KB Home (KBH)’s 2014 Fourth Quarter Earnings Conference Call Transcript

Taking all of this into account we decided to better optimize this non-strategic asset by monetizing it in the short term through a planned future land sale and re-deploying the cash to generate healthier returns rather than building and selling homes on the property as we had previously intended. The remainder, or $11 million, of the 4^th Quarter impairment charges are related to 6 communities primarily located in Inland, California and Arizona. Based on our evaluation of the markets where these assets are located we decided to monetize these land positions sooner by opening for sales more quickly than anticipated, and accelerating our overall timing and pace for building and delivering homes. In addition, some of the Q-4 impairment charges related to certain active communities where housing market conditions have softened. In 2015, as we plan to continue to work to improve our asset efficiency and generate a greater return on investing capital, we may identify and evaluate other opportunities to more quickly monetize assets particularly those with longer term horizons or that would require a significant additional cash outlay for development and infrastructure before the first home would be delivered.

It is important to know that in the two year period prior to this quarter, we have activated 34 communities. Of these, only 3 communities had impairment charges at the time of their activation or at a subsequent period, to the extent we changed our strategy on any given asset. It is possible that we may have additional impairments in the future. As a result of our growing profitability, and our actions to enhance our capital efficiency, we believe that we can support our current growth strategy without having to access capital markets for equity. I would also like to briefly comment on the status of Home Community Mortgage, our mortgage joint venture. In its first full quarter of operations, after the roll out in July, this thing continued to elevate their execution, but still not optimal, we are pleased with the steady progress being demonstrated each month, and look forward to the increasingly positive impact it would eventually have on the predictability of our business as 2015 unfolds. As service levels continue to improve, and our capture rate increases, we are also looking forward to add benefits of the additional income strength.