Presley Slashes Value of Land by $26 Million : Finance: The write-down, forced by the decline in the real estate market, could damage the developer’s ability to borrow.

In a dramatic example of the impact of Southern California’s falling real estate values, the Presley Cos. on Monday reported a $14.3 million net loss for the second quarter and said its short-term borrowing ability is in question after it reduced the value of certain assets by $26 million.

The write-down of land acquired at the peak of the market in 1989 cut the book value of the residential development company’s real estate inventory by 6%.

Presley’s borrowing capacity is critical to the company’s ability to continue building and financing new land acquisitions.

In a statement released Monday, President Wade H. Cable said the company took the write-down on its own and believes its bankers may appraise its real estate holdings lower in the future.

Because Presley’s borrowing capacity is based on the most recent appraised values of its holdings, Cable cautioned that “lower appraised value could have a significant impact on the borrowing capacity and liquidity of the company.”

Company officials could not be reached for further comment.

The second-quarter loss--equal to 77 cents a share--came despite improved sales and a $2.1 million profit on operations, company officials reported.

For the second quarter of 1991, Presley--which went public in October, 1991--posted net income of $2.1 million, or 17 cents a share.

Quarterly revenue of $45 million was up 5.6% from $42.6 million a year earlier--when profits from operations hit $3.8 million.

Presley’s startling disclosure is sure to affect the value of the company’s stock, which is traded on the New York Stock Exchange. The company issued its financial report late in the afternoon after the market closed.

Presley went public at $10 a share in October, 1991. The stock had traded as high as $17.38 early this year before beginning a steady decline to Monday’s close of $7.13.

The loss translated on paper to a $6.1-million blow for Presley’s major shareholder, Newport Beach builder William Lyon--whose own company reportedly is struggling with the debt service on a large inventory of expensive land acquired at the height of the market.

In addition to the William Lyon Co., one of the nation’s largest residential building firms, Lyon owns 49.2% of Presley’s stock.

When Presley went public--the first builder to successfully sell an initial stock offering since 1987--many in the industry, including Presley officials, said it was a sign of confidence in the company’s strength.

Presley officials also said that being public and being able to turn to Wall Street for capital would give the company an advantage over competing builders at a time when banks and other lenders have slashed their real estate activity.

While bad news in the short run, the write-down, valued at $15.6 million after accounting for the income tax benefit, could actually have been a smart move by the company.

“If they have truly marked their land to the real market price and have combed through all of their holdings and marked down everything, then this should be the bottom of the trough for them,” said Irvine-based industry consultant Ken Agid.

By writing assets down as much as necessary and all at once, Agid said, a home builder can avoid a constant string of write-downs each time a lender conducts an appraisal.

“The periodic adjustments (by lenders) then are not so negative that they throttle the companies’ ability to borrow just as an expansion begins,” he said.

As of June 30, Presley’s assets totaled $493.9 million, down 3.7% from $513.2 million at the end of 1991. The company’s available cash and cash equivalents, however, had plunged to $8.7 million from $19.7 million. The value of its real estate inventories dropped 1.6% to $414.1 million from $420.8 million.

For the six months ended June 30, Presley reported a net loss of $13.9 million, or 75 cents a share, compared with year-earlier net income of $1.4 million, or 11 cents a share.

Sales for the first half were $71.8 million, up slightly from $70.7 million.

But Cable cautioned Monday that the improved sales revenue and increase in homes sold and ordered in the first half of 1992 doesn’t “necessarily indicate an improving economy or improving profit margins.”

The increases, he said, are “attributable in large part to reduced sales prices and increased buyer incentives, as well as lower interest rates” and don’t reflect any growing demand by buyers as the Southland’s economic slump hangs on.

Presley reported 292 second-quarter closings, up nearly 42% from 206 in the second quarter of 1991 and said first-half closings were up 33% to 473 units.

New orders for the second quarter rose 16% to 290 units from 250 a year earlier and first-half new orders were up almost 35% to 627 units from 465.

Reflecting the continuing economic malaise, however, the second quarter’s new orders were down 14% from the first quarter.

Presley Companies has 29 master-planned communities and 11 smaller projects in California, Arizona and New Mexico.