Presley Stock Plunges Due to Investor Selloff : Trading: Its share price drops to $5. The Newport Beach home builder had earlier announced that it slashed the value of some real estate holdings.
Wary investors sold more than 700,000 shares of Presley Cos. stock Tuesday, driving down the price by 30%. The large selloff came a day after the home builder’s announcement that it slashed the value of certain real estate holdings by an estimated $26 million.
Despite assurances from at least one major industry analyst that Presley is not likely to go out of business, a stampede began on the New York Stock Exchange as the market opened Tuesday, with Presley’s stock plunging from Monday’s close of $7.13 to $5.25 a share within the first hours of trading.
The selloff affected most of the handful of publicly owned home builders traded on the Big Board, as shares of all but one of the six lost value.
But Presley was hardest hit. By day’s end anxious investors had shed 739,200 shares and the price had dropped to $5 a share, making Presley the worst-performing stock on the exchange Tuesday. The average daily trading volume for Presley stock is 46,100 shares.
The stock, which was priced at $10 when the company went public in October, 1991, had traded as high as $17.25 a share earlier this year.
There are 18.5 million Presley common shares outstanding, but insiders control most of it with only about 7 million shares widely traded. That means that 10.5% of the broadly held shares--more than 1 in 10--changed hands Tuesday. The largest inside shareholder is Newport Beach developer William Lyon, who controls 43% of Presley’s stock--or 7.9 million shares.
Wade H. Cable, Presley’s president, downplayed the scope of the write-down Tuesday, saying that company officials merely conducted a periodic review and found that the value of properties the firm purchased in 1989--when land prices in Southern California were at a historic high--had declined sharply.
“We own real estate, and it has gone down in value and we think we have taken appropriate measures” to reflect that decline, Cable said.
There was little visible fallout in the Southern California building community from Presley’s action--which erased a $2.1-million operating profit for the second quarter and gave the Newport Beach development firm a second-quarter loss of $14.3 million, after estimated taxes.
Building industry insiders said Presley’s action reflected its own situation but does not mean everyone in the industry will need to follow suit.
“We have already seen a lot” of land price deflation, said Jeff Meyers, president of the Meyers Group real estate consulting firm in Newport Beach. “Presley really needed to revise its values some time ago, so I don’t see this having a snowball effect on the rest of the industry.”
But there was a snowballing of sorts on Wall Street as investors shifted their unease to other publicly traded home builders.
Standard Pacific Corp. of Costa Mesa’s stock price fell 63 cents a share to close at $6.25 Tuesday with 207,400 shares changing hands; Los Angeles-based Kaufman & Broad Home Corp.’s shares dropped 88 cents each to close at $14.63 in light trading, and two of three eastern home builders whose shares are traded on the New York exchange saw their stock prices tumble as well.
Cable declined to comment on his company’s plunging stock price, saying that Presley has not been publicly traded long enough to provide a point of reference.
He had said in a statement released Monday that the decision to cut the value of the properties could result in Presley’s banks slashing the company’s borrowing power.
On Tuesday he declined to elaborate, but did say that Presley is in compliance with all of its borrowing agreements, has not had any credit lines cut and does not anticipate any major problems with its lenders.
In a revision of an earlier earnings projection for Presley, housing industry analyst Barbara Allen of Oppenheimer & Co. in New York said Tuesday that she does not believe Presley “is going out of business unless the banks choose to force it.”
Allen said she is not aware of any effort by Presley’s banks to shut down the company.
And Cable said he and other Presley officials who deal with the company’s bankers “don’t have any sense of that happening.”
Allen said Tuesday that Presley’s losses “are not cash, they are just (losses) on paper for now. . . . If the economy does manage to recover, Presley can make it all back,” as others have done, she said.
Allen cited Hovnanian Enterprises, a big New Jersey home builder with operations throughout the Northeast. The company announced a major write-down of assets early in 1991 “and then as the region’s economy started coming back, made a profit on the sales of that same property,” Allen said.
Hovnanian’s stock, traded on the American Stock Exchange, has climbed to $12 a share from $8 when it announced the write-off.
Allen said that while she now is predicting a net loss of 50 cents a share for Presley for 1992, or about $9.25 million, she believes the company is showing signs of recovery.
If she is correct, Presley would post almost $4 million in profit for the second half.
In the first six weeks of the third quarter, Allen said, Presley has taken orders for 177 new homes, up 52% from 116 in the same period last year. And the company started the third quarter with a backlog of 349 homes sold but not completed and delivered to the buyers. That is 24% above the 281-home backlog Presley had at the start of the 1991 third quarter, she said.
Presley has pared its operating costs to the point where it starts making a profit after delivering just 180 homes in a quarter, so its backlog and new order rate are very positive signs, Allen said.
Rise and Fall of Presley Stock During the 10 months the Presley Cos. has been public, its stock has gone from an all-time high of $17.25 in February to an all-time low of $5 Tuesday--exactly half of its debut selling price.
Feb. 1991: 17.38 Tuesday’s close: 5.00 Source: Dow Jones Retrieval Service
