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dexion10 (27.79)

August 2007

Recs

4

The Entire Brookfield Homes (BHS) Short Thesis

August 30, 2007 – Comments (1)

===================
Quick Take on BHS
===================

Positives for short:

1. Brookfield's specific market focus exacerbates an already bad situation
- BHS homes had an average selling price of $655k
- A buyer would need a non-agency backed Jumbo Loan / ~250k in equity to
secure agency backed financing.

2. The sales trends are awful (Volumes fell 25% yoy)

3. The margin pressure is awful (Margins shrank ~50% yoy)

4. Backlog shrunk dramatically (50%) yoy to 22% of target volume or 240 of 1050 home target for 2007. Historically backlogs have been 30-40% of the next years revenue (trailing 5 years).  [more]

Recs

5

You can Still Short Housing Stocks like BHS

August 30, 2007 – Comments (2)

I was curious about Brookfield Homes premium valuation (by certain
metrics) so I did some digging... this is what I found.

===================
Quick Take on BHS
===================

Positives for short:

1. Brookfield's specific market focus exacerbates an already bad situation
- BHS homes had an average selling price of $655k
- A buyer would need a non-agency backed Jumbo Loan / ~250k in equity to
secure agency backed financing.

2. The sales trends are awful (Volumes fell 25% yoy)

3. The margin pressure is awful (Margins shrank ~50% yoy)

4. Backlog shrunk dramatically (50%) yoy to 22% of target volume or 240 of 1050 home target for 2007. Historically backlogs have been 30-40% of the next years revenue (trailing 5 years).

Negatives for short:

1. Brookfield homes is an affiliate of Brookfield Asset Management and Brookfield properties. B.A.M. owns 53% of BHS. Brookfield's revolving credit facility comes from Brookfield Asset Management and therefore
they have a VERY friendly lender... this is perhaps the most problematic part of developing a short thesis for these guys. Three of BHS directors serve as executive officers and/or directors of Brookfield's affiliates (BAM, B-Properties).

THIS SUPPORTIVE GROUP OF AFFILIATES AND FINANCIERS IS PROBLEMATIC TO A
SHORT THESIS. - but the rest of the story could support significantly lower prices over the near term.

2. Interest Rate Cuts of 1% increase their FCF (reduce interest expense)
by $4M... so a quarter point cut creates 1M in FCF.

===================
Profile / Markets
===================
62% of BHS sales are booked in the State of California with about 38%
split between Washington DC (32%) or for Other / corporate property
(6%).. The company has 59 spec homes built and manages 33 communtiies.
This is down from 153 spec homes in 2006 and at their target.

===================
Sales & Cancellations Trends:
===================
1.) Revenues / Profits - Last quarter had 155M in rev / 10M in profit vs
~193M in rev / 40M in profits (30M excluding land sales) in Q2 2006.

2.) Average Selling Price for a BHS home was $655,000 in Q2 2007.
This is a 11% decrease from the $739,000 average selling price in Q2 2006.

3.) Volume fell 25% from 1582 closed homes in 2006 to 1159 in 2007

4.) Cancellations: were at 22% in Q2 - consistent with Q1 2007... I'd
expect this number to spike again in Q3.

==========================
Gross Profit Margins:
==========================
H1 2007 Gross Margins fell to 18% down from 30% in 2006. Given that the
average selling price was $655k I presume the average gross profit
margin per home is $117k.

Further price declines and cancellations will destroy 2007 for BHS... no premium is deserved here.  [more]

Recs

4

What Conservative Bets Will Pay-off?

August 28, 2007 – Comments (1)

CONTENTS:  [more]

Recs

4

Why Stocks are Cheap 8/20/2006 - What to buy / not to buy

August 20, 2007 – Comments (0)

Stocks have been cheap but demand for stocks weak - Here's why:   [more]

Recs

3

Who Am I & How I Work

August 20, 2007 – Comments (0)

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