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| AVTR > SEC Filings for AVTR > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands except share and per share data) - continued
EXECUTIVE SUMMARY - continued
Our primary business strategy continues to be the development of lifestyle
communities, including active adult and primary residential communities, as well
as the development and construction of housing on scattered lots. However, due
to the significant deterioration in the economy and the residential real estate
business, we have increased our focus on maintaining the integrity of our
balance sheet through preservation of capital, sustaining liquidity and
reduction of overhead. Our development activities have been and will continue to
be minimal as we work through the negative impacts on the homebuilding industry.
While we have curtailed our homebuilding operations, our business is still
capital intensive and requires or may require expenditures for land and
infrastructure development, housing construction, and funding of operating
deficits or providing working capital, as well as potential new acquisition and
development opportunities.
It is our intention to continue to monetize our inventory of unsold homes and
many of our model homes in anticipation of introducing new homes across many of
our product lines. Many of these new products will consist of smaller and less
amenitized houses to enable us to sell homes at lower price points when the
market recovers. In the areas in which our developments are located, we believe
that for the foreseeable future there may be significant demand for smaller and
less amenitized homes than in prior years.
We continue to defer the introduction of new housing products or recommencing
developing activities in our existing communities until such times as we believe
that our markets would enable us to construct and sell new houses at an
acceptable profit.
We continue to focus on acquiring real estate or real estate related assets
as the fallout from the deleverging of the economy continues to adversely affect
real estate values. We have analyzed a substantial number of residential real
estate properties in Florida which we believe could represent opportunities to
acquire real estate, or debt secured by real estate, at a substantial discount
to its intrinsic value. To date we have seen very few properties that we believe
would present such desirable investment or development/redevelopment
opportunities at the pricing offered. However, we believe we are approaching a
window in which these opportunities will become available. We have an
experienced residential real estate development group which is able to
expeditiously underwrite portfolios of Florida residential real estate ranging
from large undeveloped/unentitled parcels of land to finished lots, and acquire
these properties or the debt secured by these properties from financial
institutions or others. Our cash position and our ability to plan, permit,
develop, and sell land, as well as to design, permit and build out highly
amenitized residential communities enables us to have a competitive advantage in
buying such properties over financial buyers, and developers not having
extensive experience in Florida. However, we compete for opportunities to
acquire real estate or real estate related assets and there can be no assurance
that we will identify and be able to acquire appropriate assets or that any such
assets we were to acquire would result in a desirable return on our investment.
Land Inventory
Our land inventory consists primarily of real estate in the states of Florida
and Arizona. As of June 30, 2009, we owned more than 16,500 acres of developed,
partially developed or developable residential, commercial and industrial land.
Some portion of this land may be developed as roads, retention ponds, parks,
school sites, community amenities or for other similar uses.
Within Florida and Arizona we also own more than 15,000 acres of preserves,
wetlands, open space and other land that at this time are not developable,
permitable and/or economically feasible to develop, but may at some future date
have an economic value for preservation or conservation purposes.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands except share and per share data) - continued
EXECUTIVE SUMMARY - continued
Land Inventory - continued
Following is a breakdown of our land holdings (not including our housing
inventory) as of June 30, 2009:
Estimated Planned Lots/Units Remaining (1)
Acquisition Contract Partially Book
Date Date Developed Developed Raw(2) Total Value
Residential
Osceola County, Florida
Pre-1980 200 - 2,200 2,400 $ 5,198
1999-2001 500 700 - 1,200 45,248
2003 2002-2003 - - 1,000 1,000 7,880
2004 2002-2003 - - 1,400 1,400 19,307
2006 2002-2003 - - 1,600 1,600 19,280
Total Osceola County 700 700 6,200 7,600 96,913
Polk County, Florida
Pre-1980 900 1,000 2,400 4,300 21,369
2003 2002-2003 900 - 100 1,000 32,670
2004 2002-2003 - - 2,500 2,500 19,966
2005 2004 200 - 300 500 5,987
Total Polk County 2,000 1,000 5,300 8,300 79,992
Martin County, Florida
1981-1987 75 - 200 275 6,828
Palm Beach County, Florida(3)
2005 2003 - - 100 100 6,680
Hillsborough County, Florida
2002 170 - - 170 1,631
Hernando County, Florida
2004-2005 2003 - 5 - 5 30
Collier County, Florida
Pre-1980 50 - - 50 191
Highlands County, Florida
Pre-1980 40 - 40 80 108
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Santa Cruz County (Rio Rico), Arizona
Pre-1980 600 300 3,700 4,600 10,211
Total Residential 3,635 2,005 15,540 21,180 $ 202,584
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands except share and per share data) - continued
EXECUTIVE SUMMARY - continued
Land Inventory - continued
Acquisition Contract Estimated Book
Date Date Acres Value
Commercial/Industrial/Institutional
Florida
Pre-1980 1,300 $ 7,430
2004 (4) 2004 300 14,765
2005 (4) 2004 400 15,541
Total Florida 2,000 37,736
Arizona
Pre-1980 200 267
Total Commercial/Industrial/Institutional 2,200 $ 38,003
Other
Preserves, wetlands, open space
Pre-1980 - $ 3,175
Other - 4,856
Total Other - $ 8,031
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(1) Estimated planned lots/units are based on historical densities for our land. New projects may ultimately be developed into more or less than the number of lots/units stated.
