Centex (NYSE:CTX) disclosed late Monday that it sold some 8,500 in 11 states, nearly 10% of its land inventory, to a joint venture led by RSF Partners of Dallas. The purchase price was $161 million, $.30 on the dollar based on the company's estimate of $528 million in book value for the properties, but Centex expects a net tax benefit of $294 million, bringing the value of the deal to an estimated $455 million.

In a conference call with analysts on the morning of Tuesday, April 1, Centex CEO Tim Eller spoke candidly about the motivation behind the sale. "You have to look at this as a time-bound transaction," Eller said. "There was a specific intent, and it was to monetize a significant portion of our deferred tax assets. That's really how you have to look at it."

RSF Partners, Inc., which, according to the company's website, is a family of discretionary, real estate private equity funds that are managed on behalf of high-net-worth individuals as well as funds under management by San Francisco-based Farallon Capital Management, L.L.C., and Greenfield Partners, L.L.C., of South Norwalk, Ct. An entity called Corona Land Company, controlled by RSF, Farallon and Greenfield will manage, develop and sell the properties.

Centex retains a 5% interest in the JV, which was capitalized without debt, and has "the right to receive a greater share of distributions if certain financial targets are met." The builder also holds an option to purchase a limited number of the portfolios lots in designated neighborhoods. Under the option agreements, Centex Homes has the right to purchase nearly 350 lots during a two-year period. The company paid an aggregate option fee of approximately $1.8 million in connection with the grant of these options.

The land, consisting of lots at varying stages of development, is spread among 27 communities in 11 states. Centex extimates it will save $265 million in future development costs related to the properties.

The communities sold in the portfolio were previously part of the company's active community count and were expected to take an additional impairment charge of $50 million in this quarter. In defense of the $0.30 per dollar sale price, CFO Cathy Smith noted, "It was the appropriate valuation for this transaction at this particular time. This is the only transaction we have been working on, and we were able to bring it to fruition."

No markets were exited during the course of the land sale, but Eller noted that there were several that were "lightened up significantly to facilitate a possible future exit."

The sale did not come as a surprise because, like several of the public home builders, Centex has been circulating a large "book" of its for-sale land holdings in the marketplace during this last quarter. Eller said the transaction was finally closed through an auction process, and that multiple parties were initially interested.

Executives noted that the company has an additional pool of roughly $300 million in future tax assets that could be captured in the coming year. "As we look to the future, there are likely to be additional land sales, but the company is not expecting, nor is it seeking, additional bulk sales," said Eller.

Clearly, the transaction will improve the company's liquidity. At the end of 2007, Centex had only $62 million in cash on hand, which was among the lowest of the big builders. "Having cash right now is just a good thing to do," said Smith in response to a question about how the cash would be used. "We'll continue to balance what we do and evaluate paying down debt, keeping cash, and evaluating share repurchase." Smith also noted that the company has no debt due until August 2008.

"This transaction is consistent with our near-term goals of reducing our land supply and generating cash," Eller said in a prepared statment announcing the deal . "This land sale accelerates our move to a more asset-light operating model, sharpens our focus on strategic markets and consumer segments, reduces future land development cash obligations and monetizes a meaningful portion of our deferred tax asset."

Lennar did a similar bulk deal recapitalizing a portfolio of 11,000 lots on the last day of its fiscal year ended Nov. 30, 2007. At the time, Lennar's JV arrangement created with Morgan Stanley Real Estate was lauded because the company generated $565 million in cash and presented the possibility of additional cash in the form of a tax benefit of $265 million.

Though Centex expects to realize a tax benefit, this deal occurred with fewer lots and at a lower pennies-on-the-dollar value than Lennar's bulk sale.

The sale generated a mixed view on Wall Street, with analysts viewing it mostly as a positive but some seeing in it a harbinger of more bad news to come for all home builders.

Stephen East of Pali Research saw the deal positively in a research note, "While the price and attendant impairment charges to come are disappointing, it is likely the right move to exit land that just has little use to CTX for the next 3-5 years," he wrote. "It helps setup CTX for the future by reducing land controlled which ultimately leads to the purchase of more rationally priced land when needed."

David Goldberg at UBS, which maintains a "neutral" rating on Centex stock, wrote, "Given our expectation that home prices will decline through '08 and grow at a more moderate pace thereafter, Centex's focus on shedding non-core assets and moving to a land light model should provide a competitive advantage over its peers."

Wachovia Capital Market's Carl Reichardt put out a note stating, "The land sale has been widely speculated in the marketplace for some time, as was speculation of shrinkage from a larger deal, so the transaction is not a surprise. At 9% of previously owned lot count and at a lower price than Lennar's recent deal with Morgan Stanley (40% of stated book), indications are that the land market still remains fairly illiquid. 2) The $592MM in cash proceeds from the sales (including the tax refund) coupled with the $700MM in operating cash flow that CTX should generate this quarter would provide significant liquidity. CTX had only $62MM in cash as of 12/31, the lowest amount among the large builders."

Michael Rehaut at J.P. Morgan Securities wrote that while the home building team there viewed the deal positivley, "we believe CTX continues to hold assets that are valued at levels well below their stated book value. Accordingly, we believe large charges remain for CTX, as well as the overall industry."

Also on Monday, Centex said Atlanta-based Rollins, Inc. entered into a definitive purchase agreement with subsidiaries of Centex for the assets of its pest control business, Home Team Pest Defense. The cash deal is expected to close in early April for nearly $137 million. Home Team is the country's third largest pest management company and has 50 offices in 13 states. Rollins has several other pest management subsidiaries, including Orkin. Eller indicated during the conference call that there would be additional announcements as the company plans to make good on its promise to move to the asset-light model.