Hovnanian Enterprises, Inc. (NYSE:HOV)

RED BANK, N.J. and NEW YORK, Nov. 2, 2012 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, and GSO Capital Partners LP ("GSO"), the credit arm of The Blackstone Group (NYSE:BX), announced today an increase of their land banking arrangement for an additional $125 million, which brings the total arrangement since July 2012 to $250 million.

During the next twelve months, GSO and Hovnanian anticipate identifying land parcels for an additional $125 million in acquisition and development costs. Funds managed by GSO will acquire a portfolio of land parcels and option finished lots on a quarterly takedown basis back to Hovnanian.

"We are thrilled to announce an extension of our partnership with GSO," commented Ara Hovnanian, Chairman of the Board of Directors, President and Chief Executive Officer of Hovnanian Enterprises, Inc.  "The land banking structure allows us to effectively control land on a just-in-time basis. The increase in our land banking arrangement with GSO allows us to participate to an even greater extent in buying attractive land opportunities by leveraging outside capital.  This frees up our cash position and enables us to make additional land investments."

Doug Ostrover, Founding Member and Partner of GSO, said, "Given the successful start of our land banking agreement, we are excited to increase our investment in the residential real estate market. Hovnanian has been an excellent partner and given the tremendous growth opportunities in the residential market today, we are convinced that we have teamed up with a great company at the right time in the

In our 9/5/2012 premium email we mentioned that we added HOV to our six month high screen.  Please see our blog note here. We also mentioned that we were taking a long position at that time.  In our 10/3/2012 email we mentioned we felt HOV would be one of the stocks to benefit from the positive mortgage application activity reported the week of 9/28/2012. 

Since our first alert HOV shares are up 44% and hit a new 52 week high of $4.55.

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Second Quarter 2012 Results (Reported 6/6/2012)

• Total revenues were $341.7 million for the second quarter of fiscal 2012 compared with $255.1 million in the second quarter of the previous year. For the first six months of fiscal 2012, total revenues were $611.3 million compared with $507.7 million during the same period of the prior year.
   
• Net income was $1.8 million during the second quarter, or $0.02 per common share, compared with an after-tax net loss of $72.7 million, or $0.69 per common share, during the second quarter of 2011. For the six months ended April 30, 2012, the after-tax net loss was $16.5 million, or $0.15 per common share, compared with an after-tax net loss of $136.8 million, or $1.49 per common share, during the same period a year ago.
• Contract backlog, as of April 30, 2012, including unconsolidated joint ventures, was 2,298 homes with a sales value of $762.8 million, which was an increase of 48% and 49%, respectively, compared to April 30, 2011.
   

"We are encouraged by the positive operating trends we reported for the second quarter. We achieved a 34% year-over-year increase in total revenues, a 260 basis point year-over-year improvement in gross margin and reduced our total SG&A ratio by 640 basis points during the second quarter," commented Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. "We sold more homes per community in April 2012, excluding our September 2007 Deal of the Century sales promotion, than we have in any month since the spring selling season of 2006. The sales improvements we have experienced are fairly wide-based in terms of geography, price points and buyer profiles. As evidenced by our four consecutive quarters of year-over-year net contract growth for the first time since 2006, we are encouraged that the homebuilding industry may be entering the early stages of a recovery," concluded Mr. Hovnanian.

"While our second quarter net contracts were down compared to last year, the decrease was due primarily to a drop in community count. Net contracts per community for the quarter were flat at 7.4 this year compared to last year. Our sales were better than our internal plans in the second quarter, partially due to the federal homebuyer tax credit," commented Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. "In the month of May, our net contracts per community were slower than they were the year before.  Given the fact that the tax credit expired at the end of April, 2010, our slower pace of May net contracts seems to confirm that the tax credit helped pull some sales forward into earlier months this year.   Partially offsetting the expiration of the federal homebuyer tax credit, California reenacted a $10,000 state tax credit. In addition, New Jersey's assembly passed a bill for a $15,000 state tax credit, which has been sent to the Senate for an upcoming vote in June."

"Home prices have remained stable throughout most of our markets. This stability is evident in the trends we have seen in our gross margin, which increased sequentially for the sixth quarter in a row and in our land related charges, which were only $1.2 million, the lowest they have been since the first quarter of fiscal 2005. This stability in home prices gives us reason to believe that we are at or near the bottom of this cyclical housing downturn," Mr. Hovnanian continued.

"We continue to identify and invest in new land parcels that make economic sense based on today's sales prices and today's sales paces," stated J. Larry Sorsby, Executive Vice President and Chief Financial Officer. "Since January 31, 2009 when we returned to controlling newly identified land parcels, we have contracted for or purchased a grand total of approximately 7,100 lots in 98 communities. We purchased about 2,300 lots and optioned an additional 2,900 lots in 86 new communities on a consolidated basis. Additionally, we purchased 1,900 lots in 12 communities through joint ventures."

"While we expect that less than 10% of our 2010 deliveries will be from newly purchased communities, we expect that approximately 40% of our 2011 consolidated deliveries will come from newly identified communities. Deliveries from these newly acquired communities should generate normalized gross margins in the 20% range. In addition due to the expected increased volume from newly identified communities, we should be able to report further improvements in our ratios of general and administrative and interest costs as a percent of revenues in future periods.  We ended our second quarter with 178 active selling communities and based on our current sales pace and anticipated openings of new communities expect to have approximately 200 active selling communities by the end of this fiscal year. Ultimately, achieving a community mix more heavily weighted towards newly acquired communities and increasing our revenues, will help enable us to return to profitability," said Mr. Sorsby.

"We still have much work to do as we strive to return to profitability. We are encouraged by recent home price stability and improving margins. We are further encouraged by our ability to acquire and obtain land throughout the country that makes economic sense and delivers good margins. At the same time, we recognize that the expiration of the federal homebuyer tax credit, the lack of job growth and a potential increase in foreclosures all pose risks to a housing industry recovery. Nonetheless, we see more positive signs today than negative," concluded Mr. Hovnanian.