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| BHS > SEC Filings for BHS > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
• strategies for shareholder value creation;
• ability to generate sufficient cash flow from our assets in 2009 and 2010 to repay maturing project specific financings;
• the visibility on our future cash flow;
• financing sources;
• sufficiency of our access to capital resources;
• supply and demand equilibrium;
• the effect of interest rate changes on our cash flows;
• the effect on our business of existing lawsuits; and
• whether or not our letters of credit or performance bonds will be drawn upon.
Reliance should not be placed on forward-looking statements because they involve
known and unknown risks, uncertainties and other factors, which may cause the
actual results to differ materially from the anticipated future results
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially from those set forward in the
forward-looking statements include, but are not limited to:
• changes in general economic, real estate and other conditions;
• mortgage rate and availability changes;
• availability of suitable undeveloped land at acceptable prices;
• adverse legislation or regulation;
• ability to obtain necessary permits and approvals for the development of our land;
• availability of labor or materials or increases in their costs;
• ability to develop and market our master-planned communities successfully;
• ability to obtain regulatory approvals;
• confidence levels of consumers;
• ability to raise capital on favorable terms;
• adverse weather conditions and natural disasters;
• relations with the residents of our communities;
• risks associated with increased insurance costs or unavailability of adequate coverage;
• ability to obtain surety bonds;
• competitive conditions in the homebuilding industry, including product and pricing pressures; and
• additional risks and uncertainties, many of which are beyond our control, referred to in our Form 10-K for the year ended December 31, 2008 and our other SEC filings.
We undertake no obligation to publicly update any forward-looking statements unless required by law, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.
Overview
While some measured improvement occurred in March and April sales, the North
American homebuilding industry continues to face a number of challenges. Home
foreclosures continue to increase inventories and have caused sharp declines in
new home sales. Despite these challenging conditions, our assets are largely
located in geographic areas with a constrained supply of lots and which have
demonstrated strong economic characteristics over the long term.
We entitle and develop land for our communities and sell lots to third parties.
We also design, construct and market single and multi-family homes primarily to
move-up and luxury homebuyers.
We operate in the following geographic regions which are presented as our
reportable segments: Northern California (San Francisco Bay Area and
Sacramento), Southland / Los Angeles, San Diego / Riverside and Washington, D.C.
Area. Our other operations that do not meet the quantitative thresholds for
separate disclosure in our financial statements under US GAAP are included in
"Corporate and Other."
Our goal is to maximize the total return on our common stockholders' equity over
the long term. We plan to achieve this by actively managing our assets and
creating value on the lots we own or control.
The 25,586 lots that we control, 14,561 of which we own directly or through
joint ventures, provide a strong foundation for our future homebuilding business
and visibility on our future cash flow. We believe we add value to the lots we
control through entitlements, development and the construction of homes. In
allocating capital to our operations we generally limit our risk on unentitled
land by optioning such land positions in all our markets, thereby mitigating our
capital at risk. Option contracts for the purchase of land permit us to control
lots for an extended period of time.
Homebuilding is our primary source of revenue and has represented approximately
90% of our total revenue since 2002. Operating in markets with higher price
points and catering to move-up and luxury buyers, our average sales price for
the three months ended March 31, 2009 of $478,000 was well in excess of the
national average sales price. We also sell serviced and unserviced lots to other
homebuilders generally on an opportunistic basis where we can redeploy capital
to an asset providing higher returns or reduce risk in a market.
Our housing and land inventory, investments in housing and land joint ventures,
and consolidated land inventory not owned together comprised 92% of our total
assets as of March 31, 2009. In addition, we had $95 million in other assets.
Other assets consist of homebuyer receivables of $3 million, income taxes
receivable of $6 million, deferred taxes of $66 million and other receivables of
$20 million. Homebuyer receivables consist primarily of proceeds due from
homebuyers on the closing of homes.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and
estimates during the three months ended March 31, 2009 compared to those
disclosed in Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations included in our Annual Report on Form 10-K for the
year ended December 31, 2008.
