NVR L.P., the debt-laden McLean home builder, yesterday announced a loss of $172.3 million in the third quarter, mostly as a result of its decision to abandon its extensive land development business. It also said that orders for its homes had dropped sharply in the last three months, reflecting the nation's real estate slump .
The company, which owns Ryan Homes and NVHomes, said it is "very unlikely" that it would make a $14 million interest payment due Dec. 15 to investors holding $218 million in bonds. The company is seeking more favorable terms on the debt and faces crucial negotiations soon with the bondholders, who could put NVR into bankruptcy -- but are not expected to do so -- if it defaults, according to attorneys for the bondholders.
The real estate downturn has left NVR unable to handle the heavy debts it took on in acquiring Ryan Homes in 1987 for $360 million and in its purchases of land for future home sites and other development.
In a statement, company Chairman Dwight C. Schar said the company will cease land acquisition and land development, concentrating instead on construction of "affordable" new homes and on its financial services operations, which he said remain healthy.
The company plans to close manufacturing plants in Manassas and Jamestown, Ohio, and will focus sales efforts on its core markets of Washington, Baltimore and Pittsburgh, as well as on a few secondary markets, such as California.
NVR's fortunes are now tied even more closely to the Washington-Baltimore area, where it bought most of its land and where it sells 65 percent of its homes. "They're basically betting on the Baltimore-Washington market," said Michael Mead, vice president for research of Legg, Mason Inc. in Baltimore.
Schar said the company will pursue an "orderly disposition" of current land development projects by giving some land back to lenders, selling some of it, forfeiting deposits on options to buy land and marking down the value of the land it keeps.
"It's too bad," said one analyst, who asked not to be identified. "They build a nice product. They just bit off more than they could chew."
In July, NVR hired Kenneth Leventhal & Co. to evaluate its real estate holdings and to devise a new strategy for the company. NVR executives say the restructuring decisions and NVR's new strategies follow the Leventhal plan.
The third-quarter loss comes on revenue of $302.9 million and compares with a $9.6 million profit (34 cents a share) in the third-quarter of 1989, on revenue of $293.7 million.
The bulk of the loss was the result of its decision to set aside $169.1 million to cover costs of the restructuring, primarily losses on its land inventory. It also set aside $18.3 million to cover costs of quitting some of its markets. It has already announced its decision to pull its Ryan Homes subsidiary out of Florida and parts of the Midwest.
"We feel really good about getting this behind us," said one NVR executive, who asked not to be identified.
This is the second quarterly loss for NVR. It announced a loss of $53.5 million -- its first ever -- in this year's second quarter after declaring that some of the land it held was worth less than it paid for it.
NVR's partnership shares closed at 31 cents in trading on the American Stock Exchange, unchanged. The shares, which had been trading as high as $5 earlier this year, have hovered at the 31-cent level for several weeks.
Without the financial restructuring announced yesterday, NV would have shown a loss of $13.1 million, mostly, it said, because fierce competition among home builders in the Washington area eroded profit margins.
NVR settled on 1,482 homes, a 6.7 percent decrease from 1,383 homes in the third quarter of 1990. The company said that new orders for homes, an indicator of future business, fell 48 percent, to 599 from 1,149 in the third quarter of last year.
Its NVHomes subsidiary, which primarily builds houses in the Washington area that sell for more than $200,000, suffered a net loss of home sales in the third quarter -- that is, more people canceled sales contracts than signed sales contracts to purchase NVHomes.
"They didn't have a particularly good quarter," said Robert Lesenfeld, vice president of information services for Legg Mason's market research firm in Baltimore. "But, then, nobody did."
Sales at Ryan Homes, which sells houses generally priced under $200,000, have remained strong in the Washington-Baltimore area.
The company has been disrupted by the departure of several top executives and the layoffs of scores of other employees beginning last summer when it decided to combine parts of NVHomes and Ryan Homes.
What company observers called a power struggle between Schar's two top lieutenants -- Michael J. Cannizzo, the head of Ryan Homes, and Charles T. Langpaul, who headed NVHomes -- culminated in September when Schar named Cannizzo to a new post of president of home-building operations, overseeing both major subsidiaries.
Langpaul was given the new title of executive vice president of NVHomes and has resigned from NVR's board of directors. Cannizzo has since moved a Ryan marketing executive into a slot at NVHomes as marketing director, signaling his intention to maintain firm control over NVHomes, say company observers.
The company is also in negotiation with eight lenders that provide a $214 million line of credit that funds its daily operations. Sources said those lenders are Pittsburgh National Bank, American Security Bank, Citicorp Real Estate Inc., the Bank of New York, Sovran Bank, Lloyds Bank PLC, National City Bank and Security Pacific Bank.
NVR, which said in August that it expected the line of credit to be renewed until Feb. 15, 1991, said yesterday its line of credit has been renewed until the end of the year.
Rather than force the company into bankruptcy if it defaults on its bonds, analysts expect the bondholders to ask for a "substantial" amount of equity in the company.
"That's about the only thing the company can give them," said one bond analyst, who asked not to be identified. "It's the financial equivalent of a kiss and a prayer."
For the first nine months of the year, NVR reported a loss of $224 million compared to a $27 million profit in the first nine months of 1989. Revenue fell 4.1 percent to $897.8 million, from $936.9 million in the first nine months of 1989.