US homebuilders make life harder for investors

Bloomberg

refid:11400786 ilişkili resim dosyası

At least seven U.S. homebuilders are seeking to make it harder for investors to own 5 percent or more of their stock to protect a combined $4.4 billion in tax benefits accumulated as real estate sales collapsed.

Pulte Homes and Centex, which on Wednesday announced a $1.3 billion merger, are among the companies adopting or proposing rules to limit new investors to stakes of less than 4.9 percent, or to keep those with more than 5 percent from buying additional shares, according to regulatory filings.

The companies acted after purchases by Beazer Homes USA shareholders last year disqualified the company from using some of its tax deductions right away. While the changes are intended to avoid Beazer’s dilemma, they may reduce demand for homebuilding stocks, which have dropped 81 percent since the July 2005 peak of the S&P Supercomposite Homebuilding Index.

"These provisions could discourage trading in the stocks and could limit the upside potential of the stocks in any cyclical recovery" of the industry, said Buck Horne, an analyst at Raymond James & Associates. "But by the same token, the homebuilders need to do what they can to preserve the value of these assets."

Beazer, based in Atlanta, had about $755 million of losses at the end of September available to offset future income during the next 20 years. Stock purchases by shareholders who already held 5 percent stakes will limit Beazer’s use of these tax deductions to $17 million annually, meaning that a "significant portion" of the tax deductions could expire unused, according to its Dec. 2 annual report.

"Our inability to utilize" the losses to offset future income "could have a material adverse effect on our financial condition, results of operations and cash flows," Beazer said in the filing.

Pulte and the other builders are using two methods to keep investor stakes below 4.9 percent, filings with the U.S. Securities and Exchange Commission show. The first is creating or amending shareholder rights plans, also known as poison pills, to dilute the ownership of all investors when the threshold is crossed. Most are also changing their corporate charters to void any transfer of stock that gives an investor a stake of 4.9 percent or more.

Ryland Group’s plan to take both steps may have an "antitakeover impact" and hurt shareholders’ ability to sell stock because there could be fewer potential buyers, the company said in a March 17 proxy statement.

"It smacks a little bit of entrenchment" of current management, said Robert Willens, a former managing director at Lehman Brothers Holdings, who runs a New York-based tax and accounting advisory firm.

Most companies with net operating losses in one or more years can use them to offset past or future profits, potentially yielding cash refunds or lower tax bills. The seven homebuilders together reported $9.3 billion in net losses during their two most recent fiscal years.

New U.S. home sales totaled 482,000 units last year, down from a peak of 1.28 million in 2005 and 1.05 million in 2006, according to the Commerce Department. The deferred tax assets on the books of the seven builders, including net operating losses that would be affected by an ownership change, equal 74 percent of their combined stock market value, currently about $5.9 billion.