(2) We anticipate that with respect to our inventory of undeveloped land, new lots developed over the next several years are likely to be develop at a greater density per acre than the density per acre we have undertaken over the past several years. We anticipate evolving market demand for smaller and/or more affordable homes. Accordingly, the number of lots we ultimately develop per acre from our inventory of raw land may exceed the units set forth in this schedule.
(3) Units represent approximately 300,000 square feet of planned condominium-type residential units.
(4) During the 4th quarter 2008, our plans for this property changed from developing it as single family housing to permitting as commercial/industrial/institutional.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands except share and per share data) - continued
EXECUTIVE SUMMARY - continued
During the six months ended June 30, 2009, our homebuilding results reflect
the difficult conditions in our Florida and Arizona housing markets
characterized by record levels of homes available for sale and diminished buyer
confidence. The number of foreclosure sales as well as investor-owned units for
sale; the tightening of mortgage underwriting standards; the number of
foreclosures, pending foreclosures and mortgage defaults; the availability of
significant discounts; the difficulty of potential purchasers in selling their
existing homes at prices they are willing to accept; the significant amount of
standing inventory and competition continue to adversely affect both the number
of homes we are able to sell and the prices at which we are able to sell them.
As a result, our communities continue to experience low traffic, significant
discounts, low margins, and continued high delinquencies on homeowner
association and club membership dues. In addition, our business is affected to
some extent by the seasonality of home sales which are generally higher during
the months of November through April in the geographic areas in which we conduct
our business. Our profits on the sale of homes continue to decline as we offer
lower prices and higher discounts to meet competitive pricing and declining
demand. During the six months ended June 30, 2009, most of our sales contracts
have been signed at selling prices that have resulted or will result in losses
upon closing when factoring in operating costs such as sales and marketing and
divisional overhead. During the six and three months ended June 30, 2009, we
recorded impairment charges of $1,228 and $798, respectively, for housing
communities relating to homes completed or under construction. We believe that
housing market conditions will continue to be difficult and may deteriorate
further during 2009. Demand for, and values of, commercial, industrial and other
land has decreased significantly.
While the level and duration of the downturn cannot currently be predicted,
we anticipate that these conditions will continue to have an adverse effect on
our operations during 2009. We anticipate such operating losses for 2009 will be
greater than such losses incurred during 2008. We believe that we have
sufficient available cash to fund these losses for 2009.
We have taken steps to decrease operating expenses including the
consolidation of field operations and a reduction of staff. Since December 31,
2005, we reduced our headcount by 60% to 234 full-time and part-time employees
(almost half of whom are support staff for amenity operations and maintenance)
from 585 full-time and part-time employees.
We continue to manage Avatar and its assets for the long-term benefit of our
shareholders. We remain focused on maintaining sufficient liquidity. We continue
to carefully manage our inventory levels through curtailing land development,
reducing home starts and reducing prices of completed homes. Our strategy also
includes the monetization of commercial and industrial land and other assets,
and the possible sale of certain residential land to bring forward future cash
flows that would otherwise constitute long-term developments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands except share and per share data) - continued
RESULTS OF OPERATIONS
The following table provides a comparison of certain financial data related
to our operations for the six and three months ended June 30, 2009 and 2008:
Six Months Three Months
2009 2008 2009 2008
Operating income (loss):
Primary residential
Revenues $ 11,840 $ 21,873 $ 6,304 $ 12,068
Expenses 16,099 26,273 8,665 14,202
Segment operating loss (4,259 ) (4,400 ) (2,361 ) (2,134 )
Active adult communities
Revenues 17,676 21,331 11,478 9,706
Expenses 19,929 22,812 12,299 11,164
Segment operating loss (2,253 ) (1,481 ) (821 ) (1,458 )
Commercial and industrial and other land
sales
Revenues 2,064 9,562 239 2,134
Expenses 77 455 30 97
Segment operating income 1,987 9,107 209 2,037
Other operations
Revenues 531 890 303 328
Expenses 426 942 209 465
Segment operating income (loss) 105 (52 ) 94 (137 )
Operating income (loss) (4,420 ) 3,174 (2,879 ) (1,692 )
Unallocated income (expenses):
