What changed in this filing

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Item 1. Business

2023-12-18 compared with 2022-12-19 · 72 added, 64 removed, 218 unchanged (38% of the section changed)

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Since the incorporation of HEI’s predecessor company, the Company combined with its unconsolidated joint ventures have delivered in excess of 369,000 homes, including 7,649 homes in fiscal 2023.

Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment.

During the fourth quarter of fiscal 2022, we reevaluated our reportable segments as a result of changes in the business and our management thereof.

In particular, we considered the fact that, since our segments were last established, the Company had exited the Minnesota, North Carolina and Tampa markets and is currently in the process of exiting the Chicago market.

Applying the principles set forth under Accounting Standards Codification ("ASC") 280, "Segment Reporting" ("ASC 280"), including that our business trends are reflective of economic conditions in markets with general geographic proximity, we realigned our homebuilding operating segments and determined that, in addition to our financial services segment, we now have three reportable homebuilding segments comprised of (1) Northeast, (2) Southeast and (3) West.

All prior period amounts related to the segment change have been retrospectively reclassified throughout this Annual Report on Form 10-K to conform to the new presentation.

The Company has two distinct operations:

homebuilding and financial services.

Our homebuilding operations consist of three reportable segments:

Northeast, Southeast and West.

Our financial services operations provide mortgage loans and title services to the customers of our homebuilding operations.

Excluding unconsolidated joint ventures, we are currently offering homes for sale in 113 communities in 27 markets in 13 states throughout the United States.

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During fiscal 2018, we completed a wind down of our operations in the San Francisco Bay area in Northern California and in Tampa, Florida.

During fiscal 2020, we began a wind down of our operations in the Chicago, Illinois market and expect to exit that market in the second quarter of fiscal 2023.

During fiscal 2020, we began a wind down of our operations in the Chicago, Illinois market which was completed in fiscal 2023.

Geographic Breakdown of Markets by Segment

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We segregate our homebuilding operations geographically into the following three segments:

Delaware, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia

Delaware, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia

Florida, Georgia and South Carolina

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We believe that talented associates are the Company’s greatest asset and play a key role in creating long-term value for our stakeholders.

As of October 31, 2022, 18.5% of our associates had been with the Company for more than 15 years, and the average tenure of all associates was approximately seven years.

As of October 31, 2023, 19.0% of our associates had been with the Company for more than 15 years, and the average tenure of all associates was approximately 7.5 years.

We understand that our ultimate success and ability to compete are significantly dependent on how well we identify, hire, train, and retain highly qualified personnel.

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We are committed to being an employer that fosters the growth of each associate, while building an inclusive and diverse workforce.

In fiscal 2022, our Accelerated Leadership Development Program ("ALDP") graduated its second class following the initial success of the 2018 ALDP.

The goal of this program is to identify and mentor leaders within, and identify talent outside, of the organization in order to drive growth and value creation, as well as considerations for succession planning.

We actively seek to attract women and candidates of diverse backgrounds to the ALDP and we significantly increased the number of women and underrepresented groups with our second ALDP class.

We believe that our focus on diversity and inclusion across the organization positions the Company to deliver innovation and growth.

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Promoting a diverse and inclusive work environment is a major priority at Hovnanian.

In 2020, the Company formed a Diversity & Inclusion Committee that continues to be an important initiative and which is led by the CEO and comprised of members of senior leadership and associates in various functions throughout the organization representing various backgrounds.

In 2020, the Company formed a Diversity & Inclusion Committee that continues to be an important initiative.

The committee is led by the CEO and comprised of members of senior leadership and associates in different functions throughout the organization representing various backgrounds.

The objective of the committee is to advise on and evaluate the Company’s diversity and inclusion initiatives and to offer suggestions and guidance.

The Diversity & Inclusion Committee meets quarterly.

All associates are required to take a Diversity Made Simple training course.

Associates in leadership positions (representing approximately 21.8% of all associates) are obligated to participate in more extensive diversity and inclusion training sessions.

The Company is also a founding member of the Building Talent Foundation whose mission is to advance the education, training and careers of people from underrepresented groups in the fields of skilled technical workers and as business owners in the residential construction industry.

In fiscal 2022, we extended our partnership and financial commitment with the Building Talent Foundation for another three years.

All associates are required to take a diversity and inclusion training course on an annual basis.

Associates in leadership positions (representing approximately 21.9% of all associates) are required to participate in more extensive diversity and inclusion training sessions.

The Company is also a founding member of the Building Talent Foundation ("BTF") whose mission is to advance the education, training and careers of people from underrepresented groups in the fields of skilled technical workers and as business owners in the residential construction industry.

