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This was foretold in the Voodoo post. Now, all builders need to truly devalue by 50% |
| Written by Reggie Middleton | |
| Thursday, 24 January 2008 | |
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See Lennar, Voodoo and Zombies fully consolidated and Lennar Insolvent: Enron redux??? , then read the press release below... UPDATE: Lennar Posts Record Loss In FY4Q On Land Losses January 24, 2008: 07:45 AM EST DOW JONES NEWSWIRES Lennar Corp.'s (LEN) fiscal fourth-quarter net loss ballooned, breaking a quarter-old record for the company, as the company took a $1.2 billion loss on land sales. Near-term conditions may continue to decline. For the quarter ended Nov. 30, the Miami builder reported net loss of $1.25 billion, or $7.92 a share, compared with a year-earlier net loss of $195.6 million, or $1.24 a share. Lennar posted a fiscal third-quarter net loss of $ 513.9 million, a then-record for the 53-year-old company. The land loss consists of $970.1 million in valuation adjustments. Lennar, the nation's second-largest home builder, stunned investors in November when it announced a "strategic land investment venture" with Morgan Stanley Real Estate, selling about 11,000 home sites in 32 communities, including raw land and partially developed sites for $525 million - nearly 60% below the $1.3 billion book value. Lennar also wrote off $217.6 million of deposits and pre-acquisition costs in the latest quarter on 12,500 home sites under option that Lennar doesn't intend to purchase. Year-earlier items included $119.9 million in land losses and $ 111.1 million in write-offs. Revenue dropped 49% to $2.18 billion. The mean estimates of analysts surveyed by Thomson Financial were for a loss of $1.65 a share on revenue of $2.06 billion. Shares traded at $15 in premarket activity Thursday, compared with Wednesday's close of $14.94. President and Chief Executive Stuart Miller said, "While we are hopeful that recent interest-rate moves by the Federal Reserve and recent plans proffered by the federal government will have a stabilizing impact on the housing market, market conditions remained depressed and, in fact, continued a downward slide through the end of our fourth quarter." Lennar's new home orders fell 51% to 4,761, while deliveries, excluding unconsolidated entities, dropped 49% to 6,810. The average sales price fell 3.7% to $291,000. Gross margins on home sales, excluding valuation adjustments, fell to 12.1% from 14.4%. Miller said, "As we look ahead to 2008, we are not expecting market conditions to improve, and perhaps might continue to decline in the near term. Nevertheless, the strength of our balance sheet, bolstered by the cash generated through our fourth-quarter strategic moves, will keep us well positioned to weather these turbulent times." Ground zero of the credit crunch - the housing market - has yet to register anything close to a recovery. Builders continue to cut inventory prices and many new homes are now cheaper than existing homes. But with some consumers unable to secure funding - and others worried about deteriorating value - traffic has slowed to a trickle and cancellation rates remain high. Add this page to your favorite Social Bookmarking websites          Trackback(0)
Comments (11)
  written by Reggie Middleton, January 24, 2008
As I see it, no one knows when the write downs will stop since nobody knows when housing will stabilize. If history is any indicator though, we still have a long way to go.
Be careful listening to the sell side analysts. How many of them issued a sell in the latter part of '06 when the business turned bad?
 written by smoofy, January 24, 2008
Reggie, what are your thoughts on the run up with the HBs? Massive short covering? Quant fund blowing up?
written by Pelican, January 24, 2008
You're right that the sell-side analysts have got it wrong all along. Some of the comments I read today seem particularly puzzling though. Anyway, I was wondering if I can get your thoughts on the gross margins for the HBs. In their reports (e.g. RYL), they like to report that w/o impairment charges they would have been profitable. In general, when do you think the group will start showing negative earnings before charges? This year? Also, and this may be a stupid question, how real is the threat of bankruptcy for the HBs? It seems that much of the debt, like in LEN's case, doesn't mature for a few years. Moreover, I suspect lenders would be willing to work with the HBs even if certain convenants are violated - which we've seen already - because it might be in their best interest to do so. Despite the worst housing environment in 80 years, the big boys at least keep hanging in there while I keep waiting for a chapter 11 filing.
By the way, keep up the good work!
written by Reggie Middleton, January 25, 2008
I believe that banks do not want to deal with the collateral, or lack thereof, thus will give the builders any lifeline they can. The problem with that practice is that the collateral shrinks in value month after month. The longer they wait, the less there is to split up. The builders are trying to reduce inventory, but it will take a long time.
Many builders are probably running negative cash flow now, but use accounting tricks to hide it, such as pulling down a credit line and repaying it then pulling it down again. I suspect this is the case with Ryland, but haven't had the time to look into it. @smoofy I'm sure you have noticed that the market is not trading off of fundamentals, so it is pure speculation as what the run up truly is about. If you really believe some of the builders are in real trouble, consider this an opportunity to monetize your opinions.
 written by Johnny Lay, January 26, 2008
FWIW Lookin for another pop Monday.
Friday around 2 PM they recommened ALL of the builders, I saw TOL, RYL and LEN. There were 3 others but I can only read so fast. I wonder if we could find out which banks support em.
written by Pelican, January 30, 2008
Hi Reggie,
I noticed this morning that LEN got a huge tax rebate ($852 million) which puts them a bit under $10/share in cash. Of course them have $20/share in long-term debt but I would think they should be able to survive the current housing recession even with expected operating losses. Your thoughts?
written by Reggie Middleton, January 30, 2008
They may or may not survive. You have to take into consideration the cost of bailing out the JVs who fall underwater, as well as the debt service you see on the books. We got a glimpse at the debt side of these JVs but they are not giving us any idea of the write downs of the assets. One would be let to believe that the riskiest stuff was done off balance sheet. If it was that juicy a deal, it would have been done in full view. These need to be taken into consideration, as well as how long the housing crisis lasts. We have entered into a recession, which is very bad for house sales. The chips are stacked against Lennar.
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This is a Yahoo arfticle. http://biz.yahoo.com/ap/080124/homebuild...
The part that caught my eye was this:
Banc of America analyst Daniel Oppenheim called Lennar's impairments "significant" but said they were not beyond expectations. He thinks an end to the ongoing write-downs is in sight, saying Lennar has just $200 million in additional risk on its books. Marshall said impairments peaked in the fourth quarter. "It's likely that we've seen 85 percent to 90 percent of all the impairments we're going to see," he said. "The businesses are still bad, but there might be less downside."
Is this correct?? Does this mean LEN will likely write off only a buck or two more? I thought that as prices continue to fall the writedowns will continue to grow. Unless a HB looks like its clearly going bankrupt I now have to wonder if investors will support these stocks based on low P/B values alone. Sigh. Gotta admit I got burned a little on my shorts for the first time due to the recent HB rally.