Sunday, June 17, 2007

Standard Pacific Update

I'm still short Standard Pacific (SPF), which gave an investor presentation yesterday.

"Net new home orders for [Apr & May 2007] were down 16% from the year earlier period and nearly 20% below the Company's business plan for the two-month period. The Company's cancellation rate for the 2007 two-month period was 28% compared to 35% in the year earlier period. The overall decrease in orders was driven by continued weakness in Florida and Arizona, while order activity was up over 13% year over year in California. The improvement in the California order comparisons was primarily a result of an increase in the number of active selling communities."
From the presentation:
  • They have been somewhat successful at squeezing their contractors.
  • 57,000 lots controlled; down 25% from Dec 2005. 60% of these are owned. They expect to sell about 8000 units this year, so they have a 7 year supply of lots. (That's assuming sales don't slow further - which they probably will.)
  • They have only impaired one-third of owned lots.
  • They expect to pay off the $350M revolver by the end of the year. The revolver expires May 2011. They renegotiated, trading a lower leverage covenant for a more flexible interest coverage covenant.
  • They take impairments only once a community has a negative operating margin.
  • They have 730 completed and unsold units, which is 3.17 per community.
  • The JVs have an average 58% leverage.
  • SPF is subject to LTV maintenance on the JVs. They are required to post additional equity as the value of the land/lots in the JV falls. Evidently the lenders on these JVs can slap SPF with a low appraisal and demand more equity. Their only "remargin call" so far was in SoCal during Q1.

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