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Hovnanian Enterprises, Inc.UBS Building and Building Products CEO ConferenceNovember 8, 2006
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Note: All statements in this Presentation that are not historical facts should be considered as "forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic and business conditions, (2) weather conditions, (3) changes in market conditions, (4) changes in home prices and sales activity in the markets where the Company builds homes, (5) government regulation, including regulations concerning development of land, the homebuilding process and the environment, (6) fluctuations in interest rates and the availability of mortgage financing, (7) shortages in and price fluctuations of raw materials and labor, (8) the availability and cost of suitable land and improved lots, (9) levels of competition, (10) availability of financing to the Company, (11) utility shortages and outages or rate fluctuations, (12) geopolitical risks, terrorist acts and other acts of war and (13) other factors described in detail in the Company's Form 10-K for the year ended October 31, 2005. All forward-looking statements involving earnings guidance or other financial or operating projections or estimates contained herein were initially provided on November 7, 2006 and have not been updated for this presentation. The risk that actual results will differ materially from expectations expressed in this presentation will increase with the passage of time.Where we have used non-GAAP financial measures, reconciliations to the most comparable GAAP measure are provided, along with a disclosure on the usefulness of the GAAP measure, in our most recent earnings release.
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Hovnanian Enterprises Background
7th largest homebuilder in the U.S.Founded by Kevork Hovnanian in 1959FORBES Platinum 400 Company, fifth consecutive year (#7 based on five-year annualized total return)2006 FORTUNE 500, #403, ranked 2nd based on five-year total return to investors of 60%
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Strong PerformanceDeliveries - Homes
6,791
9,51411,531
14,58616,274
0
5,000
10,000
15,000
20,000
'01 '02 '03 '04 '05
Total Revenues
$1.7$2.6
$3.2$4.2
$5.3
$0.0
$2.0
$4.0
$6.0
'01 '02 '03 '04 '05
EPS
$1.15$2.14
$3.93
$5.35
$7.16
$0.00
$2.00
$4.00
$6.00
$8.00
'01 '02 '03 '04 '05
Total Stockholders' Equity
$0.4$0.6
$0.8
$1.2
$1.8
$0.0
$0.5
$1.0
$1.5
$2.0
'01 '02 '03 '04 '05
$ in Billions
$ in BillionsFully Diluted
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Current Housing Slowdown
Investor Concerns:What caused the slowdown?How bad will it get – sales, margins, earnings?What is Hovnanian doing differently under these conditions?When will it bottom out?Where do we go from here?
October 28, 2002
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Markets Are Dramatically Slower
Sales pace has slowed in most markets Prices have effectively declined in many communities through use of concessions and incentivesMain Reason: Investors were active buyers in many of these markets
Now they are not buying: reducing demand And listing earlier purchases for resale: increasing supply
Buyer psychology has also shifted – postponing buying decision and waiting on the sidelinesBut NO economic slowdown similar to all prior housing downturnsMarkets without significant investor activity holding up better
TexasNorth Carolina
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Concessions and Incentives
8
Investor Share of Mortgage Originations
Source: LoanPerformance, a Subsidiary of First American RES (3Q2005)
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MSAs with Highest Investor and 2nd Home ShareMSAs with 34-41% 2nd home and investor share
West Palm Beach*Las Vegas*Monterey
Orlando*Tampa-St. Petersburg*
MSAs with 28-33% 2nd home and investor shareSan Francisco*
MiamiTucson
Honolulu*
San AntonioJacksonville*
Austin
Source: LoanPerformance (a Subsidiary of First American RES)-percent of conventional, conforming purchase-money originations as of Q1 2005 (at least 500 loans per MSA).*MSAs with second home shares larger than investor shares are shown in green.
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Inventories for Sale are Rising
3
5
7
9
11
13
15
Jul-8
2M
ay-8
3M
ar-8
4Ja
n-85
Nov
-85
Sep
-86
Jul-8
7M
ay-8
8M
ar-8
9Ja
n-90
Nov
-90
Sep
-91
Jul-9
2M
ay-9
3M
ar-9
4Ja
n-95
Nov
-95
Sep
-96
Jul-9
7M
ay-9
8M
ar-9
9Ja
n-00
Nov
-00
Sep
-01
Jul-0
2M
ay-0
3M
ar-0
4Ja
n-05
Nov
-05
Sep
-06
Existing New
Months Supply of Homes for Sale
Existing Homes
New Homes
Source: National Association of Realtors, Bureau of Census
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Third Quarter Net Contracts Third Quarter Net Contracts
(# Homes)
Excluding unconsolidated joint ventures.
