Standard Pacific Lp (SPF)

TOP CONTRIBUTORS

Lawrence Gu

Standard Pacific is a geographically diversified builder of single-family attached and detached homes. The company makes money by constructing homes within a wide range of price and sizes with an emphasis on move-up buyers. Its major markets center around California, Florida, Arizona, Texas, the Carolinas, Colorado and Nevada. Standard Pacific sales are sensitive to the continued strict lending standards and the weakened housing market.

Business Growth

Sales for Standard Pacific is split in two main categories:

• Homebuilding represents 98.7% of total net sales.
• Financial Services represents roughly 1.3% of total net sales.

In lieu of a demand for greater liquidity, SPF was able to secure a $210 million unsecured revolving bank credit facility.^[1] This was made in expectation of large land acquisitions SPF plans to make to take in the potential upside of a recovering housing market.

Trends and Forces

Home Buyer Demand is Highly Dependent Upon Resale, Rents, and Lending

Because SPF operates in the new housing development business, the price which it may set its final sale price is highly dependent upon existing houses in the market. In particular, this existing housing demand comes about two-fold; one from resale of current homes and a second from the rental sphere. Traditionally, with high lending requirements, households are forced to rent if they cannot afford to secure adequate lending without putting down a sizable down-payment. Further with a high inventory of existing homes for sale, the housing market typically soaks up those homes before builders such as SPF may come into the playing sphere. These factors ultimately put downward pressure on its revenues.

SPF is Highly Dependent upon the California Market

With over 50% of revenues coming form California, SPF is highly dependent upon housing demand in the state. However, with the state experiencing budget shortfalls and raising taxes, these factors will continue to likely lower buyer demand for new homes in California. As an opportunity though, California markets include cities that are considered "superstar" cities, or areas that tend to see generally rising house prices such as San Francisco. In these regions, the growth in house prices will prompt a healthy increase in revenues compared to other cyclical cities such as Detroit that are tied to more cyclical companies for employment such as the Auto Makers.

Competition

As a diversified home builder, SPF is competing with a wide array of other large homebuilders such as:

• NVR (NVR) is a diversified home builder that operates differently from the traditional scope in the fact that it does not actually purchase the land it builds upon, thereby translating to higher ROAs.
• Lennar (LEN) is homebuilder and a provider of financial services that appeals also toward the move-up market just like SPF.
• KB Home (KBH) is a diversified homebuilder that appeals toward the more luxury end basis of home construction.

References

1. ↑ tandard Pacific Corp. Announces New Three Year $210 Million Unsecured Revolving Credit Facility