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FLORIDA STINKING UP HOV RESULTS

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Contract cancellations like crazy in a particular Florida market are dragging down earnings at Hovnanian Enterprises, officials of the Red Bank-based homebuilding company say.

The builder said it expects to take a $90 million hit from writing down the value of inventoried land and cancelled contracts in the Fort Myers-Cape Coral region, according to a report at TheStreet.com.

Before factoring in those charges, the company is forecasting earnings per share of 20 cents, up from the 5- to 10-cents forecast in the company’s earlier “guidance.” The impact of the Florida writedowns on net earnings per share was not included in TheStreet’s report, but MarketWatch says it will result in a loss.

An analyst quoted by MarketWatch said the $90 million charge represents “nearly the entire purchase price” Hovnanian paid to acquire a homebuilder in the Fort Myers market in August, 2005.

In December, HOV reported its first quarterly loss in nine years. Results for the most recent quarter will be released March 8.

Hovnanian built a new headquarters — assessed at $19.1 million — at the river end of Maple Avenue last year. The company had previously been based on Route 35 in Middletown at the foot of the Cooper Bridge.

The company had also pre-leased all 88,000 square feet of office space in the PRC Corporate Plaza building under construction opposite its headquarters, on West Front Street. But as reported here in January, Hovnanian has opted to keep just 22,000 square feet for itself, and will sublease the rest.

From TheStreet’s report:

The charges are tied to its operations in Fort Myers-Cape Coral, Fla., due to a continued decline in sales pace and general market conditions, as well as increasing cancellation rates, during the quarter.

In addition, the company estimates that it will incur approximately $8 million of charges related to land impairment and write-offs of predevelopment costs and land deposits in other markets during the first quarter. These charges are included in the company’s preliminary earnings estimate of $0.20 per common share for the first quarter, prior to the effect of the charges related to its Fort Myers-Cape Coral operations.

In the Fort Myers-Cape Coral market, the company primarily targets homes designed for first-time homebuyers. This market continues to face increasing resale listings, including many home listings that were recently constructed and purchased by investors. Most of the Company’s other markets have been experiencing a reduction in resale listings over the past few months.

Excluding the Fort Myers-Cape Coral operations, consolidated net contracts were down 2.3% when compared to last year’s first quarter. Company-wide, cancellations for the first quarter were 36% of gross contracts, an increase from a rate of 35% reported in the fourth quarter of 2006. However, excluding the results from the company’s Fort Myers-Cape Coral operation, the contract cancellation rate was 29% for the first quarter of 2007.

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