Tuesday, February 27, 2007

wci "master of desaster"

what a desaster. negative orders, cash burning, buying call options on debt, still way too optimitic as usual on almost every point like defaults, cash flow, debt to capital etc.


too harsh? just read what they have promised back in november 2006!http://immobilienblasen.blogspot.com/2006/11/tower-homebuildingorders-minus-4.html


2006 year-end backlog: $911.2 million vs. $2.05 billion in 2005

Fourth quarter figures include $118.3 million of pre-tax asset impairments & write-offs

Overall company gross margin as a percentage of revenue for the fourth quarter of 2006 was negative. Excluding Write-offs, company gross margin as a percentage of revenue for the fourth quarter of 2006 was 14.4% versus 22.9% in the fourth quarter of 2005. and 7,9% for the tower division

``During the fourth quarter, we recorded real estate inventory impairment losses totaling $91.4 million. At one community in Southwest Florida, a revised product and marketing plan introduced earlier in the year failed to produce sales as expected, which led us to conclude that additional pricing reductions were needed, which resulted in an impairment charge of approximately $84.9 million (naples! 45 % of bookvalue)

The default rate for towers that closed during 2006, and particularly during the fourth quarter, was higher than our estimate and historical average, but generally lower than many analyst and investors predicted. Taking into consideration our recent tower closing experience and the individual locations and mix of sold units, we estimate that our tower defaults during 2007 will range from 8% to 10% in aggregate. As we close towers and collect the receivables, we expect to reduce our debt significantly, and ultimately lower our net debt to capital by year-end 2007 to about 50% from our year-end 2006 level of 66% (was already their goal for end of 2006)


The aggregate value and number of new Traditional and Tower Homebuilding net orders for the fourth quarter were negative, due to cancellations and defaults of 276 outnumbering gross orders of 262

17 towers were under construction and recognizing revenue during the quarter compared with 25 in the same period a year ago

The net number of new tower orders for the quarter was negative 22, as defaults of 27 outnumbered gross new orders of five. For the quarter, there were 27 defaults recorded out of 302 expected to close. The default rate would be 12.9% if the 12 defaults reserved for actually defaulted.

For the year ended December 31, 2006, net cash used in operating activities, including the purchase and development of real estate inventories, totaled $489.6 million compared with cash used in operating activities of $8.9 million in the same period a year ago (dead man walking....)



Total liquidity, measured as the sum of cash plus available capacity under the unsecured revolving facility, totaled approximately $468.1 million at December 31, 2006 based upon the maximum amount available to borrow under the company's senior unsecured revolving credit facility of $930 million. The ratio of net debt to net capitalization of was 66.3% compared with 55.1% at December 31, 2005

During the fourth quarter of 2006, the company invested $25.7 million of equity in capped call options that give it the right to repurchase up to 5,000,000 shares of WCI common stock at an average price of $13.63. The company may choose to settle the derivative contracts in cash, in which case it would receive payment of the difference between the share price at the maturity date and an average exercise price of $13.63. The exercise price would rise dollar-for-dollar once the cap, averaging $25.55, is reached ( looks like a good idea....buy call options on debt....)



Based upon the closing price of $21.68 on February 23, 2007, the estimated value if unwound would be approximately $34.5 million (wait after the plunge today........)

i hope i have the humor to stand the conference call......

disclosure: short wci


some comments from the call:

they are committed to maintain their low leverage....quickly added relatively low....too bad that they have already one of the highest and missed every goal they set the last years.

demand will eventually return....quickly added "and it will" (sounding not so comfortable....)

longer term the florida market will stay strong....( but they are running out of cash and credit in the near term)

affordability issue less an issue for wci because of the the target the more luxury buyer....and it wasn´t a big problem in the last years.......really? with rising prices of course not.....

691 spec homes in the traditional homebuilding segment!

lots of tower delays due to construction problems (also "one bal harbour")

almost 100% of the condotels are sold to investors ( i can smell defaults...)

they will break 2 credit covenants but are of course they are still optimistic to negotiate to new terms

average land position 5 years old. lots of appreciation build in. no impairments on the horizon....(at present conditions......)later in the call he said that almost no land is moving......that makes sense. house prices are already to 2003/2004 levels. who wants to buy land (even at 2002/2003 prices) when nothing is selling........

they have left 85 mio left at a creditline. they need 65 mio to buy the rest of the option construction in september (if cash flow allows it) they are still committed to buy on debt the stock. they call it a smart transaction because they buy under book value (when they have more write offs like the naples ones....) amazing!

media bashing for bad news.

putting them on the block via goldman. but who will buy this pos and at what price.

still betting that with a 10% defaultrate they will get the $1 billion cashs flow. with the defaultrate over 12% in the latest quarter a big bet......

they argue that with the big bal harbour project (and another one) were selling started in 2003/2004 only few people will let their 20% deposit and the "gain" in value left at the table. and they say that already potential buyers are lining up in lists to get the objects.... (i think wci will then discount them with the 20% deposit) today there are already 108 obkects in the "one bal harbour" project up for sale.....http://www.zilbert.com/one_bal_harbour/one_bal_harbour.asp

the stock is down almost 1%! (better than the overall market.....i´m speechless)

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