2018 JP Morgan Global High Yield & Leveraged Finance Conference

Transcription

1 2018 JP Morgan Global High Yield & Leveraged Finance Conference 1

2 Note: All statements in this presentation that are not historical facts should be considered as Forward-Looking Statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company s goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic, industry and business conditions and impacts of a sustained homebuilding downturn; (2) adverse weather and other environmental conditions and natural disasters; (3) levels of indebtedness and restrictions on the Company s operations and activities imposed by the agreements governing the Company s outstanding indebtedness; (4) the Company's sources of liquidity; (5) changes in credit ratings; (6) changes in market conditions and seasonality of the Company s business; (7) the availability and cost of suitable land and improved lots; (8) shortages in, and price fluctuations of, raw materials and labor; (9) regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes; (10) fluctuations in interest rates and the availability of mortgage financing; (11) changes in tax laws affecting the after-tax costs of owning a home; (12) operations through joint ventures with third parties; (13) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment; (14) product liability litigation, warranty claims and claims made by mortgage investors; (15) levels of competition; (16) availability and terms of financing to the Company; (17) successful identification and integration of acquisitions; (18) significant influence of the Company s controlling stockholders; (19) availability of net operating loss carryforwards; (20) utility shortages and outages or rate fluctuations; (21) geopolitical risks, terrorist acts and other acts of war; (22) increases in cancellations of agreements of sale; (23) loss of key management personnel or failure to attract qualified personnel; (24) information technology failures and data security breaches; (25) legal claims brought against us and not resolved in our favor; and (26) certain risks, uncertainties and other factors described in detail in the Company s Annual Report on Form 10-K for the fiscal year ended October 31, 2017 and subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. 2

3 U.S. Housing Market is Recovering 3

4 2,500 January 2018 Year to Date Seasonally Adjusted Annual Rate - Multi-Family January 2018 Year to Date Seasonally Adjusted Annual Rate - Single Family Multi-Family Single Family Total U.S. Housing Starts (For Sale and Rental) US Housing Production in Retrospective starts are comparable to prior decades Decade Average Starts Harvard s Demand Projections (000s) 2,000 1,500 1,000 1,401,000 1,425,000 1,753,000 1,482,000 1,409,000 1,438,000 1,017,000 1,610,000 1,820, US Population In millions Previous Low (1991: 1,013,000) Population Greater Source: U.S. Census Bureau demand projections are from Joint Center for Housing Studies of Harvard University. 4

5 Affordability Index The higher the affordability Index the better. Affordability Index Current (4.22%) Rates up 145 bps Improved as prices went down Median family income increasing Home prices up 18.00% Rates up 70 bps and Home Prices up 8.50% Dec Dipped at the peak of the market Note: Based on a 25% qualifying ratio for monthly housing expense to gross monthly income with a 20% down payment. Source: NAR, Freddie Mac and US Census Bureau. 5

6 Foreclosure Rates 5.00% Foreclosure Inventory Rate 4.00% 3.00% 2.00% 1.00% % 0.00% 1Q81 3Q82 1Q84 3Q85 1Q87 3Q88 1Q90 3Q91 1Q93 3Q94 1Q96 3Q97 1Q99 3Q00 1Q02 3Q03 1Q05 3Q06 1Q08 3Q Source: Mortgage Bankers Association. 6

7 Business Overview and Fourth Quarter Fiscal 2017 Results 7

8 Hovnanian Enterprises At A Glance o 10th largest publicly traded homebuilder in the U.S. based on deliveries o Founded by Kevork Hovnanian in 1959 and the Hovnanian family remains our largest shareholder o 157 communities in 24 markets in 14 states Homebuilding Revenues by Segment (last twelve months ended October 31, 2017) 8% 18% 9% 19% 35% 11% 8

9 Fiscal 2017 (1) Broad Product Diversification First Time 26% Move Up 38% Luxury 19% Active Lifestyle 17% (1) Includes unconsolidated joint venture deliveries. 9

10 Debt Maturities Paid Off ($ in millions) $320 $173 $61 $87 10/15/2015 1/15/2016 5/15/2016 In the aggregate since 10/15/

11 Communities & Growth in Contracts per Community Year-over-Year Percentage Increase in Quarterly Contracts per Community 14% 11% 6% 18% 12% 10% # of Communities Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Consolidated Joint Ventures Note: Communities are open for sale communities with 10 or more home sites available. Note: In the trailing twelve months, we opened 55 consolidated communities and closed out 92 consolidated communities. 11

12 Revenues $ in millions Total Consolidated Revenues JV Homebuilding Revenues $64 $98 $141 $312 $805 $722 $2,752 $2, FY 2016 FY

