supporting the N.C. Children’s Hospital. The homebuilder is seeking corporate and individual sponsors for the September 15 golf tournament to be held at Devils Ridge Country Club in Holly Springs.
The N.C. Children’s Promise is a year-round fundraising campaign.”
(Carolina Newswire, Aug. 11)

M/I Homes Cut To 'B', Outlook Negative - S&P. “Standard & Poor's Ratings Services downgraded M/I Homes Inc. (NYSE:MHO), citing a weaker-than-expected Q2. The corporate credit and senior unsecured debt ratings were cut to 'B' from 'B+' and the rating on M/I's 9.75% preferred stock was lowered to 'C' from 'CCC+'. The outlook remains negative. 'We expect further operating pressure amid very challenging conditions in the company's Mid-Atlantic and Florida markets and are concerned that the company will face additional significant impairment charges over the next year,' S&P said.” (Forbes, Aug. 11)

KB Homes Defaults On $3M To Vallejo Unified. California: “KB Homes was sent a notice of default Wednesday for failing to make a scheduled $3 million payment to the Vallejo City Unified School District for the purchase of 17.2 acres of school property. KB paid the district $6M over the past two years toward the total purchase price of $17M, with the plan to build homes on the property in the hills of Vallejo. However, KB has not made the most recent annual $3M payment, which was due on June 23, citing the slowdown in the housing market and the city's bankruptcy as reasons for not paying, according to the district.” (CBS 5, Aug. 11)



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