Realty Check

Published: Friday, 30 Oct 2009 | 12:16 PM ET

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Photo by: stngls Home Construction

We may like to refer to them as the "beleaguered big builders," but in fact many of the top names in home building are sitting on piles and piles of cash. 

One analyst recently flagged me to the fact that 12 of the public builders they cover (and these are the big ones) have an average of about $1.1 billion each. 

Yes, they're still having trouble selling homes, and they're still not building many homes, but cash is king these days, or so the CEOs keep saying. 

Looking at their futures, through 2013, the analyst says, these same builders together have just $6.5 billion of total debt coming due. "That will leave the builders with a cash balance of over $6 billion at end of 2013, assuming none of that debt is refinanced and the builders do not generate any incremental cash flow."

Where am I going with this? 

You guessed it:  The Net Operating Loss carryback extension, which is being tacked on to the extension of the first time home buyer tax credit.  This would allow them to apply losses in 2008 and 2009 over the last five years and thereby gain even more cash.  The question is, what would they do with that cash?

The intention of lawmakers, or so they say, is to give businesses a break with that cash, in the hopes that those businesses will add jobs and juice the overall economy.  But when it comes to the builders, some are telling me that isn't exactly the game plan...in fact, the builders themselves are saying that.

Here is the transcript from Meritage's

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[MTH  Loading...      ()   ] recent earnings conference call, after one analyst asks about the NOL:

Larry Seay (Meritage CFO): First of all, if the tax credit or tax carry back is extended for a couple of years, we would probably get another 60 million or so in cash that we would harvest. And that’s obviously a substantial number, but I’m not certain it would change our growth prospects that much. Sure it would give us a little more dry powder to maybe be a little bit more aggressive in going out and reloading, and really that’s what it’s all about is the ability to go out there and purchase new low priced lots and replenish those lots we’re selling out of in order to get to that 170, 175 lot position.We can maybe do that a bit more aggressively, but that’s really what we’re talking about is just being able to be a bit more aggressive on acquisitions.

Steven Hilton (Meritage Chairman and CEO): We don’t think we’re being held back by our capital position. There’s not -- there’s not the buffet of deals out there to take advantage of that one might perceive there to be, so I don’t think getting more dollars from a tax refund is going to have that subsequent impact.

I realize the push on the NOL carryback is not just for home builders; in fact it seems like a much bigger deal for retailers, but I just thought I'd put this out there, as the government continues to divvy up our tax dollars for more supposed "stimulus."

Questions?  Comments? 

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