The Company actively utilizes BTF’s residential construction careers platform JobsToBuild to find new talent.

In fiscal 2022, we extended our partnership and financial commitment with BTF for another three years.

Over the last two years, our leadership team has conducted quarterly Town Halls.

These events have become a staple in the organization and serve as an opportunity for associates to hear from senior leadership candidly about our Company and directly ask questions of our CEO, CFO, Executive Vice President and Group Presidents.

This year, the Company also introduced two new channels for engaging associates companywide, "Lunch & Learns" and "Coffee Chats".

The goal of these new platforms is to fuel our companywide objective to foster a culture of engagement and facilitate more two-way communication.

Through a combination of competitive benefits and educational programs, we believe that we positively contribute to the well-being of our associates and the communities in which they live and work.

Our benefits packages include medical, dental, and vision coverage, as well as health savings accounts, life insurance, disability income, 401(k) savings plan with a company match and other assistance and wellness programs.

Our benefits packages include medical, dental, and vision coverage, as well as paid parental leave, health savings accounts, life insurance, disability income, 401(k) savings plan with a company match and other assistance and wellness programs.

Together, these benefits help keep our associates and their dependents healthy, while giving them tax-advantaged ways to save for retirement and establish long-term financial security.

This package of programs is routinely reevaluated in order to meet the changing needs of our associates in our diverse organization.

In light of the Company’s experience managing the novel coronavirus ("COVID-19") pandemic and the recognition of the associated environmental benefits, the Company introduced a hybrid work schedule in fiscal 2021 and continued to implement it throughout fiscal 2022 whereby most office associates may work two days a week from home.

In light of the Company’s experience managing the novel coronavirus ("COVID-19") pandemic and the recognition of the associated environmental benefits, the Company previously introduced a hybrid work schedule and continued its use throughout fiscal 2023, whereby most office associates may work two days a week from home.

We believe this change to a hybrid work model promotes a healthier work and home life balance for our associates while simultaneously providing the environmental benefits of having fewer vehicles on the road.

In addition to the weekly hybrid schedule, associates can work remotely up to eight weeks a year.

We also have committed considerable resources to furthering our associates’

personal and professional growth.

We have a repository of over 400 training modules/courses to facilitate these learning sessions in both in-person and virtual settings, including mandatory diversity, ethics, sexual harassment and safety training courses.

We have a repository of over 500 training modules/courses to facilitate these learning sessions in both in-person and virtual settings, including mandatory diversity, ethics, workplace harassment prevention and safety training courses.

Corporate Offices and Available Information

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Copies of the Company’s Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports are available free of charge upon request.

The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Business Strategies

We are currently focused on maintaining adequate liquidity and identifying investment opportunities that make economic sense in light of our current sales prices and sales paces.

Our excess liquidity in fiscal years 2022 and 2021 allowed us to repurchase $100.0 million and $180.9 million in aggregate principal of senior secured notes, respectively.

In response to changing market conditions, we will be strategic in new land purchases at pricing that we believe will generate appropriate investment returns needed to sustain profitability.

We are also beginning to explore Build For Rent opportunities to supplement our existing business.

The Build For Rent sales channel has the potential to add incremental sales volume and allow us to increase inventory turnover.

As a result of the sharp increase in interest rates beginning in fiscal 2022, we shifted our focus to increasing the availability of quick-move-in homes (“QMI homes”).

The rationale behind this shift in focus is that QMI homes provide our customers with more certainty on what their mortgage payments will be at closing. QMI homes also allow us to offer customers mortgage rate buydowns that would be cost prohibitive on homes with a longer time until delivery.

QMI homes greatly reduce the complexity of choices for our customers and significantly increase efficiencies for our trades, construction and purchasing teams.

In fiscal 2023, we executed "Build-For-Rent" agreements to supplement our existing for sale business.

The Build-For-Rent sales channel added incremental sales volume during fiscal 2023 and allowed us to increase inventory turnover.

We also remain focused on maintaining adequate liquidity and identifying investment opportunities that make economic sense in light of our current sales prices and sales paces.

Our excess liquidity in fiscal years 2023, 2022 and 2021 allowed us to repurchase $245.0 million, $100.0 million and $180.9 million in aggregate principal of senior secured notes, respectively.

In response to changing market conditions, we have been strategic in new land purchases at pricing that we believe will generate appropriate investment returns needed to sustain profitability.

In addition to our current focus on liquidity and flexibility, we intend to continue to focus on our historic key business strategies, as enumerated below.