13 Fourth Quarter Operating Results ($ in millions) Adjusted Homebuilding Gross Margin (1) Total SG&A (2) $ % 18.2% $9 Construction Defect Reserve $54 $12.5 Construction Defect Reserve $ Total Interest Land & Lot Sale Interest (4) $59 $ Adjusted SG&A (3) $63 $60 $22 Net Income (5) $24 $6 $12.5 (5) $48 $50 $16 $12 Total Interest as a % of Total Revenue % 8.2% Adjusted Net Income $16 $24 (1) Adjusted homebuilding gross margin percentage is before interest expense and land charges included in cost of sales. Please see appendix for reconciliation. (2)Total SG&A includes homebuilding selling, general and administrative costs and corporate general and administrative costs. (3) 2016 reported SG&A of $54 million includes $9.2 million decrease due to a substantial reduction in our construction defect reserve based on our annual actuarial study reported SG&A of $73 million includes a $12.5 million adjustment to in our construction defect reserve. (4) 2017 includes $8.9 million of land and lot sales interest compared with $0.4 million in (5) 2016 reported net Income of $22 million includes $6.4 million of tax effected benefit due to a substantial reduction in our construction defect reserve based on our annual actuarial study reported Net Income of $12 million includes a $12.5 million increase in our construction defect reserve. 13

14 Number of Monthly Contracts Per Community, Includes Joint Ventures September 2017 adversely impacted by two hurricanes Fourth Quarter Dec-15 Dec-16 Jan-16 Jan-17 Feb-16 Feb-17 Mar-16 Mar-17 Apr-16 Apr-17 May-16 May-17 Jun-16 Jun-17 Jul-16 Jul-17 Aug-16 Aug-17 Sep-16 Sep-17 Oct-16 Oct-17 Nov-16 Nov Number of Sundays Dec-15 Dec-16 Jan-16 Jan-17 Feb-16 Feb-17 Mar-16 Mar-17 Apr-16 Apr-17 May-16 May-17 Jun-16 Jun-17 Jul-16 Jul-17 Aug-16 Aug-17 Sep-16 Sep-17 Oct-16 Oct-17 Nov-16 Nov-17 Monthly contracts Note: Includes joint ventures. 14

15 Annual Contracts Per Community Average Note: Annual Contracts per Community calculated based on a five quarter average of communities, excluding joint ventures. 15

16 Houston Fourth Quarter Contracts per Community Impacted by Hurricane Harvey November 2017 contracts per community increased 31% to 2.1 compared with 1.6 in November

17 Trailing Twelve Months Ended October 31, Houston Contracts Per Community Oil Prices Began to Decline in Note: TTM contracts per community calculated based on a five quarter average of communities. 17

18 and Target ($ in millions) Homebuilding Cash Revolver Availability Pro Forma Cash (1) $474 $8 $373 $262 $263 $262 $263 $279 $52 $227 $49 $339 $51 $324 $288 $298 $55 $243 $232 $50 $182 $309 $325 $312 $48 $51 $53 $261 $274 $259 $259 $250 $2 $49 $248 $210 $201 $188 $152 $75 $5 $2 $3 $150 $123 $183 $347 $5 $342 $205 $7 $198 $284 $288 $7 $8 $277 $280 $466 $245 Target Range $170 01/31/13 04/30/13 07/31/13 10/31/13 01/31/14 04/30/14 07/31/14 10/31/14 01/31/15 04/30/15 07/31/15 10/31/15 1/31/16 4/30/16 7/31/16 10/31/16 01/31/17 04/30/17 07/31/17 10/31/17 Note: position includes homebuilding cash and cash equivalents (which includes unrestricted cash and restricted cash to collateralize letters of credit) and revolving credit facility availability. (1) Pro Forma Cash of $75 million from joint venture and land sale subsequent to end of second quarter

19 Increases in Optioned and Purchased Lots FY 2016 FY2017 Net New Option Lots 1,032 6,597 An increase of 5,565 lots FY 2016 FY2017 Total Lots Purchased 5,123 5,825 An increase of 702 lots Note: Including joint ventures. 19

20 Inventory Turns (COGS), Last Twelve Months 3.0x 2.1x 0.6x 0.6x 0.8x 0.8x 0.9x 0.9x 1.0x 1.0x 1.0x 1.0x 1.1x 1.2x 1.2x Toll (Oct ) TRI Pointe (Sep ) CalAtlantic (Sep ) Lennar (Aug ) Pulte (Sep ) Taylor Morrison (Sep ) LGI Homes (Sep ) Meritage (Sep ) Beazer (Sep ) KB Home (Aug ) M/I Homes (Sep ) MDC (Sep ) DR Horton (Sep ) Hovnanian (Oct ) NVR (Sep ) Note: Inventory turns derived by dividing cost of sales, excluding capitalized interest, by the five quarter average homebuilding inventory, excluding inventory not owned and capitalized interest. Source: Company SEC filings and press releases as of 12/21/17. 20