Results of Operations
Three Months Ended
Selected Financial Information (Unaudited) March 31,
($US millions) 2009 2008
Revenue:
Housing $ 35 $ 66
Land 2 3
Total revenues 37 69
Direct cost of sales (33 ) (59 )
Impairment of housing and land inventory and write-off of
option deposits (4 ) (6 )
Gross margin / (loss) - 4
Selling, general and administrative expense (12 ) (16 )
Equity in earnings from housing and land joint ventures 3 -
Impairment from housing and land joint ventures (12 ) -
Other (expense) / income 3 (9 )
Loss before income taxes (18 ) (21 )
Income tax recovery 6 8
Net loss (12 ) (13 )
Less net loss attributable to noncontrolling interest 2 1
Net loss attributable to Brookfield Homes Corporation $ (10 ) $ (12 )
Segment Information
Housing revenue ($US millions):
Northern California $ 8 $ 9
Southland / Los Angeles 11 25
San Diego / Riverside 8 13
Washington D.C. Area 7 19
Corporate and Other 1 -
Total $ 35 $ 66
Land revenues ($US millions):
Northern California $ - $ -
Southland / Los Angeles - -
San Diego / Riverside 1 -
Washington D.C. Area 1 3
Corporate and Other - -
Total $ 2 $ 3
Gross margin / (loss) ($US millions):
Northern California $ 1 $ 1
Southland / Los Angeles 1 3
San Diego / Riverside 1 4
Washington D.C. Area 2 (4 )
Corporate and Other (5 ) -
Total $ - $ 4
Home closings (units):
Northern California 9 10
Southland / Los Angeles 31 54
San Diego / Riverside 17 22
Washington D.C. Area 16 31
Corporate and Other 1 -
Consolidated total 74 117
Joint ventures - 3
Total 74 120
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Three Months Ended
March 31,
2009 2008
Average selling price ($US):
Northern California $ 937,000 $ 920,000
Southland / Los Angeles 364,000 458,000
San Diego / Riverside 477,000 585,000
Washington D.C. Area 433,000 633,000
Corporate and Other 600,000 -
Consolidated average 478,000 568,000
Joint ventures 750,000 706,000
Average $ 483,000 $ 571,000
Net new orders (units): (1)
Northern California 33 32
Southland / Los Angeles 41 79
San Diego / Riverside 29 48
Washington D.C. Area 51 71
Corporate and Other (1 ) 1
Consolidated total 153 231
Joint ventures - -
Total 153 231
Backlog (units at end of period): (2)
Northern California 34 49
Southland / Los Angeles 65 70
San Diego / Riverside 20 34
Washington D.C. Area 75 92
Corporate and other 18 20
Consolidated total 212 265
Joint ventures 1 1
Total 213 266
Lots controlled (units at end of period):
Lots owned:
Northern California 1,001 1,315
Southland / Los Angeles 1,392 1,448
San Diego / Riverside 8,238 7,860
Washington D.C. Area 3,658 3,873
Corporate and Other 272 281
14,561 14,777
Lots under option (3) 11,025 11,438
Total 25,586 26,215
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(1) Net new orders for any period represent the aggregate of all homes ordered by customers, net of cancellations.
(2) Backlog represents the number of new homes subject to pending sales contracts.
(3) Includes proportionate share of lots under option related to joint ventures.
Three Months ended March 31, 2009 Compared with Three Months Ended March 31,
2008
Net Loss
Net loss was $12 million for the three months ended March 31, 2009, a decline in
net loss of $1 million when compared to the same period in 2008. The decrease
for the three months ended March 31, 2009 primarily relates to an increase in
income from our interest rate swap mark to markets, offset by a reduction in our
margins from 16% for the three months ended March 31, 2008 to 10% for the three
months ended March 31, 2009, and an increase of $10 million in impairments on
our housing and land assets as a result of continued challenging market
conditions in all our markets.
Results of Operations
Company-wide: Housing revenue was $35 million for the three months ended
March 31, 2009, a decrease of $31 million when compared to the same period in
2008. The decrease in housing revenue was primarily due to fewer home closings
and a decrease of 15% in the average selling price during the three months when
compared to the same period in 2008. The gross margin on housing revenue for the
three months ended March 31, 2009 was $4 million or 10% compared with
$11 million or 16% for the same period in 2008. The decrease in the gross margin
was due to continued homebuyer incentives and/or reduced average selling prices.