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We seek to expand our commitment to customer service through a variety of quality initiatives.

In addition, our focus remains on attracting and developing quality associates.

In addition, we remain focused on attracting and developing quality associates.

See "Human Capital" above for further discussion.

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Our current mortgage financing and title service operations enhance our contact with customers and allow us to coordinate the home-buying experience from beginning to end.

Further, we are able to employ a range of pricing incentives through our mortgage financing operations, including temporary and permanent mortgage rate buy downs, which are tools that provide buyers with the opportunity to secure mortgage rates below market level.

Operating Policies and Procedures

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Land Acquisition, Planning, and Development - Before entering into a contract to acquire land, we complete extensive comparative studies and analyses which assist us in evaluating the economic feasibility of such land acquisition.

We generally follow a policy of acquiring options to purchase land for future community developments.

Where possible, we acquire land for future development through the use of land options, which need not be exercised before the completion of the regulatory approval process.

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In most instances, we have the right to cancel any of our land option agreements by forfeiture of our deposit on the agreement.

In fiscal 2022, 2021 and 2020, rather than purchase additional lots in underperforming communities, we took advantage of this right and walked away from 5,121 lots, 3,201 lots and 3,900 lots, respectively, out of 27,617 total lots, 23,624 total lots and 20,204 total lots, respectively, under option, resulting in pretax charges of $5.7 million, $1.6 million and $6.8 million, respectively.

In fiscal 2023, 2022 and 2021, rather than purchase additional lots in underperforming communities, we took advantage of this right and walked away from 3,838 lots, 5,121 lots and 3,201 lots, respectively, out of 28,227 total lots, 27,617 total lots and 23,624 total lots, respectively, under option, resulting in charges to pre-tax income of $1.5 million, $5.7 million and $1.6 million, respectively.

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Because of the risks involved in speculative building, our general policy is to construct an attached condominium or townhouse building only after signing contracts for the sale of at least 50% of the homes in that building.

A majority of our single-family detached homes are constructed after the signing of a sales contract and mortgage approval has been obtained.

This limits the buildup of inventory of unsold homes and the costs of maintaining and carrying that inventory.

Historically, a majority of our single-family detached homes were constructed after the signing of a sales contract and mortgage approval was obtained, which limits the buildup of inventory of unsold homes and the costs of maintaining and carrying that inventory.

Beginning in fiscal 2022 and continuing in fiscal 2023, we increased our inventory of QMI homes in connection with our current business strategy discussed above.

Materials and Subcontractors - We attempt to maintain efficient operations by utilizing standardized materials available from a variety of sources.

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Since the COVID-19 pandemic began, we have experienced construction delays due to shortages in the supply of materials, as well as labor shortages in all of our markets.

The impact and the particular materials associated with the delays is varied from market to market and we are currently experiencing increased construction cycle times by 45-60 days in many of our markets, but such timeframes could be elongated.

The impact and the particular materials associated with the delays is varied from market to market.

We have improved our cycle times since the beginning of fiscal 2023 by approximately 30 days but are still currently experiencing increased construction cycle times of 45-60 days over our pre-pandemic average in many of our markets.

We cannot predict the extent to which shortages in necessary materials or labor will continue or re-occur in our markets in the future.

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We make use of our website, internet, newspaper, radio, television, magazine, billboard, video and direct mail advertising, special and promotional events, illustrated brochures and full-sized and scale model homes in our comprehensive marketing program.

Recently, we have begun offering curated Looks packages for customers to select, rather than a large number of a la carte options.

This approach provides customers with a more streamlined selection process and allows us to be more efficient in purchasing, sales and construction. 

We have a national call center which is responsible for follow up generated by our web site and our digital marketing efforts.

Recently, we have started offering curated "Looks" packages for customers to select, rather than a large number of a la carte options.

This approach has continued to expand and provides customers with a more streamlined selection process and allows us to be more efficient in purchasing, sales and construction. 

We have a national call center which is responsible for follow up generated by our website and our digital marketing efforts.

The call center supports our ability to swiftly respond to incoming customer leads, schedule and conduct virtual tours and video chats, as well as set up in person model home tours.

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During the year ended October 31, 2023, for the markets in which our mortgage subsidiaries originated loans, 19.8% of our home buyers paid in cash and 70.1% of our noncash home buyers obtained mortgages from our mortgage banking subsidiary.

The loans we originated in fiscal 2022 were 74.8% prime and 24.1% Federal Housing Administration/Veterans Affairs (“FHA/VA”).

The remaining 1.1% of our loan originations represent loans which exceed conforming conventions.

