John Burns slams negative media for ignoring homebuilder discipline
Homebuilders experienced many successes the past five years, considering top firms in the space remained afloat and solid despite losing 80% of their orders, according to John Burns Real Estate Consulting. In a new report Friday, CEO John Burns criticizes the American media, suggesting a hyper-focus on negative housing data masks successes in the homebuilding space. Burns said many of the firms' chief financial officers managed to find solid ground in the wake of the recession even though they are selling houses at a rate 35% lower than a few years ago. Burns noted 13 publicly traded homebuilders, and many private builders "have managed to avoid bankruptcy thanks to making very tough decisions, sticking to disciplines and managing their balance sheets." "Yes, there are many challenges today, and all of them have been covered ad nauseam in the press," Burns said. "Positive press apparently doesn't sell newspapers or generate web traffic. While the headlines continue to focus on the builders who are struggling the most, the headlines should really be focused on those who are doing better." Burns said homebuilders in general are very close to breaking even and have enough cash to pay debt scheduled to mature in the next few years. He praised financial executives at some of the leading homebuilders saying their management of balance sheets helped keep the firms solvent and competitive. "While the contractual terms in joint venture and lender agreements are the bane of existence for many land junkies, the CFOs who carefully structured these terms to protect their firms in case of a downturn have saved their companies hundreds of millions of dollars," according to Burns. A chart released by Burns shows the financial crisis taking a toll on builder profits with the industry reporting deep losses the past few years. While the chart still shows income in the negative range, the market is rebounding, swinging back in a positive direction with recent losses not as deep as 2008-2009 levels. Toll Brothers (TOL) posted a third-quarter profit of $42.1 million, or 25 cents a share, on revenue of $394.3 million. The luxury homebuilder earned $27.3 million, or 16 cents a share, for its year-ago fiscal third quarter. In the first half, homebuilder PulteGroup (PHM) spent $640 million acquiring land and executing development activities. The company expects to spend nearly $1.1 billion on land and development this year, up from $980 million in 2010. PulteGroup reported a second-quarter loss of $55.4 million, or 15 cents a share, as it took significant organizational restructuring and debt repurchase charges for the quarter. That compares to income of $76 million, or 20 cents per share, for the year-ago second quarter. Write to: Kerri Panchuk.