Land revenue totaled $2 million for the three months ended March 31, 2009,
consistent with the same period in 2008. Our land revenues may vary
significantly from period to period due to the timing and nature of land sales
as they generally occur on an opportunistic basis and such revenues are also
affected by local market conditions, which during the quarter continued to be
weak.
During the three months ended March 31, 2009, we recognized $4 million of
impairment charges and write-offs of option deposits compared to $6 million for
the same period in 2008. The impairment charges for the three months ended
March 31, 2009 related to owned lots in our Corporate and Other reportable
segment.
A summary of our gross margin is as follows:
Three Months Ended
March 31,
2009 2008
Housing $ 4 $ 10
Land - -
Impairment charges and write-offs (4 ) (6 )
$ - $ 4
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Northern California: Housing revenue was $8 million for the three months ended
March 31, 2009, a decrease of $1 million when compared to the same period in
2008. The gross margin on housing revenue for the three months ended March 31,
2009 was $1 million, or 13%, compared with $1 million or 10% for the same period
in 2008.
Southland / Los Angeles: Housing revenue was $11 million for the three months
ended March 31, 2009, a decrease of $14 million when compared to the same period
in 2008. The decrease in revenue was primarily attributable to a decrease in
closings. The gross margin on housing revenue for the three months ended
March 31, 2009 was $1 million or 5% compared with $3 million or 16% for the same
period in 2008. The decrease in the gross margin percentage was primarily a
result of an increase in homebuyer incentives and/or reduced selling prices.
San Diego / Riverside: Housing revenue was $8 million for the three months ended
March 31, 2009, a decrease of $5 million when compared to the same period in
2008. The gross margin on housing revenue for the three months ended March 31,
2009 was $1 million or 18% compared with $4 million or 30% for the same period
in 2008. The decrease in the gross margin percentage was primarily a result of
an increase in homebuyer incentives and/or reduced selling prices.
Washington D.C. Area: Housing revenue was $7 million for the three months ended
March 31, 2009, a decrease of $12 million when compared to the same period in
2008. The gross margin on housing revenue for the three months ended March 31,
2009 was $2 million or 21% compared with $2 million before impairments or 11%
for the same period in 2008.
Other Income and Expenses
Equity in earnings from housing and land joint ventures for the three months
ended March 31, 2009 was $3 million, an increase of $3 million when compared to
the same period in 2008. The impairments for the three months ended March 31,
2009 of our investments in housing and land joint ventures of $12 million
primarily relates to 907 lots in the Inland Empire of California.
Other income / (expense) for the three months ended March 31, 2009 totaled
income of $3 million, an increase of $12 million when compared to the same
period in 2008. The components of other income / (expense) for the three months
ended March 31, 2009 and 2008 are summarized as follows:
($ millions) 2009 2008
Change in fair value of interest rate swap contracts $ 2 $ (9 )
Other 1 -
$ 3 $ (9 )
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Selling, general and administrative expense was $12 million for the three months ended March 31, 2009, a decrease of $4 million when compared to the same period in 2008. The components of the expense for the three months ended March 31, 2009 and 2008 are summarized as follows:
($ millions) 2009 2008
Selling, general and administrative expenses $ (11 ) $ (15 )
Stock compensation - (2 )
Changes in fair value of equity swap contracts (1 ) 1
$ (12 ) $ (16 )
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Sales Activity
Net new home orders for the three months ended March 31, 2009 totaled 153, a
decrease of 78 units or 34% compared to the same period in 2008.
