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alstry (< 20)

Is Ryland in Trouble?



February 27, 2008 – Comments (5)

Inventory of houses started and unsold declined to 823 units at December 31, 2007, denoting a decrease of 52.8 percent from December 31, 2006.

At December 31, 2007, the dollar value of the Company’s backlog was $786.4 million, reflecting a decline of 39.2 percent from December 31, 2006.

Cash balance of $243.6 million as of December 31, 2007

Accounts payables and Accrued Liabilities exceeded $500 million dollars.


Let's think about this for a second, Ryland probably has to spend a few hundred million to complete the above homes.  If they sold them all in one quarter, they could probably raise about $1 billion dollars after selling expenses and net discounting and no vertical inventory left to sell.  After paying off construction costs and payables, RYL would be left with about $400 milion in cash and about $1 billion of land and $839 million of debt.

Here is where the problem comes in......................what is the real market value of RYL's land?  Recently we are seeing $0.30-$0.40 on the dollar of reported value on land sales.  Even if we applied the high end of the range, RYL's land and cash would about equal its debt in the above scenario.

With homes sales and margins under continued pressure, what do you think next quarter's numbers are going to look like?

5 Comments – Post Your Own

#1) On February 27, 2008 at 8:59 AM, floridabuilder2 (98.27) wrote:

30c to 40c is mainly for C parcels........  I believe Ryland is trying to put together a package on a national level containing a lot of crap.........  there are much worse builders than Ryland out there

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#2) On February 27, 2008 at 10:29 AM, alstry (< 20) wrote:

FB, I agree there are much worse builders.

The crazy thing is that one of the "better" builders seemingly has almost no residual value after liquidating assets....and that is if they liqudated ALL their vertical inventory.

Now that margins are negative, the quicker a builder liquidates, the better off stakeholders will be.

Those builders saddled with land and debt are hosed.  SPF is in by far the worst shape from my perspective.  Even though RYL is much better, zero is still zero.

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#3) On February 27, 2008 at 10:54 AM, cabuilderboy (83.97) wrote:

Are you assuming they have not impaired any of their land on their BS over the last year? Is your .30 to .40 cents before or after impairment? If you are using their land, after impairment on the BS at 12/31/07, as your startig figure, I don't think your $.30 - $.40 on the dollar figure is accurate, since the Land on the BS already has been discounted. Just curious.

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#4) On February 27, 2008 at 11:07 AM, alstry (< 20) wrote:

Take a look at what LEN sold land for post impairment.  Same with many other builders.  FloridaBuilder can confirm the numbers. 

With RYL, they have been one of the more conservative builders with impairments.

As a builder, you know that land derpreciates in value much faster than structures in a declining price environment. 

In light of the above, you may find my numbers conservative based on recent deterioration in the market.

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#5) On February 27, 2008 at 5:08 PM, alstry (< 20) wrote:

A Different Perspective 

Toll's Outlook Raises Hopes for the Sector

By Jim Cramer

About this article:
Robert Toll of Toll Brothers offers a glimmer of hope in some otherwise tough markets, and I can't be more enthused, given what a monster bear he is. He also has suggested a housing tax credit, which would help clean up inventory. One of the extraordinary points that Toll said was that he believes Naples, Fla., has turned around. That's something. Other than the Inland Empire, I have regarded the west coast of Florida as the biggest wasteland out there. To hear anything good about Florida beyond the occasional pockets of Orlando that people like from time to time says there's something better happening -- not that we haven't seen moments where what was good quickly slipped back to bad. If you think that Toll is right, the one to buy is Ryland , which was the most far-ahead and forward-thinking of all the homebuilders.

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