$0.7
$1.0
$1.2$1.1
$0.4
$1.4
$0.0
$0.5
$1.0
$1.5
2001 2002 2003 2004 2005 2006
($ in Billions)
1,648
2,549
3,484
4,102
3,349
4,143
0
800
1,600
2,400
3,200
4,000
2001 2002 2003 2004 2005 2006
- 19% - 24%
12
Third Quarter Net Contracts Per CommunityThird Quarter Net Contracts Per Community
Excluding unconsolidated joint ventures.
7.7
12.814.414.2
12.8
9.0
12.612.512.3
9.4
0
4
8
12
16
20
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
13
Cancellation RatesCancellation Rates
23%
18%21%
25%23%
19% 20%24%
27%
21%24% 25%
30%32% 33%
0%
10%
20%
30%
40%
Q103
Q203
Q303
Q403
Q104
Q204
Q304
Q404
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Excluding unconsolidated joint ventures.
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Managing under assumption of long term slow conditions
Right pricing…
-- to achieve reasonable balance of absorption and margin
Renegotiating with subcontractors
Reducing our overheads
Reevaluating and renegotiating land options
Still buying some new land – very disciplined approach
What is Hovnanian doing?What is Hovnanian doing?
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Land Renegotiation StrategiesLand Renegotiation Strategies
Many of our communities still generate healthy returnsHowever, those contracted in certain markets in late 2004 – early 2006 are return-challenged68% of our land controlled via options; 8.9% average deposit (at 7/31)We are renegotiating those “challenged” option contracts to obtain lower lot prices and/or delayed takedownsIf unsuccessful, we are walking away from certain options
Write-off of $11.4 million in third quarter; significantly more anticipated in Q4
While painful, we can now re-deploy the balance of our capital on these options at far better returns; (average > 90% of invested capital)Significant economic advantage over building-out owned communities at very low returns or losses in future years
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Preliminary Estimates - Fiscal 2006Preliminary Estimates - Fiscal 2006Preliminary
EstimatePreliminary
EstimateQ4 2006 FY 2006
($ milions except per share)Net Contracts (Homes) Excluding Joint Ventures 10,661 3,100 13,761
Total Deliveries (Homes) Including Joint Ventures 14,718 5,490 20,208
Pretax Income Before Impairments and Write-offs $440 $95 - $135 $535 - $575
Pretax Impairments and Write-offs $21 ≈$300 ≈$320
Net Income Available to Commmon Stockholders $257 ($106) - ($131) $126 - $151
EPS $3.95 ($1.62) - ($2.01) $1.94 - $2.33
Ended July 31, 2006
Actual 9 mos. Results
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Staying focused on long-term strategies:
Market diversity and dominance
Product diversity
Training and development of our people
Customer satisfaction
Efficient processes
What is Hovnanian doing?What is Hovnanian doing?
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Market Diversity and DominanceMarket Diversity and Dominance
#12,500 homes
#32,000 homes
#2 1,300 homes
#61,800 homes
Top 53,100 homes
#151,000 homes
#71,400 homes
Top 5
700 homes
4,200 homes
Top 10Top 10
700 homes
Based on projected deliveries as of September 7, 2006, for fiscal 2006; includes joint ventures.
Top 10
Top 101,100 homes400 homes
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Broad Product DiversificationBroad Product Diversification
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Total Deliveries
3,967
4,623
3,500
4,000
4,500
5,000
2005 2006
Nine Months Ended July 31,Three Months Ended July 31,
10,981
13,023
9,000
12,000
15,000
2005 2006
+ 17% + 19%
Excluding unconsolidated joint ventures.
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436411
371367
323293
275285291288257244233
196
245
308
427
150
225
300
375
450
Oct
. 02
Jan.
03
Apr
. 03
Jul.
03
Oct
. 03
Jan.
04
Apr
. 04
Jul.
04
Oct
. 04
Jan-
05
Apr
. 05
Jul.
05
Oct
. 05
Jan.
06
Apr
. 06
Jul.
06
Oct
. 06
Actual Estimate
# Active Communities# Active Communities
Excluding unconsolidated joint ventures.
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Contract Backlog at July 31,Contract Backlog at July 31,
(# Homes)
Excluding unconsolidated joint ventures.
