Builder’s profit soars

Jennifer Shubinski

Friday, Oct. 10, 2003 | 10:51 a.m.

M.D.C. Holdings Inc., Colorado's largest home builder and parent company to Las Vegas builder Richmond American Homes, said third-quarter earnings rose 50 percent, fueled by expansion in existing markets and into new markets.

M.D.C Holdings on Thursday reported a profit of $65.5 million, or $2.16 a share, for the third quarter, up from $43.6 million, or $1.43 a share, in the year-ago quarter.

Revenue grew 37 percent to $798.9 million from $581.7 million.

The company attributed the improved results -- which occurred despite rising mortgage rates in the third quarter -- to expansion in existing markets since 2002 as well as recent entry into two new markets, Texas and Florida. The strong earnings were also helped by two of M.D.C.'s strongest markets, Nevada and Southern California, the company said.

"To say Richmond American was strong in Las Vegas would be a severe understatement," Paris G. Reece III, chief financial officer of M.D.C., said in an interview. "You look at it in all measures and it was the shining star for the company; it represents a tremendous amount of growth for our company."

In 2001, Richmond American closed escrow on 704 homes locally. After it acquired the local division of John Laing Homes, Richmond American closed escrow on 1,204 new homes in 2002, according to Home Builder's Research Inc. This year, Dennis Smith, president of the research firm, expects the company to close on about 2,000 homes.

"They've had a good year," he said.

Reece said that during the third quarter, the backlog (or the number of homes that have been purchased but still have to be built) for Richmond American Homes in the Las Vegas area reached almost 1,000 houses.

"That's one of the highest backlogs we've had," he said.

Richmond American delivered 578 homes in Las Vegas during the third quarter and has delivered 1,359 houses to buyers year-to-date, Reece said.

"That is a lot of homes and it represents a significant amount for our company," he said.

To keep up with the growth, M.D.C. split its Las Vegas subsidiary into two divisions in September. The two divisions, Las Vegas North and Las Vegas South, were prompted by home order increases and the company's significant growth in the region, company officials said.

Reece said the split will enable the company to "manage a larger operation and facilitate additional growth in the future."

The two divisions operate separately but share marketing, product and business strategies.

Reece said Richmond American continues to receive a substantial number of orders for new homes in Las Vegas. During the third quarter, the home builder received orders for 704 homes, a 96 percent increase from the year-ago quarter, Reece said.

Year-to-date Richmond American received 2,061 new home orders in Las Vegas, a 111 percent increase from the same time last year, when the company received 977 orders, he said. He added that such orders "are the kind of leading indicators" of the future performance of the company.

Reece said M.D.C. has said for the last year that it wants to nearly double the size of the Las Vegas subsidiary over a 12-month period.

"It was a tall order, but we've basically done it," he said.

The high price of land so far hasn't hampered the company's plans for growth in the Las Vegas area, Reece said.

"We're not immune to that, we buy land from the same places everybody else does," he said. "We've been able to mitigate the impact of that and offer affordable product ... and taking a look at the density on the acreage that we buy."

Richmond American sells homes in Las Vegas starting at $91,990 for a 555-square-foot home in the northeast to more than $260,000 for a 2,059-square-foot home in the southwest.

"It's something we have to deal with," Reece said of increasing land prices.

For the fourth quarter, M.D.C. said a delay on some building in Virginia and Maryland caused by Hurricane Isabel may impact its ability to exceed the third-quarter performance in the 2003 fourth quarter. As many as 100 homes that were expected to be sold on the East Coast in the fourth quarter will now close in the first quarter 2004, the company said.

However, the company still expects to reach year-over-year increases in fourth quarter home earnings, revenue and net income.