Interest income 378 1,650 179 636
Gain on repurchase of 4.50% Notes 1,783 - 418 -
Equity loss from unconsolidated entities (148 ) (462 ) (86 ) (413 )
General and administrative expenses (9,011 ) (10,983 ) (4,344 ) (5,846 )
Interest expense (3,550 ) (1,396 ) (1,713 ) (869 )
Other real estate expenses (3,785 ) (4,596 ) (1,222 ) (3,034 )
Impairment of the Poinciana Parkway (448 ) - (130 ) -
Loss before income taxes (19,201 ) (12,613 ) (9,777 ) (11,218 )
Income tax benefit 830 4,820 - 4,297
Net loss ($18,371 ) ($7,793 ) ($9,777 ) ($6,921 )
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands except share and per share data) - continued
RESULTS OF OPERATIONS - continued
Data from closings for the single-family primary residential and active adult
homebuilding segments for the six and three months ended June 30, 2009 and 2008
is summarized as follows:
Number of Average Price
Units Revenues Per Unit
For the six months ended June 30,
2009
Primary residential 56 $ 10,255 $ 183
Active adult communities 48 11,800 $ 246
Total 104 $ 22,055 $ 212
2008
Primary residential 82 $ 20,603 $ 251
Active adult communities 53 14,929 $ 282
Total 135 $ 35,532 $ 263
For the three months ended June 30,
2009
Primary residential 34 $ 5,571 $ 164
Active adult communities 36 8,728 $ 242
Total 70 $ 14,299 $ 204
2008
Primary residential 46 $ 11,294 $ 246
Active adult communities 24 6,761 $ 282
Total 70 $ 18,055 $ 258
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands except share and per share data) - continued
RESULTS OF OPERATIONS - continued
Data from contracts signed for the single-family primary residential and
active adult homebuilding segments for the six and three months ended June 30,
2009 and 2008 is summarized as follows:
Gross Number Contracts Average
of Contracts Signed, Net of Price Per
Signed Cancellations Cancellations Dollar Value Unit
For the six months ended June 30,
2009
Primary residential 108 (19 ) 89 $ 14,506 $ 163
Active adult communities 41 (8 ) 33 6,690 $ 203
Total 149 (27 ) 122 $ 21,196 $ 174
2008
Primary residential 105 (41 ) 64 $ 16,700 $ 261
Active adult communities 83 (28 ) 55 13,553 $ 246
Total 188 (69 ) 119 $ 30,253 $ 254
For the three months ended June 30,
2009
Primary residential 60 (10 ) 50 $ 7,555 $ 151
Active adult communities 18 (3 ) 15 3,303 $ 220
Total 78 (13 ) 65 $ 10,858 $ 167
2008
Primary residential 48 (20 ) 28 $ 7,564 $ 270
Active adult communities 47 (9 ) 38 10,416 $ 274
Total 95 (29 ) 66 $ 17,980 $ 272
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Backlog for the single-family primary residential and active adult homebuilding segments as of June 30, 2009 and 2008 is summarized as follows:
Number of Dollar Average Price
Units Volume Per Unit
As of June 30,
2009
Primary residential 49 $ 8,853 $ 181
Active adult communities 25 6,367 $ 255
Total 74 $ 15,220 $ 206
2008
Primary residential 54 $ 17,159 $ 318
Active adult communities 77 22,693 $ 295
Total 131 $ 39,852 $ 304
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands except share and per share data) - continued
RESULTS OF OPERATIONS - continued
The number of net housing contracts signed during the six months ended
June 30, 2009 compared to the same period in 2008 increased 2.5% and decreased
1.5% for the three months ended June 30, 2009. The dollar value of housing
contracts signed for the six and three months ended June 30, 2009 declined by
29.9% and 39.6%, respectively. The decline in the dollar value of housing
contracts signed for the six and three months ended June 30, 2009 continues to
reflect the weak market for new residences in the geographic areas where our
communities are located. Our communities are located in areas of Florida and
Arizona where there is an excess of units for sale, including foreclosures and
assets being sold by lenders, and an increasing use of various sales incentives
by residential builders in our markets, including Avatar. During the six and
three months ended June 30, 2009, cancellations of previously signed contracts
totaled 27 and 13 compared to 69 and 29 during the six and three months ended
June 30, 2008, respectively. As a percentage of the gross number of contracts
signed, this represents 18.1% and 16.7%, respectively.
As of June 30, 2009, our inventory of unsold (speculative) homes, both
completed and under construction, was 119 units compared to 233 units as of
December 31, 2008. As of June 30, 2009, approximately 91% of unsold homes were
completed compared to approximately 88% as of December 31, 2008.
During the six months ended June 30, 2009 compared to the same period in
2008, the number of homes closed decreased by 23.0%. Revenues from homes closed
for the six and three months ended June 30, 2009 decreased by 37.9% and 20.8%,
respectively. We anticipate that we will close in excess of 80% of the homes in
backlog as of June 30, 2009 during the subsequent 12-month period, subject to
cancellations by purchasers prior to scheduled delivery dates. We do not
anticipate a meaningful improvement in our markets in the near term.
. . .
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