Liquidity and Capital Resources
Financial Position
Our assets as of March 31, 2009 totaled $1,157 million, a decrease of
$50 million compared to December 31, 2008. The decrease was due primarily to a
decrease in receivables and other assets as a result of the receipt of a cash
tax refund of $59 million. Our housing and land inventory and investments in
housing and land joint ventures are our most significant assets with a combined
book value of $1,061 million or approximately 92% of our total assets. Our
housing and land assets have increased by $6 million in 2009 when compared to
December 31, 2008. The increase was primarily due to the acquisition of 1,800
lots in San Diego / Riverside offset by impairments of $16 million during the
first quarter of 2009. Our housing and land assets include homes completed and
under construction and lots ready for construction, model homes and land under
and held for development. A summary of our lots owned and their stage of
development at March 31, 2009 compared with December 31, 2008 follows:
March 31 December 31,
2009 2008
Completed homes, including models 247 265
Homes under construction 88 64
Homes with foundations / slabs 75 76
Total housing units 410 405
Lots ready for house construction 2,199 2,544
2,609 2,949
Graded lots and lots commenced grading 1,575 900
Undeveloped land 10,377 9,235
14,561 13,084
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Our total debt as of March 31, 2009 was $725 million, a decrease of $24 million
from December 31, 2008. Total debt as of March 31, 2009 consisted of
$407 million related to project specific financings and $318 million related to
amounts drawn on facilities with subsidiaries of our largest stockholder,
Brookfield Asset Management Inc. Our project specific financings represent
construction and development loans which are used to fund the development of our
communities.
As new homes are constructed, we arrange further loan facilities with our
lenders. Our major project specific lenders are Bank of America, Housing Capital
Corporation, Union Bank of California and Wells Fargo. As of March 31, 2009, the
average interest rate on our project specific debt was 3.8% with stated
maturities as follows:
($ millions) 2009 2010 2011 Total
Northern California $ 55 $ 6 $ 8 $ 69
Southland / Los Angeles 5 42 18 65
San Diego / Riverside 115 43 - 158
Washington D.C. Area 18 72 9 99
Corporate / Other 7 9 - 16
Total $ 200 $ 172 $ 35 $ 407
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The debt maturing in 2009 and 2010 is based on our expected home and/or lot deliveries over this period. We intend to repay project specific debt from home and lot sale proceeds expected over this period. During the three months ended March 31, 2009, we extended repayment terms and we intend to continue to work closely with our lenders. Additionally, as of March 31, 2009, we had available project specific debt lines of $237 million that were available to complete land development and construction activities.
Other debt includes a promissory note of $301 million, and $17 million on an
unsecured revolving acquisition credit facility that was entered into in
February 2009, both with subsidiaries of our largest stockholder, Brookfield
Asset Management Inc. As of March 31, 2009, we had $49 million available on our
revolving credit facility, which was amended in April 2009 to mature in December
2011 and $8 million available on our revolving acquisition credit facility,
which matures December 31, 2012.
Stockholders of the Company fully subscribed for 10,000,000 shares of 8%
convertible preferred stock pursuant to the Company's Rights Offering that
terminated on April 27, 2009. The Company received gross proceeds of
$250 million upon issuance of the shares of convertible preferred stock. The
proceeds from the Rights Offering were used for general corporate purposes,
including repayment on a credit facility due to a subsidiary of the Company's
largest stockholder, Brookfield Asset Management Inc. Assuming the full
conversion of the convertible preferred stock, Brookfield Asset Management Inc.
will own approximately 81.6% of the Company's common stock. Holders of the
convertible preferred stock issued in the Rights Offering will be entitled to
receive, when, as and if declared by our board of directors, dividends per year
at the per share rate of 8%, representing annual dividends of $20 million. These
dividends may be paid, at the election of our board of directors, in cash or
shares of common stock. Please see Note 13 to our consolidated financial
statements included elsewhere in this Form 10-Q for additional information on
the Rights Offering.
Cash Flow
Our principal uses of working capital include home construction, purchases of
land and land development. Cash flows for each of our communities depend upon
the applicable stage of the development cycle and can differ substantially from
reported earnings. Early stages of development require significant cash outlays
for land acquisitions, site approvals and entitlements, construction of model
homes, roads, certain utilities and other amenities and general landscaping.
Because these costs are capitalized, income reported for financial statement
purposes during such early stages may significantly exceed cash flows. Later,
cash flows can exceed earnings reported for financial statement purposes, as
cost of sales include charges for substantial amounts of previously expended
costs.
We believe we currently have sufficient access to capital resources and will
continue to use a significant amount of our available capital resources to fund
our existing business plan. Our capital resources include cash flow from
. . .
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