$1.2
$1.6
$2.5
$3.6
$0.9
$3.2
$0.0
$1.0
$2.0
$3.0
$4.0
2001 2002 2003 2004 2005 2006
($ in Billions)
3,6724,403
5,718
8,220
10,313
9,030
0
4,000
8,000
12,000
2001 2002 2003 2004 2005 2006
+ 14% + 12%
23Debt excludes CMOs, mortgage warehouse debt and non recourse debt.
Average Net Debt/CapitalizationAverage Net Debt/Capitalization
44.5%48.2%
52.3%
60.2%57.2%
47.6% 50.0%
22.0%
33.0%
44.0%
55.0%
66.0%
2000 2001 2002 2003 2004 2005 2006E
Actual Projected
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Current Housing Slowdown
When will it bottom?
Where do we go from here?
BarronsApril 15, 2002
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Virginia
0
5000
10000
15000
20000
25000
30000
35000
Sep-
05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb-
06
Mar
-06
Apr-
06
May
-06
Jun-
06
Jul-0
6
Aug-
06
Sep-
06
Sacramento County Area
0
2000
4000
6000
8000
10000
Aug
-05
Sep
-05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb-
06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Orange County, CA
0
4,000
8,000
12,000
16,000
Sep-
05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb-
06
Mar
-06
Apr-
06
May
-06
Jun-
06
Jul-0
6
Aug-
06
Sep-
06
Resale ListingsResale Listings
1.7X
1.7X2.2X
Fort Myers
-
4,000
8,000
12,000
16,000
20,000
Aug
-05
Sep
-05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb-
06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
8.8X
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Economic Growth
Real Gross Domestic Product (Annual Percentage Change)
-4
-2
0
2
4
6
8
10
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Actual Estimates
Source: Department of Commerce; Estimates from Freddie Mac
27
Unemployment Rate
Unemployment Rate (Percent)
3.0
4.0
5.0
6.0
7.0
8.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
%
Source: US Department of Labor
28
0
500
1,000
1,500
2,000
2,500
'71
'73
'75
'77
'79
'81
'83
'85
'87
'89
'91
'93
'95
'97
'99
'01
'03
'05
'07
'09
'30
(000
s)
Total U.S. Housing Starts Short-term Projections Long-term Projection
Total U.S. Housing StartsTotal U.S. Housing StartsOver the past 30+ years, total U.S. housing starts have averaged 1.6 million homes annually
U.S. housing starts expected to average between 1.8 million and 2.0 million
homes annually until 2030
Source: Actual data from U.S. Census Bureau. Projections for 2006, 2007, and 2008 from Freddie Mac.Projections for 2009 and beyond from The Brookings Institution and Joint Center for Housing Studies at Harvard University.
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Markets Remain in BalanceMarkets Remain in Balance
21,340 18,34125,344
21,648 21,564 22,223 21,892
14,746
14,965
12,457
9,457
4,723 1,987
2,566
3,848 2,951
3,1803,320
4,4435,400 6,815 8,333
6,807
13,810 16,589
22,10923,97824,95823,01120,85322,43716,506
12,869
39,21642,606
36,497
28,45220,880
12,801
10,8057,936
15,811
0
10,000
20,000
30,000
40,000
50,000
60,000
'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05Single Family Multi-Family
New Jersey Building Permits
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Regulatory Process Constrains SupplyRegulatory Process Constrains Supply
25,673 23,884
69,744
10,101
26,36722,595
15,546 25,575 23,695 26,19213,193 23,95424,47322,72022,79517,50617,87214,31316,35137,012 43,027 42,019 43,940 42,584 20,041
7,2467,0439,4659,544 6,333
14,009
20,607 17,98021,990
32,799
41,364
58,352
75,802
96,241
10,434
17,019 18,615
0
35,000
70,000
105,000
140,000
'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Single Family Multi-Family
Coastal California Building PermitsLos Angeles, Orange and San Diego Counties
31
Economic growth slowing, but expected to remain healthyMortgage rates remain lowInflation remains in check, and thus rates will remain at attractive levelsHousehold formation continues unabatedMarkets have far less over-building than in prior cyclesBuyer traffic remains healthy; Contracts will begin to stabilize at some point Large builders are continuing to take market share
Potential for Early RecoveryPotential for Early Recovery
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“I see all these wonderful opportunities cleverly
disguised as problems.”
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