Orleans Homebuilders in Bensalem, Pa., started off the New Year with a much lighter portfolio. Through a series of sales, the builder cut its lot position by approximately 18% from Sept. 30, 2007, and its total owned and controlled lot position by approximately 10% during the same time period.
Orleans pared inventory by closing nine deals (with nine different buyers) and selling 1,400 lots within five states prior to the Dec. 31 taxation year end. It also executed option agreements on approximately 350 lots in two communities in different states, for a net decrease in its owned and controlled lot count of approximately 1,050 lots.
The nine properties disposed of had a current aggregate net book value of approximately $86 million. Orleans received approximately $32 million for the land. That total is net of commissions and less than $0.5 million of aggregate deposits related to the lot option contracts.
"While I could have gotten more money over a three-year period, I'd rather be taking the cash today," said Garry P. Herdler, executive vice president and CFO for Orleans.
By selling the properties before the end of the fiscal year, Orleans expects to receive at least $20 million to $25 million of federal income tax refunds by September 2008. The sale will also allow the company to further reduce its headcount. That's why it didn't follow Lennar's model and sell to a financial buyer.
"If we sold to a financial buyer, we would have had to operate the communities," Herdler said.
Most of the lots Orleans sold (approximately 94%) were located in Florida, Illinois, and Arizona, and the other lots were located in Virginia and North Carolina. It disposed of four properties consisting of approximately 560 lots in Florida, including both of its remaining lot positions in its Palm Coast, Fla., market and two properties with approximately 480 lots in its Illinois market. It also got rid of approximately 267 lots and all related work-in-process homes in its Gilbert, Ariz., community, which is its only parcel of land in Arizona. The remaining dispositions consisted of approximately 85 lots in two properties in its Southern region
"We're getting rid of certain weaker communities in the portfolio," Herdler said.
These individual property sales resulted in an aggregate amount of approximately $55 million on a pre-tax basis, or $33 million on an after-tax basis.
Approximately 53% of Orleans' owned and controlled lot positions are held in its Northern region, 35% in its Southern region, 8% in its Midwest region, and 4% in its Florida region.