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Ryland plots a comeback: Homebuilder expects first profitable year since 2006

By   /   Friday, December 21st, 2012  /   Comments Off

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General Views Of Construction Ahead Of Housing Starts Figures

Houses under construction stand at the Ryland Homes Vista Heights development in Rancho Cucamonga. The Westlake Village-based homebuilder said it expects to report its first year of profitability in 2012, after five years of losses following the financial crisis. (Bloomberg News photo)

Ryland Group is looking forward to its first year back in the black since the real estate meltdown.

The Westlake Village-based parent company of Ryland Homes is one of the largest homebuilders in the country. So when the housing market collapsed, it almost took the company down with it. But Ryland held on, and after scaling down operations and pulling out of some markets, it has returned to profitability.

“2012 has turned out to be better than  2011. It’s been a long time since we’ve been able to say the year we’re in is better then the year before,” said Drew Mackintosh, the company’s vice president of investor relations and corporate communications.

Ryland reported a third-quarter profit of $10.6 million, compared to a $21.3 million loss in the same quarter of 2011. It hasn’t yet reported full-year 2012 results, but Mackintosh said the company is “confident it will be our first profitable year – our first full calendar year – we’ve had in quite some time.”

On Dec. 10, Ryland announced that it had purchased Trend Homes, a smaller homebuilder, for an undisclosed sum. The acquisition also marked Ryland’s return to the Phoenix-area home market after a three-year absence, Mackintosh said, signaling that it thinks a full-fledged recovery is underway.

“We were real happy to close on that acquisition,” he said. “Phoenix is a market that has turned around significantly over the last couple of quarters. They went from having a lot of existing inventory to having hardly any.”

It’s the same story in many metro areas, such as Orlando and Las Vegas, where the housing markets soared to tremendous highs only to plummet a few years later to stupendous lows.

Mackintosh said that institutional investors get the credit for turning many of those troubled markets around. “These investors are buying up a lot of foreclosed homes and fixing them up and renting them out,” he said. “That went a long way to improving the supply and demand balance and getting it closer to equilibrium.”

Ryland executed a $250 million debt offering of senior unsecured notes in September, and it now has enough capital to aggressively grow by way of land acquisitions, Mackintosh said.

Nationwide, the housing market appears to be on a rebound. Builders in October had the most job openings and broke ground on more homes than at any time in four years, Bloomberg News reported, citing government data. Billing by architecture firms, which typically leads construction by at least nine months, is climbing at the fastest pace since December 2010, Bloomberg said.

“Construction is a small share of the job market, but it can be a very large share of job growth, particularly when the construction industry is in an upswing,” Mark Zandi, chief economist at Moody’s Analytics in Pennsylvania, told Bloomberg News. “A big share of the improvement in jobs growth that I anticipate will come from construction and anything related.”

While construction payrolls accounted for 4.1 percent of all U.S. employment in November, a six-decade low, industry hiring will ripple through the world’s largest economy, prompting manufacturers, retailers, landscapers, real-estate brokers and transportation companies to also take on staff, Zandi said. About 250,000 construction and related jobs will be created in 2013, 13 percent of the 1.9 million Zandi forecasts the U.S. will add.

The number of job openings at construction firms jumped to 130,000 in October, up 59 percent from September and the most since May 2008, a Bloomberg analysis of Labor Department data show. Housing starts climbed to 894,000 that month, the highest level since July 2008, according to Commerce Department data.

The average analyst expectation for Ryland, out of 15 analysts tracked by Yahoo Finance, expect the company to acheive first-quarter earnings of 26 cents per share, as compared to an 11-cent loss in the first quarter of 2012. For the full-year 2012, analysts expect a 79-cent per share profit, compared to a $1.14 per share loss last year.

Ryland’s shares have been trading near their 52-week high of $37.44 for most of December. The firm moved its headquarters and about 50 corporate jobs from Calabasas to Westlake Village in mid-2011.

Ryland last turned an annual profit in 2006, when it netted $360 million. In the five years since then, it has experienced losses totaling more than $1 billion, capped by a $29.9 million loss last year.

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Managing Editor

Marlize van Romburgh covers banking, finance, agricultural and viticulture. She writes a weekly column on commercial real estate and a monthly column on the restaurant industry. Follow her at @marlizevr

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