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Q1 2007 Brookfield Homes Corporation Earnings Conference Call - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Welcome to the Brookfield Homes first quarter result conference call. (OPERATOR INSTRUCTIONS) I would like to remind everyone that this conference is being recorded on May 4, 2007, at 5:00 p.m. Eastern standard time. On the call today are Mr. Ian Cockwell, President and Chief Executive Officer; and Mr. Paul Kerrigan, Executive Vice President and Chief Financial Officer.

I will now turn the call over to Mr. Cockwell. Please go ahead, sir.

IAN COCKWELL, PRESIDENT, CEO, BROOKFIELD HOMES CORPORATION: Thank you, operator. Good afternoon, ladies and gentlemen, and thank you for joining us today for Brookfield Homes first quarter conference call. Before we continue, please note that in talking about our financial performance and responding to questions, we may make forward-looking statements. Forward-looking statements are subject to known and unknown risks and results may differ materially. For further information on such factors or risk, I would encourage you to see Brookfield Homes SEC filings and the full text relating to forward-looking statements in our Form 10-K, which is posted on our website. We have also posted a supplementary information package on the website under the Investor Relations' section under reports and presentations. It provides details of operations and other key measures of performance. Joining me for the call today are Paul Kerrigan, our Chief Financial Officer, and Linda Northwood, our Director of Investor Relations. I will start today call's by sharing with you some comments on our operations. I will then turn the call over to Paul who will review our performance for the first quarter.

With regards to operations, market conditions remain challenging. However, we continue to focus on our core strategies, including controlling land through option contracts and adding value by creating communities. We are on track to entitle advanced entitlements of all land during the year, which will enable us to have higher housing margins in the future as we sell or build on the lots we entitle. As a result, we believe our annualized housing margins should remain above industry average and we currently do not anticipate any significant impairments or write-downs. We are targeting to deliver between 1150 to 1250 homes during 2007. We typically experience a high slate of orders for new homes in late spring and summer. As it is resolved it will be the midsummer before better assessment of the 2007 home closings will be made.

We feel comfortable with our closing targets as we have a larger market presence with an increase in our active selling communities. This has resulted in net new orders for the first quarter of 286 units, an increase from 227 units in 2006. In addition, cancellation rates for the first quarter fell to 22% from 30% in the fourth quarter of 2006. In the Bay area, we are commencing sales in three new communities in our Windermere project. Windermere will represent the majority of our anticipated 2007 home closings in this market. Our Scotland operations continues to contribute significantly to our results and we successfully opened the first new neighborhood in the new model colony, a master plan community, in Ontario, San Bernardino county. In San Diego, Riverside, our current operations are concentrated mainly in San Diego county where sales are better year over year. However, sales continue to be slow in Riverside, likely as a result of lower consumer confidence arising from the uncertainties in the subprime mortgage market.

We have a number of active selling communities in the Washington, D.C. area. This market experience increased traffic levels in the first quarter of 2007 resulting in higher new orders for us and we remain focused on building our backlog for the year. I would now like to turn the call over to Paul who will discuss our financial performance for the quarter ended March 31, 2007.

PAUL KERRIGAN, EVP, CFO, BROOKFIELD HOMES CORPORATION: Thank you, Ian, and good afternoon. As detailed in our press release and supplemental information package, Brookfield Homes net income for the three months ended March 31, 2007, increased to $29 million from $19 million last year. For the quarter, earnings per share are $1.07 compared to $0.68 for the prior year. The increase in net income is due to a reversal of an income tax liability as a result of receiving a final assessment from income tax authorities in respect to an examination of a prior tax year. Income before taxes was $5 million compared to $31 million for the same period last year. This decrease is a result of fewer home and lot sales and a reduction in the gross margin on housing.

During our first quarter of 2007, we closed 148 homes and 21 lots for a total of 169 home and lot closings, and this compares to a total of 321 homes and lots for the same period in 2006. In terms of housing revenue, it totaled $104 million for the first three months of 2007 compared to $122 million for the same period last year. The decrease in housing revenue is primarily due to fewer home closings during the quarter compared to the same period in 2006, offset by an increase in the Company's average home selling price to $703,000 from $634,000 in 2006. The increase in average home selling price is a result of a change in the product mix of our home closings. The gross margin on housing revenues for the quarter was $20 million or 20% compared with $37 million or 31% for the same period last year. This is also lower than the 24% that we recorded in the fourth quarter of 2006.

The decrease is mainly a result of higher incentives as well...

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