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alstry (< 20)

Is SPF's management LYING to raise money?



May 31, 2008 – Comments (5)

SPF is trying to sell hundreds of millions of dollars of its stock to shareholders and an investment fund.  It is trying to sell those shares at $3.05 while representing its bookvalue is around $10 per share.

Last night it notified some old convertible holders of the offer to provide notice if they want to convert around $8 per share.  What a nice gesture...

Management represents its homebuilding inventory at around $2 Billion dollars.  Most of those dollars is allocated to land.  It also has around $2 Billion of debt and payables.

We know that land in some of SPF's markets has sold for around $0.20 on the dollar.  Since December 31st, 2006, SPF has impaired about $1 and a half billion of assets.  Since then it has reduced inventory by about 50%.  Therefore, one can logically deduce that a relatively small percentage of the reported value of SPF's current assets have been impaired.

Further, SPF recently liquidated an entire community of upscale homes for over 40% off.  The community was open for over a year and never sold a home.  It had 5 models and 8 specs of million plus homes when all the homes were sold in one morning.  By selling homes at such a discount, it probably had a devasting effect on value of the remaining dozens of lots yet to be built upon.

Based on the above, and other known information, it would be reasonable to discount SPF's assets a blended 50% and estimate that the fair value of SPF's current assets is really $1 Billion or less and not the $2 Billion management represents.  If such is the case, SPF's book value would be NEGATIVE and not the $10 management represents on its books.


SPF's board and management has engaged in this type of potentially outright deceptive behavior for well over a year. It was making incredible earnings projections when it NEW it was liquidating homes in auctions at below minimum bid pricing and NEVER disclosing this the shareholders as insiders sold shares and the price since dropped from $30 to $3.

Now SPF wants to raise hundreds of millions of dollars.  Over the last few years, management and the board have extracted tens of millions of dollars for themselves in salaries, bonus, and severence packages.

Wouldn't you think if hundreds of millions of dollars were really going to be raised, an independent appraisal of assets would be obtained to make sure what people thought they were buying was really worth as represented?

It that too much to ask management to provide a fair value of its assets before asking its shareholders and a fund to pony up over half a billion dollars in cash?????  REPEAT:  OVER HALF A BILLION DOLLARS!!!!!!

Which is it SPF, is fair value really $10 per share or is it NEGATIVE???????

If in fact it is negative and these jokers are concealing this from investors, what should be the consequence to management and the board be?????

As CAPs players, we must expose this kind of behavior to help identify which companies to potentially green thumb or red thumb.



5 Comments – Post Your Own

#1) On May 31, 2008 at 11:53 PM, alstry (< 20) wrote:



Over the last seven quarters, we have impaired approximately 60% of the 13,100 lots we owned at the end of our 2008 first quarter."


In a footnote SPF reveals that 56% of impariments taken are:

"1) Based on 12/31/06 lot position."

The joke on SPF's using 12/31/06, ESPECIALLY SURPRESSING THE FACT IN A FOOTNOTE, is that potentially all of the impairments could have been taken on land no longer on the balance sheet.  Investors have no clue what percentage of current land positions have been impaired.  Based on the fact that SPF has disposed of about half its land positions since 12/31/06, and a material portion of current land value is capitalized interest, it is possible that very few of SPF's current land positions have been impaired.  Not only that, with most of SPF's land in CA and FL, we could be looking at a HUGE discrepency between what SPF represents as value on its books and reality.

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#2) On May 31, 2008 at 11:53 PM, Varchild2008 (84.15) wrote:

It is weird that all of this happens after SPF was forced to request an additional extension to pay off their debt.

Regardless of all of these news floating around we have yet to hear any news signifying that SPF's debt has ever been reduced by a single dollar.  This does seem (but no proof exists) that some "trickery" is at play.  Only time will tell.

I am staying out of SPF for the time being . . . but the optimist in me keeps whispering that SPF will survive somehow..some way even if that way isn't altogether ethical.