The loans we originated in fiscal 2023 were 69.8% conforming conventional loans and 29.5% Federal Housing Administration/Veterans Affairs (“FHA/VA”).

The remaining 0.7% of our loan originations represented loans which exceeded conforming conventions.

We sell virtually all of the loans and loan-servicing rights that we originate within a short period of time.

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Information on housing revenues, homes delivered and average sales price by segment for the year ended October 31, 2023, is set forth below:

(Housing revenue in thousands)

(Housing revenues in thousands)

Housing Revenues

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Consolidated total

Unconsolidated joint ventures(1)

(1) Represents housing revenues and home deliveries for our unconsolidated homebuilding joint ventures for the period.

We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures.

See Note 20 to the Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.

Domestic unconsolidated joint ventures(1)

(1) Represents housing revenues and home deliveries for our domestic unconsolidated homebuilding joint ventures for the period.

We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our domestic unconsolidated joint ventures.

In addition, during the fourth quarter of fiscal 2023, we delivered 2,176 homes through our unconsolidated joint venture in the Kingdom of Saudi Arabia.

See Note 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of our unconsolidated joint ventures.

Net Sales Contracts

The dollar value of our net sales contracts, excluding unconsolidated joint ventures, decreased 14.4% to $2.5 billion for the year ended October 31, 2022 from $2.9 billion for the year ended October 31, 2021, and the number of homes contracted decreased 25.7% to 4,477 in fiscal 2022 from 6,023 in fiscal 2021, despite a 3.7% increase in the average number of open-for-sale communities from 109 for fiscal 2021 to 113 for fiscal 2022.

We ended fiscal 2022 with 121 active selling communities.

Sales pace slowed dramatically during the third and fourth quarters of fiscal 2022, due to an overall slow-down in home demand caused by a sharp rise in mortgage rates, year-over-year home price increases, record high inflation levels and customer fears of an economic recession. 

The dollar value of our net sales contracts, excluding unconsolidated joint ventures, was $2.5 billion for both the years ended October 31, 2023 and 2022 and the number of homes contracted increased 3.8% to 4,647 in fiscal 2023 from 4,477 in fiscal 2022.

 Information on the dollar value of net sales contracts by segment for the years ended October 31, 2023 and 2022, is set forth below:

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Consolidated total

Unconsolidated joint ventures(1)

(1) Represents net contract dollars for our unconsolidated homebuilding joint ventures for the period.

We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures.

See Note 20 to the Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.

Domestic unconsolidated joint ventures(1)

(1) Represents net contract dollars for our domestic unconsolidated homebuilding joint ventures for the period.

We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our domestic unconsolidated joint ventures.

In addition, during fiscal 2023 and 2022, we contracted 13 homes and 300 homes, respectively, through our unconsolidated joint venture in the Kingdom of Saudi Arabia.

See Note 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of our unconsolidated joint ventures.

Active Selling Communities

The following table summarizes our active selling communities under development as of October 31, 2022.

The contracted not delivered and remaining homes available in our active selling communities are included in the consolidated total homesites under the total residential real estate chart in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 

The average number of active selling communities increased from 113 for fiscal 2022 to 114 for fiscal 2023.

We ended fiscal 2023 with 113 active selling communities as compared to 121 active selling communities at October 31, 2022.

Information on our active selling communities by segment as of October 31, 2023, is set forth below.

Contracted not delivered and remaining homes available in our active selling communities are included in the consolidated total homesites under the total residential real estate chart in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 

Includes 354 home sites under option.

Of the total remaining homes available, 909 were under construction or completed (including 81 models and sales offices), and 5,397 were under option.

At October 31, 2022 and 2021, including unconsolidated joint ventures, we had a backlog of signed contracts for 4,710 homes and 5,535 homes, respectively, representing a 14.9% decrease, with sales values aggregating $1.9 billion and $2.2 billion, respectively.

The majority of our backlog at October 31, 2022 is expected to be completed and closed within the next six to nine months.

At October 31, 2023 and 2022, including domestic unconsolidated joint ventures, we had a backlog of signed contracts for 2,196 homes and 2,497 homes, respectively, representing a 12.1% decrease, with sales values aggregating $1.3 billion and $1.5 billion, respectively.

Additionally at October 31, 2023 and 2022, we had a backlog of signed contracts for 50 homes and 2,213 homes, respectively, from our unconsolidated joint venture in the Kingdom of Saudi Arabia.

The majority of our backlog at October 31, 2023 is expected to be completed and closed within the next six to nine months. 

