Irvine-based Standard Pacific Corp. is ramping up land buying.
The homebuilder—California’s second-most active in 2009—said it signed deals to buy $105 million worth of land in the first quarter and closed on $51 million of those deals.
Most of the completed and pending acquisitions, for about 1,800 lots, were in Standard’s home state and were bought for about $58,000 per lot.
The land primarily was bought from developers—56% of the deals—rather than banks selling off distressed assets, the company said.
The pace of buying in the first quarter would put Standard well on its way to a previously stated goal of spending $400 million or more on land this year, up from $64 million last year.
That $400 million mark might end up being topped early in the year. Standard said last week that it has signed deals to buy another $100 million worth of land for about 2,000 lots in April alone.
“We’re starting to buy a lot more land,” said Ken Campbell, Standard’s chief executive, in a conference call with analysts. “More opportunities are coming.”
The company’s strategy “is to overbuy in this 24-month window” before home and land prices start to rise, Campbell said.
Standard could spend close to $2 billion on land once all is said and done, he told analysts last week.
The company’s goal is “to make a little money” at the market’s current pace of sales, while positioning itself for when the housing market begins to grow again, Campbell said.
“We like our strategy, and we’re not changing,” he said.
So far, the company’s strategy for land investments is paying off, Campbell said.
In Corona, Standard last year beat out a few dozen other builders to buy land at about $106,000 per lot. Homes at the project, called Trenton Square, started selling this month with prices starting at about $343,000.
Even with building costs, the company is making a higher profit than expected, according to Campbell, who said other lots in the area now trade at about $170,000 each.
No Rush
The company insists it isn’t rushing into any bad deals and is looking for the potential for 20% profits before signing deals.
A focus on making money has improved Standard’s quarterly results, even though continued high unemployment has caused the pace of sales to be slower than what the company would like, Campbell said.
Slower sales were one reason the company surprised Wall Street with a first-quarter net loss of $5.1 million. Analysts on average were expecting the company to break even.
The quarterly loss “is a lot better than losing $50 million,” as the company did a year earlier, Campbell said.
Standard said it didn’t write down the value of land and unsold homes because of falling prices in the quarter for the first time in 15 quarters.
First-quarter revenue fell 16% to $175 million, well below the $279.4 million analysts were expecting on average.
Shares in the company fell on the earnings results last week before rebounding on a report of strong March sales of existing homes.
Standard’s shares now are nearly three times higher than they were a year ago with a recent market value of $700 million, based on its outstanding common shares.
Company officials said they think Standard’s true market value is closer to $1.2 billion when factoring in preferred shares held by New York-based MatlinPatterson Global Advisers LLC.
In 2008, MatlinPatterson struck an investment and debt retirement deal with Standard Pacific that turned out to be a lifesaver for the homebuilder.
Campbell and other executives said last week they are pleased with Standard’s profitability, which remains among the best of any publicly-traded homebuilder, according to analysts.
Standard’s gross profit margin from home sales for the first quarter was 22.7%. Factoring out onetime expenses, the company said its gross margin would have been closer to 29%—just off Standard’s profitability levels near the peak of the market.
Most homebuilders have been doing land deals with gross margins project to be in the 18% to 22% range, according to housing analyst Ivy Zelman, chief executive of New York-based Zelman & Associates.
The competition is “nowhere even close” to Standard in terms of profitability right now, Zelman said.
California remains Standard’s largest source of land buys and likely will remain that for at least the next two years.
Of the company’s first-quarter acquisitions, about 65% were in California, 24% were in the Southeast and 11% were in other parts of the Southwest.
