Hovnanian FY 1Q16 Earnings Call Notes

Hovnanian Enterprises’ (HOV) CEO Ara Hovnanian on Q1 2016 Results

Exiting bay area because of frothy market conditions

“Furthermore, given the frothy market conditions in the San Francisco Bay area, which are resulting in lofty, almost speculative land prices and given that we are a relatively small player in that market and we prefer to be a larger player in some of our other markets, we’ve decided to focus our efforts in Northern California to the Sacramento market area where we already have a larger presence. We’ll wind down our operations in the Bay area in Northern California by selling and delivering the homes in our existing communities.”

Planned on accessing high yield markets for refinancing, but markets have become challenging

“In September of 2015 we shared various illustrative models and these models showed that we could grow our revenue significantly through 2018 and then level off our revenues at that point and shift our focus to harvesting cash and repairing our balance sheet. The scenarios assumed we refinanced our near term debt maturities, which to date have not occurred. Unfortunately, the high yield market changed and continues to be extremely challenging. Therefore, we utilized land banking and various other liquidity levers that we’ve described during prior analyst calls and we paid off $61 million of our notes that matured in October of 2015 and $173 million of notes that matured in January of 2016.”

Bay area so hot that it’s causing building delays

“Up in Northern California as I’ve mentioned the Bay area is just white hot, but that’s not necessarily a good thing in two ways. One, the new land market got very frothy. Number two, it’s so hot that it’s really difficult to build there right now. There have been delays, expanded construction cycles, a lot of cost pressures.”