NVR L.P. said yesterday that it lost $172.3 million in the third quarter, mostly on land it had bought for future homebuilding development, and announced a reorganization that closes the books on a bold but risky strategy that made the parent company of NVHomes and Ryan Homes the nation's biggest home- building company before NVR ran into financial problems.
NVR had based its drive to the top on a uniquely 1980s-era blend of heavy borrowing, speculative land buying, a hostile takeover, and a plunge into all aspects of the home- building, community development and home financing businesses.
For a time, it worked. By 1988, Builder magazine rated NVR the nation's biggest builder of for-sale housing, as opposed to rental units. In early 1990, NVR passed Ryland Homes to become the top-selling builder in metropolitan Baltimore. But in recent months, NVR's debt load has cast doubt on its ability to survive the recession in the new-home industry.
Yesterday, McLean, Va.-based NVR said it will get out of both the manufacturing business and the development business, in which it bought land for itself and for resale to other builders.
The company will close its manufacturing plants in Virginia and Ohio, which were set up to make home components for both NVR-owned and competing builders.
NVR also reiterated earlier announcements that it had stopped buying land, and said a management committee had been set up to sell the land the company still owns.
The company in a statement said it will push forward only with its two home building companies, which have begun to lose money as the new-home market has weakened, and with its profitable mortgage company and savings and loan.
Company officials couldn't be reached late yesterday after the 4:30 p.m. announcement.
NVR's homebuilding operations will also be getting out of other cities, concentrating mostly on the Baltimore-Washington market and metropolitan Pittsburgh.
NVR will also abandon its late-1980s strategy of selling ever more expensive homes in order to concentrate on the healthier market for lower-priced homes. That move will crimp profits even further because more expensive homes offer wider profit margins.
NVR has previously entered the California market through an acquisition and has had operations throughout much of the Midwest and South.
"Well, they're definitely making an earnest effort to restructure this company," said Michael Mead, an analyst who follows NVR for Legg Mason, Wood Walker Inc. in Baltimore. "They're making big bet that the Baltimore-Washington area bounces back, because they're cutting back to that, their core."
But Mr. Mead isn't convinced that the local housing market will be strong enough to assure the company's survival.
"There's a lot of reason to wonder whether this will be different than normal housing cycles," he said. "I think we're blaming Iraq for a lot of things that would have caught up with us."
Company officials have said in recent months that they believe the company's survival has been assured by steps NVR has already taken. Yesterday's statement said the company thinks its financial-services business will stabilize its overall financial position. Chairman Dwight Schar added in the statement that NVR doesn't foresee any more major charges against earnings associated with the restructuring.
In the third quarter, the company said its $172.3 million loss included one-time charges of $169.3 million. Write-offs of land deals accounted for $141.4 million of the charges, with $18.3 million earmarked for closing the manufacturing plants and other restructuring expenses.
But before NVR can see whether its new strategy will work, it has to announce its plans for restructuring the debt that has crushed its profitability since the housing market began to soften last year. The company lost $53 million during the second quarter, also because of accounting charges that reflect the fact that its land portfolio has fallen sharply in value since NVR bought it between 1987 and 1989.
NVR said its financial restructuring will not be ready for announcement by Dec. 15, when it has to make a semiannual interest payment on the nearly $220 million in junk bonds that financed its 1987 takeover of Ryan Homes. The company said it is unlikely that it will be able to make its bond payment.
The restructured company is sure to get off to a rocky start, based on information in yesterday's release. The company lost about $3 million on operations in the quarter, as the profits from NVR Mortgage and NVR Savings bank couldn't overcome losses in home building. And home building losses are likely to get worse in quarters to come.
The company said customers ordered only 599 homes in the third quarter, down 48 percent from a year earlier. In Baltimore and Washington, the company sold only 325 homes, down 56 percent from 733 in the third quarter of 1989.
The third-quarter orders point to future trouble because customers usually pay for homes one or two quarters after they order them, after mortgages have been lined up and other details settled. Weak orders in one quarter mean weak profits in the next.