Tuesday, 21 August 2007

Levitt Corp(LEV): More Than Meets the Eye, or a Sinking Ship?

We are not big fans of home builders in the best of times (perhaps we are not smart enough to understand the business), and certainly not now given current market conditions. Many of these companies are down 50% or more year to date, and while the carnage can always get worse, we've got to believe there is some value in some of the names in the sector. But, in general, we'll leave that analysis to those that really understand the home building business and instead focus on one interesting story in the sector, that ultimately has little to do with homebuilding.

Levitt Corp (LEV)is a Fort Lauderdale, FL based homebuilder and real estate company that operates in the Southeast (Florida, North Carolina, South Carolina, Georgia). As of 12/31/06, the company had an inventory of 11,700 acres, 6900 of which were considered saleable (4100 in Florida, 2800 in South Carolina). The company's market cap is just north of $50 million, but a rather heavy debt load brings the enterprise value to about $650 million.

Like most homebuilders, Levitt has been crushed lately; from a 52 week high of $15.44, down to its current price $2.72. This company has truly taken a drubbing, as housing sector woes have worsened. Levitt reported a second quarter loss of $58.1 million, including a $63 million hiomebuilding inventory impairment charge.
It was an ugly quarter, as evidenced by these company reported "lowlights":

Second Quarter, 2007 Compared to Second Quarter, 2006
Total revenues of $127.8 million vs. $133.2 million
Net loss of $58.1 million vs. $737,000
Diluted loss per share of $2.93 vs. $0.04 per diluted share
SG&A as a percent of total revenue was 26.3% vs. 23.3%
Homes delivered (units) of 379 vs. 392
Gross orders (units) of 478 vs. 423
Gross orders (value) of $122.4 million vs. $119.6 million
Cancellations (units) of 187 vs. 91
Net orders (units) of 291 vs. 332
Homebuilding Division backlog (units) of 957 vs. 1,799
Homebuilding Division backlog (value) of $297.8 million vs. $609.2 million
Land Division third party backlog (value) of $29.0 million vs. $15.4 million

To add insult to injury, the January 2007 announced merger with BFC Corp was terminated last week, sending Levitt shares down 21%. Can it get any worse? Of course it can.

Bluegreen Corp (BXG)
But there is another side to this story. Levitt happens to own a 31% stake in resort and timeshare company Bluegreen Corp (BXG). At its currect market cap of $281 million, that values Levitt's BXG stake at $87 million, at a time when Levitt's market cap is just over $50 million. Granted, an ownership stake this large would no doubt command a discount if Levitt decided to unload it. But if BXG's price can hold up, this might just put a support level beneath Levitt shares.

Proceed with caution here, though, Levitt has a relatively heavy debt load, and is operating in an industry given up for dead.

*The author does not have a position in Levitt or Bluegreen. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

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