The largest homebuilder based in Orange County reported May sales that aren’t far off their 2019 levels, suggesting the impact of the coronavirus on the residential real estate market might be a short-lived one.
Sales for Irvine-based TRI Pointe Group Inc. (NYSE: TPH) rallied last month following a slump in April, with order volume more than doubling between the two months.
Net new home orders for April 2020 were 235, off by 54% from the year prior, on a companywide basis.
For May, though, sales totaled 472, down just 5% from 2019.
Additionally, the rate of cancellations dropped from 36% in April to 23% in May.
“COVID-19 and the related shelter-in-place orders significantly impacted our April order demand, but we started to see improvements during the second half of April and into May,” said TRI Pointe Group Chief Executive Officer Doug Bauer.
“We believe that low inventory levels, attractive interest rates and an increasing desire of consumers for the comfort and safety of owning a home are other key drivers that have contributed to the sales trends we have experienced recently.”
TRI Pointe counts a market cap of about $1.8 billion; its shares are flat for the year.
California Uptick
During a conference call following the company’s first-quarter earnings release, TRI Pointe noted that Southern California generated the highest net sales in April, followed by Washington and Las Vegas.
Even more notable: May orders for the company were up 7% from the year prior in California.
“We have seen demand return in substantially all of our markets,” Bauer said.
“I’m happy to report that we are currently able to construct homes in all of our markets and we have started to reopen our new home galleries in most of our markets for walk-in traffic.”
To mitigate backlog risks, the company has stopped building spec inventory homes in its markets and has delayed spending for buying and developing land, Chief Financial Officer Glenn Keeler said during the company’s latest conference call.
“This allows the company to generate positive cash flow by delivering homes from our current inventory,” Keeler said.
New Notes
The company is also offering $300 million of senior notes, proceeds of which will be used to pay off senior notes worth the same amount, due in the middle of next year.
The proposed notes offering, announced earlier this month, is expected to have an eight-year maturity.
Moody’s assigned a Ba3 rating to the offering, and predicts that the company “to experience margin contraction coupled with a decline in revenue in 2020, followed by a gradual recovery in 2021” as a result of the coronavirus and its impact on the homebuilding sector.
The financial services firm notes that risky economic conditions are “offset by the company’s solid credit metrics.”
This includes “strong interest coverage, low debt leverage and excellent gross margins.”
“TRI Pointe’s liquidity is good and takes into consideration consistently positive free cash flow. In addition, the company has a high cash balance of $624 million, largely stemming from a $500 million revolver draw in Q1 2020 to bolster liquidity.”
