Saying the company was late in turning aggressive in the face of the housing downturn, M/I Homes CEO Robert Schottenstein said the company plans to move swiftly to catch up by unveiling a new product line within the next several months.
Numbers for the fourth quarter and year end continued dropping. But a slow uptick is beginning to emerge, company executives said during M/I's fourth-quarter conference call Friday morning. New home contracts were up 5% in 4Q2008, from 322 in 4Q2007 to 339, and the rise continues, according to Schottenstein who said contracts for January were up 7% from January 2008.
The new product line looms large in the company's plans for the immediate future. Initially unveiling the product in the Midwest and eventually pushing east into the the Mid-Atlantic region, it will hit what Schottenstein sees as the "sweet spot" of just under $200,000 for single-family detached homes with the majority of buyers first-time with high credit scores, most likely using FHA loans. The company's Florida division is working on a new product that is unique to that market. Schottenstein would not go into further detail, particularly regarding price points.
"This is going to be a best in class, very strong line of affordable homes," Schottenstein said. "We hope to capitalize on incremental business with rates as low as they are and the potential $15,000 credit."
And in regards to his support of the proposed $15,000 tax credit buyer could receive if passed by Congress, Schottenstein said: "Like other builders we are pushing for Fix Housing First for a monetizable credit. This [$15,000 credit proposal] is not that but this is a whole lot better than the weak, completely ineffective $7,500. This will help. [The government] want players to have skin in the game when they close. We believe a more forcible stimulus package would help the economy. If this is all we get, [it is] likely to help sales a little bit, and it is better than we have now."
M/I Homes CFO Phillip Creek reported, in detail, the breakdown of the company's financials, pointing out that the Florida market, as with other builders, is severely struggling.
The regional outlook is as follows:
* Mid-West--new contracts were up 35% during 4Q2008 with 5,200 lots owned vs. 6, 200lots owned in 4Q2007; making 4Q2008 the first positive increase in 16 quarters for the region. Creek said, "While this by no means should be construed as an improvement in conditions, it should however be noted that we are outperforming the general market."
* Florida--remains challenging with new contracts down 25% and homes delivered down 50%; there were 1,900 lots owned end of 2008 versus 5,300 lots, or a 64% decrease, in 2007 lots owned.
* Mid-Atlantic--new contracts were up 24% with year end owned lots coming in at 1,700 lots versus just over 2,000 in 2007, a 15% reduction. Creek pointed out that the Raleigh and Charlotte markets weakened during the second half of the year and that Washington D.C. remains challenging.
The company reported a net loss of $250.3 million for the year ended Dec. 31, 2008, compared to a net loss of $135.4 million for 2007. For 2008 the company recorded $158.6 million in pre-tax charges for inventory impairments and abandonments and a $108.6 million after-tax non-cash valuation allowance against its deferred tax assets. This compares to pre-tax charges in the same period of 2007 of $210.9 million and a tax benefit of $58 million.
Creek broke down the impairments saying 2,600 lots in 66 communities were impaired--42% in the Midwest; 26% in Florida; and 32% in the Mid-Atlantic.
Creek also pointed out that if a fiver-year tax carryback is passed by Congress and signed into law, M/I Homes could have an additional $80M available--$20 million for 2008 losses and the remaining available for 2009 losses.
G&A expenses were $26 million in the fourth quarter, which included $5 million of land abandonment charges and $1 million in severance costs. G&A also included $3 million for the write-down in estimated value of our company aircraft, which we have listed for sale. Excluding these items, G&A for the quarter was $17 million.
Headcount for the company has dropped 60% from its peak level in 2006, with the company currently employing approximately 500 people, down 41% from 2007.
The company also reported a backlog of 566 units with an average sales price of $247,000, bringing the sales value of backlog homes to $139 million, down from $233 million in 4Q2007. The number of active communities was also reduced from 146 in 2007 to 128 in 2008.
During the call, the company reported success in selling off land, putting it in the position of holding 8,800 lots, or 41% less than a year ago, with a goal of getting down to a two-year supply.
Creek laid out the financial land position of the company as follows:
* Compared to a year ago, raw land decreased 47%, land under development decreased 24%, and finished unsold lots decreased 28%.
* The company currently has $67M of raw land, $73M of land under development, and $189M worth of finished unsold lots.
* In the fourth quarter the company purchased $8M of land, and $23M of land for the year. Land acquisition in 2009 will be similar to 2008, with $15M in land development in 2009.