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#3) On June 01, 2008 at 4:18 AM, PDTBiotech (85.76) wrote:

But is there a chance that it will work?  Is it worth a tiny speculative position for those of us who root for the bad guys at the movies, not so much betting on the company turning things around legit-like but that their trickeration will keep the stock from dying and give them time to try to rebuild their share price?  Considering the BS that went down once Bear Stearns was down to $5 and everyone assumed it was going to $2 it might be worth taking a flier on a few hundred shares just to have a rooting interest.

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#4) On June 01, 2008 at 7:34 AM, alstry (< 20) wrote:

By saving BSC, you saved the entire financial system.  Whether JPM paid $2 per share or $10 per share, it really didn't matter when Uncle Ben threw in $30 billion into the deal.

With SPF, even putting in $500 million doesn't solve its problems as analysts admit additional liquidity will likely be needed not too far down the road.  Thus, SPF will continue to need to build to support its approximately $2 Billion dollars in debt bringing even more inventory into an over supplied market.

With $2 Billion in debt and a few hundred communities, SPF has cash outflow of approximately $300-$400 million per year just with P&I and SGA.  In this environment of slow sales and low prices, you have to sell a lot of houses to generate that type of cash.

SPF's total backlog is only around $500 million dollars.  After unwinding JVs this quarter, paying payables, building out specs, and making P&I and overhead payments, a lot of SPF's cash was probably consumed from last quarter.  As a result, SPF will continue to need to build specs and liquidate to raise cash.

That is all America needs, lots more houses coming to market and being and potentially liquidated at cheap prices just to support a large nut.  Sounds a little nuts to me.....especially if you are a homeowner hoping to maintain value in your home or competing builder in CA actually trying to make a legitimate profit.

The responsible builders are slowing production or mothballing.  Its one thing to save the financial system of the United States, it is another to continue to finance the money losing construction of speculative homes in current market conditions.

The question is why would a sophisticated fund invest $600 million dollars into a highly leveraged money losing homebuilder with a negative outlook concentrated in two of the most difficult housing markets in the country with potentially assets worth over $1 billion dollars less than stated on the books? 

Remember, a material amount that SPF represents as land value is capitalized interest.  With $600 million, these guys could have gone out and purchased all the lots they wanted at pennies on the dollar-free and clear.

Finally, SPF owes its bankers over $500 million.  Banks are getting very strict with builders.....some banks are pulling locs even though the builders are compliant  The banks are well aware of SPF's order for this deal to close SPF must get a permenant amendment from its lenders.....since SPF has proven it can't pay down much debt liquidating billions in much of the incoming cash do you think its bankers are going to grab in order to grant an amendment?

You think the feeling might be if we don't get it now, we may never get it?

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#5) On June 01, 2008 at 10:32 AM, alstry (< 20) wrote:


Right now, in some markets foreclosures have become so numerous, thay consitute the majority of sales.  I doubt this has ever happened to such a large scale in so many states our country's history.  Many of these markets are right where the new homebuilders overbuillt and are still building.

Based on a spat recent articles in the past few weeks, the banks are getting serious about cutting prices.  My guess is that nobody wants inventory going into Fall.  50% is not uncommon and sales are being stimulted by these drastic price reductions.  At these levels, homes are being priced below construction cost.

Now , just constructing a home in these areas is a cashflow negative proposition, even if you sell it.  This issue impacts lower end builders like CTX and RYL to an even greater degree.

Further, by the banks liquidating at these prices, it depresses the prices of all the houses around it increasing the likelihood of additional foreclosure inventory coming back to the banks.  Not only that, it destroys the assessments forcing even further downward pressure on tax revenues.

What is amazing is the extent of the declining revenues accross so many leveraged industries in America right now:





Government-Local and State(no printing press)

Commercial Real Estate

Residential Real Estate


Retail on a SSS basis


it is unbelievable that the impression of the passing of the credit crisis occured between February and May while the actual decline in revenues persisted against the back drop of high levels of debt.  Now we are entering phase II of the credit crisis, the leverage remains and the revenues are even lower than before.

The mainstream press is starting to accept that the credit crisis is not really over.... as we are starting a new month and soon end of quarter, we should start to see rising reports of defaults as persistent declining revenues are being burdened by a very highly leveraged environment.

This time, the impact should be a lot more severe as the decline in revenues is much further along for many industries....especially banking and government and those consumers who have lost their jobs.

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