NVR L.P., the largest home builder in the Washington area through its Ryan Homes and NV homes subsidiaries, yesterday reported a $53.5 million second-quarter loss after declaring that some of the land it holds is now worth less than the company paid for it.
The quarterly loss was the first in NVR'S four-year history as a public company and a reflection of the difficulties facing area home builders, especially those that borrowed heavily to purchase large tracts of land that they expected to develop.
Were it not for the downward adjustments in the value of its land holdings, NVR said it would have been able to report a modest profit of $1 million for the three-month period, largely on the strength of earnings from its financial services division.
In its announcement yesterday, NVR also said it expects its bank lenders to agree to extend the company's $248 million working line of credit, which it uses to fund its operations, through Feb. 15, 1991. However, the company said it may not be able to make interest payments due to some of its bondholders later this year. Such a development, the company claimed, would have a limited overall impact on its finances.
Although the price NVR's partnership shares -- which had been trading above $5 earlier this year -- dropped to below $1 yesterday, Wall Street analysts were generally favorable in commenting on yesterday's announcement, seeing it as a straightforward recognition of the company's financial problems.
"I'm glad to see them take this, and I think it obviously sets them on the road to recovery," said Kenneth Campbell, editor of Realty Stock Review and president of a real estate investment advisory service. "At least they're dealing with the problem in a forthright way."
While NVR is struggling financially, its home-selling operations, particularly Ryan Homes, appear to be faring relatively well in a weak real estate market. NVR's two main subsidiaries, NVHomes and Ryan Homes, together have gained a bigger portion of the new-home market in the company's core market of Washington and Baltimore in the last six months, according to figures from companies that monitor the industry here.
In the Washington area, the company's key subsidiaries increased market share from 12.4 percent of new-home sales in the first quarter to 14.9 percent in the second quarter.
NVR has been grappling with a hefty debt of about $850 million from its home-building and land-development operations. Its chairman, Dwight C. Schar, founded the company just over 10 years ago and in 1987 made a daring acquisition of Ryan Homes, his former employer.
"The combination of our restructuring effort and the cooperation of our bank lenders, together with the ongoing support of our employees, subcontractors and suppliers, allow the company to continue its commitment to building quality homes," Schar said.
Like many home builders in the Washington area, NVR has been caught by the unexpected and sharp downturn of the real estate market. New-home sales by all builders in the area have plunged 50 percent in the last two years and have settled back to 1981 and 1982 levels, reports Housing Data Reports, a service that monitors the new-home industry. NVR has been further burdened by the $218 million in high-yield, high-risk junk bonds that it issued to finance its purchase of Ryan Homes.
Confident that the area market would continue its explosive growth, many area builders purchased large amounts of land in the 1980s as a way of protecting themselves against rapidly rising land prices. Land is a major component of the final selling price of a house, and rising land prices directly affect new house prices. While buying land is a prudent move when prices are rising rapidly, it backfired on NVR and other area builders when the market slowed.
Area land brokers report that prices have dropped anywhere from 10 percent to 50 percent, mostly because so many builders and developers are seeking to unload excess land. "Everybody, quite frankly, is in a survival mode," said William H. Lauer, a partner of the Tetra Partnerships, a Reston-based commercial real estate firm.
NVR said its $53.5 million second-quarter loss, which had been anticipated by the company, includes write-downs totaling $58.5 million -- $12.2 million in connection with the costs of pulling out of Florida and the Midwest and $46.3 million arising from a reduction in the value of land and real estate partnership interests to reflect the decline in its market value. The loss compares with a $9 million profit (34 cents per partnership unit) in the second quarter of last year.
Revenue for the quarter was down 4 percent to $356 million from $370 million in last year's second quarter. The company attributed the slight decrease primarily to land sales last year that were not repeated this year. Because of its second-quarter loss and restrictions imposed by lending agreements with its bankers, NVR said it would not make a second-quarter distribution to its partnership shareholders.
In the first six months of 1990, NVR lost $52.2 million on revenue of $594.9 million compared with a profit of $17.3 million (62 cents) on revenue of $643.1 million in the same period last year.
In trading on the American Stock Exchange, NVR's partnership units closed at 93.75 cents, down from $1. Its 10 percent bond, which has plunged in recent weeks, fell further yesterday, closing at $6. The bond originally had a face value of $100.
Many of NVR's financial problems have been linked to its land-development subsidiary, NVR Development. The subsidiary was set up in 1988 to buy land, develop it and then sell the developed lots to Ryan Homes and NVHomes. But NVR has said slowing sales have meant that Ryan and NVHomes have been unable to buy as many lots as expected.
In July, NVR announced that NVR Development was unable to make some interest payments and is in default on its $10 million line of credit. It noted that only $3.4 million of its subsidiary's loans are guaranteed by the parent company, meaning the parent is responsible for any losses beyond that level.
Provident Bank of Maryland said this week that it has scheduled an auction for Aug. 31 of 253 lots owned by NVR Development in a subdivision in Timonium, Md. In Fairfax County, Copper Land Co. is suing a limited partnership whose general partner is NVR Development, claiming it is owed $3.5 million for the sale of 135 acres in Great Falls to the partnership.