A technical glitch yesterday caused luxury builder WCI Communities to delay for several hours the release of its fourth-quarter and year-end financial performance. Officials at the Bonita Springs, Fla.-based builder probably wished they could have postponed that release indefinitely, after reporting a net loss of $578.5 million for the year ended Dec. 31, 2007, versus a net gain of $9 million in 2006. WCI generated revenue of $936.4 million, which was down 54.2 percent from a year ago. Sales from homebuilding alone were off 60.7 percent to $747.8 million.
The builder was particularly hard-hit by a plunge in business at its tower division, whose revenue dropped 95.1 percent. The tower division’s default rate last year hit 24 percent, versus 7 percent in 2006. WCI also reported $378.5 million in inventory and goodwill impairments, which reduced the company’s reported gross margins to negative 32.7 percent, versus a positive 12.2 percent in 2006. Its debt-to-capitalization ratio stood at 82.1 percent at the end of 2007, up from 66.7 percent in 2006.
WCI closed 1,657 homes in 2007, of which 665 were tower units. That total was off by more than 25 percent from a year ago, and the company’s combined net orders fell 68.2 percent to 259 homes. WCI’s cancellation rate for the year was 49.4 percent, and a whopping 109 percent in the fourth quarter alone, during which the builder reported wider losses ($459.8 million) than company watchers had expected.
During a teleconference with analysts, WCI’s CEO Jerry Starkey highlighted some of the positive moves his company has made to adjust its operations to current market conditions. He pointed out that the company’s headcount from its May 2006 peak was down 47 percent, to 2,065 employees. During that period, WCI reduced its homebuilding and tower construction by 72 percent. WCI also consolidated its operations in the Northeast, Mid-Atlantic, and Florida regions, and has placed its homebuilding and tower businesses directly under its COO.
Starkey projected that WCI’s cash flow, at $228 million at the conclusion of 2007, should increase to between $300 million and $450 million in 2008, although that number is contingent on WCI hitting its closings target, which Starkey estimates would be between 675 and 700 units, plus another 200 sales from existing inventory. The builder ended last year with 79 communities where it is constructing single- and multi-family homes or mid- and high-rise residential units. In total, it controlled over 13,950 acres of land, on which it has 28,000 remaining entitled units, according to its 10-k report to the U.S. Securities and Exchange Commission. Since its peak, WCI has reduced its land position by 21.8 percent to 16,019 owned or controlled lots.
In January, the company negotiated an amended provision to covenants of its revolving credit agreement, which now extends through the second quarter of 2009. Part of that deal required the company to reduce that credit line to $650 million, from $700 million last August. (It drops to $600 million on July 1, and to $550 million one year later.) The company also received waivers relating to three other loans, so it could include in its SEC filing a “going concern” caveat from its accounting firm, Ernst & Young, about WCI’s long-term ability to sustain its business and service its debt, at $1.92 billion at the end of 2007.