With industry concern over two possible joint venture meltdowns in Las Vegas reaching a fever pitch late last week, The Ryland Group CEO Chad Dreier updated investors on the company's exposure to JV risk during a March 18 presentation at the Citi Fifth Annual Small and Mid Cap Conference in Vegas.
Dreier kicked off the discussion with an overview of the company's investment in what he called the "very controversial" Kyle Canyon JV, which received a default notice last week. Similar to another hotly contested JV in the area, Inspirada, Kyle Canyon was a joint venture cobbled together in early 2005 by a consortium of builders and developers looking to nab 1,710 acres of raw land from a federal auction of public land. The group, which included Ryland, Pulte Homes, Lennar Corp., and others, secured the giant parcel with a $510 million bid.
Dreier said Ryland was a minor player in the deal, with roughly 3% ownership in the JV. The company's risk is limited to $7.2 million in equity and $14.5 million in debt, numbers that pale in comparison to the JV's aggregate asset value of $644 million and $435 million in debt.
He went on to say that management used joint ventures judiciously, entering into such agreements only when necessary to secure prime land position. The company currently is a partner in one consolidated JV and six unconsolidated JVs, one of which is the Kyle Canyon project in Vegas. According to the company's 10-K filed with the Securities and Exchange Commission, the other unconsolidated JVs are in Austin, Chicago, Dallas, Denver, and Orlando. Collectively, the six partnerships allow Ryland to control a total of 2,534 lots, of which 1,325 are owned.
Tallying up all the company's investments in JVs, Dreier said that Ryland's investment is capped at $20.8 million while associated debt is limited to $40.1 million.
Even as Ryland's JV exposure appears tame compared to peers, if the worst were to happen and the JVs had to be consolidated on the balance sheet, the company would likely be able to handle any additional balance sheet stress. The company closed out 2007 with $243 million in cash on hand, which is more than sufficient to redeem JV debt. And with only $80 million in 5.375% senior notes maturing in 2008, nothing drawn on the company's credit revolver, and no other debt maturing before 2012, the company could also absorb the additional debt, if need be. "We think we have as good a debt situation as anyone," Dreier said.
And if investors had any lingering fears over potential fallout from the company's investment in Kyle Canyon, Dreier concluded the presentation by raving about the future of the Las Vegas market.
"I think it's a great market," he said. "We got ahead of ourselves in prices and product. But this market is going to come back faster than any other market."
Learn more about markets featured in this article: Las Vegas, NV.