21 Adjusted Homebuilding EBIT to Inventory, Last Twelve Months 30% 46.5% 20% 10% 10.5% 10.8% 11.1% 11.5% 11.7% 12.5% 12.7% 13.3% 14.2% 14.5% 16.9% 18.5% 19.0% 20.6% 0% Beazer (Sep ) Meritage (Sep ) TRI Pointe (Sep ) M/I Homes (Sep ) Toll (Oct ) MDC (Sep ) Taylor Morrison (Sep ) CalAtlantic (Sep ) Lennar (Aug ) KB Home (Aug ) Pulte (Sep ) Hovnanian (Oct ) DR Horton (Sep ) LGI Homes (Sep ) NVR (Sep ) Note: Defined as LTM EBIT before land-related charges divided by five quarter average inventory, excluding capitalized interest and inventory not owned. Source: Company SEC filings and press releases as of 12/21/17. 21

22 Recent Refinancing Transactions o Refinanced $133 million 7.0% senior notes due 2019, with a 5% unsecured term loan maturing in 2027 from GSO Capital Partners LP ( GSO ) Blackstone s credit platform. o Refinanced $170 million of 8.0% senior notes due 2019 through an exchange offer for $91 million of 13.5% unsecured notes due 2026, $90 million of 5.0% unsecured notes due 2040 and $26 million of cash. The remaining $66 million of 8.0% senior notes will be refinanced through use of additional term loan commitment of 5.0% notes due 2027 from GSO. o Commitment for four year $125 million senior secured revolver/term loan from GSO Anticipate making first draw in September 2018 to repay $75 million of super priority term loan Provides $50 million of incremental liquidity. o In January 2019, additional liquidity provided by $25 million commitment from GSO to tack on to existing 10.5% senior secured notes due o Received consent from 10.5% senior secured note holders to allow for use of cash for repayment or open market purchases of the unsecured notes and refinancings thereof. 22

23 As of October 31, 2017 Pre and Pro Forma Maturity Profile ($ in millions) $440 $400 $236 $195 (1) $133 (2) $56 $75 $ $ '17 '17 '18 '18 '18 '18 '19 '19 '19 '19 '20 '20 '20 '20 '21 '21 '21 '21 '22 Pro Forma for Refinancing of 7% and 8% Senior Unsecured Notes ($170 million participation) '22 Super Priority TL Old Secured Group New Secured Group Unsecured '22 '22 '23 '23 '23 '23 '24 '24 '24 '24 '25 '25 '25 '25 '26 '26 '26 '26 '27 '40 ($ in millions) $440 $400 $195 (2) (3) $75 $75 $52 $26 $91 $ $199 (4) '17 '17 '18 '18 '18 '18 '19 '19 '19 '19 '20 '20 '20 '20 '21 '21 '21 '21 '22 '22 '22 Super Priority TL Old Secured Group New Secured Group Unsecured Unsecured Term Loan Note: Shown on a calendar year basis, at face value. Note: Excludes non-recourse mortgages. 1 On December 1, 2017 paid off $56 million principal upon maturity. 2 Partially paid down in June 2018 with full retirement in September $26 million of 8.0% notes held by wholly owned subsidiary. 4 $66 million use of 5.0% additional term loan commitment to refinance certain remaining 8.0% senior unsecured notes. '22 '23 '23 '23 '23 '24 '24 '24 '24 '25 '25 '25 '25 '26 '26 '26 '26 '27 '40 23

24 Pre and Pro Forma Maturity Profile Pro Forma for Refinancing of 7% and 8% Senior Unsecured Notes ($170 million participation) ($ in millions) $440 $400 $195 (1) (2) $52 $75 $75 $91 $90 $ '17 '17 '18 '18 '18 '18 '19 '19 '19 '19 '20 '20 '20 '20 '21 '21 '21 '21 '22 '22 '22 '22 '23 '23 '23 '23 '24 '24 '24 '24 '25 '25 '25 '25 '26 '26 Super Priority TL Old Secured Group New Secured Group Unsecured Unsecured Term Loan Pro Forma for Refinancing of 7% and 8% Senior Unsecured Notes and Senior Secured Revolver/Term Loan in September 2018 ($170 million participation) ($ in millions) $440 $400 '26 '26 $199 '27 (3) '40 $195 $199 (4) $75 $125 (2) $91 $90 $ (3) '17 '17 '18 '18 '18 '18 '19 '19 '19 '19 '20 '20 '20 '20 '21 '21 '21 '21 '22 '22 '22 '22 '23 '23 '23 '23 '24 '24 '24 '24 '25 '25 '25 '25 '26 '26 '26 '26 Old Secured Group New Secured Group Unsecured Senior Secured Revolver/Term Loan Unsecured Term Loan Note: Shown on a calendar year basis, at face value. Note: Excludes non-recourse mortgages. 1 Partially paid down in June 2018 with full retirement in September $26 million of 8.0% notes held by wholly owned subsidiary. 3 Assumes $66.0 million use of 5.0% additional commitment to refinance certain remaining 8.0% senior unsecured notes. 4 Becomes a term loan in December 2019 with final maturity in December '27 '40 24

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