Current base prices for our homes in contract backlog at October 31, 2023, range from $135,000 to $1,770,000 in the Northeast, from $294,000 to $1,140,000 in the Southeast and from $269,000 to $884,000 in the West.

Closings generally occur and are typically reflected in revenues within six to nine months of when sales contracts are signed.

At November 30, 2022 and 2021, our backlog of signed contracts, including unconsolidated joint ventures, was 4,614 homes and 5,820 homes, respectively, with sales values aggregating $1.8 billion and $2.3 billion, respectively.

At November 30, 2023 and 2022, our backlog of signed contracts, including domestic unconsolidated joint ventures, was 2,158 homes and 2,396 homes, respectively, with sales values aggregating $1.3 billion and $1.4 billion, respectively.

Additionally at November 30, 2023 and 2022, we had a backlog of signed contracts for 20 homes and 2,218 homes, respectively, from our unconsolidated joint venture in the Kingdom of Saudi Arabia.

For information on our backlog excluding unconsolidated joint ventures, see the contract table in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations –

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It is our objective to control a supply of land, primarily through options, whenever possible, consistent with anticipated homebuilding requirements in each of our housing markets.

Controlled land (land owned and under option) as of October 31, 2022, exclusive of communities under development described above under “Active Selling Communities”

and excluding unconsolidated joint ventures, is summarized in the following table.

Controlled land (land owned and under option) as of October 31, 2023, exclusive of active selling communities and excluding unconsolidated joint ventures, is summarized in the following table.

The proposed developable home sites in communities in planning are included in the 31,754 consolidated total home sites under the total residential real estate table in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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The balance of the home sites to be purchased is covered under an option agreement or a nonrecourse purchase agreement.

During a declining homebuilding market, we typically decide to mothball (or stop development on) certain communities where we have determined that current market conditions do not justify further investment at that time. When we decide to mothball a community, the inventory is reclassified on our Consolidated Balance Sheets from "Sold and unsold homes and lots under development" to "Land and land options held for future development or sale". See Note 3 to the Consolidated Financial Statements for further discussion on mothballed communities.

During a declining homebuilding market, we typically decide to "mothball" (or stop development on) certain communities where we have determined that current market conditions do not justify further investment at that time. When we decide to mothball a community, the inventory is reclassified on our Consolidated Balance Sheets from "Sold and unsold homes and lots under development" to "Land and land options held for future development or sale". See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion on mothballed communities.

Raw Materials

The homebuilding industry has from time-to-time experienced raw material and labor shortages.

In particular, shortages and fluctuations in the price of lumber or other important raw materials could result in start or completion delays or increases to the cost of developing one or more of our residential communities.

In particular, shortages and fluctuations in the price of lumber or other important raw materials has resulted in the past, and could result in the future, in start or completion delays or increases to the cost of developing one or more of our residential communities.

We attempt to maintain efficient operations by utilizing standardized materials available from a variety of sources.

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We have reduced construction and administrative costs by consolidating the number of vendors serving certain markets and by executing national purchasing contracts with select vendors.

During fiscal 2022, relative to the prior fiscal year, labor and material shortages that were initially due to the COVID-19 pandemic started to gradually improve.

For example, we experienced a significant increase in lumber prices during fiscal 2021 and into the first half of fiscal 2022 due to supply chain issues, but prices began to decrease during the second half of fiscal 2022.

During fiscal 2023, relative to the prior fiscal year, labor and material shortages that were initially due to the COVID-19 pandemic continued to gradually improve.

For example, we previously experienced a significant rise in lumber prices caused by supply chain issues, but due to increased availability prices began to decrease during the second half of fiscal 2022 and into fiscal 2023.

We cannot predict, however, the extent to which shortages in necessary raw materials or labor may occur in the future.

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We compete with numerous real estate developers in each of the geographic areas in which we operate.

Our competition ranges from small local builders to larger regional builders to publicly owned builders and developers, some of which have greater sales and financial resources than we do.

Our competition ranges from small local builders to larger private regional builders to publicly owned builders and developers, some of which have greater sales and financial resources than we do.

Previously owned homes and the availability of rental housing provide additional competition.

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Homebuilders are subject to a number of federal, local, state, and foreign laws and regulations concerning the development of land and homebuilding, sales and customer financing processes and the protection of the environment, which can cause us to incur delays and costs associated with compliance and which can prohibit or restrict our activity in some regions or areas”, Item 3 “Legal Proceedings”

and Note 18 to the Consolidated Financial Statements.

and Note 18 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Despite our past ability to obtain necessary permits and approvals for our communities, we anticipate that increasingly stringent requirements will be imposed on developers and homebuilders in the future.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business