Tarragon, in Credit Crunch,
Expresses Doubts on Future
by Alex Frangos and Michael Corkery
From The Wall Street Journal Online
August 15, 2007
Apartment and condominium builder Tarragon Corp. raised doubts about its ability to remain in business amid weak demand and an inability to raise new financing, in the latest fallout from the spreading credit crunch. It also disclosed that the wife of the company's chief executive sold stock the day before Tarragon shares lost two-thirds of their value.
Tarragon's shares plunged $1.88, or 67%, to 94 cents at 4 p.m. in Nasdaq Stock Market composite trading. The shares hit a 52-week high of $13.50 in February. The company -- which owns 11,700 rental apartments, has 3,800 urban condos and houses under development and reported revenue of $545 million last year -- said it is selling several assets to meet demands from creditors and will record a $125 million accounting charge. In a statement, the company blamed the "sudden and rapid deterioration of the real-estate credit markets" for its situation. It delayed its quarterly earnings report and postponed plans to spin off its home-building division.
The company reported in a government filing that Lucy Friedman, Chief Executive William Friedman's wife, sold 159,200 shares of Tarragon stock on Tuesday and Wednesday at an average price of $3.19 a share, for a total of $507,912. The stock had been pledged to secure a "revolving margin loan" and was sold to satisfy the lender, according to a footnote in the filing.
Tarragon joins several other real-estate companies ravaged by the decline in the housing market and moves by banks to reduce credit lines. Shares of Atlanta-based Beazer Homes USA Inc. recently fell sharply after the company was beset by rumors it would file for bankruptcy protection. The company has denied the rumors. Analysts remain concerned about the company's relatively high debt level and recently reduced credit line. WCI Communities Inc., a developer of high-end condo towers in Florida, Monday lowered its estimate of free cash flow this year to a range of $530 million to $730 million. The company had projected $1 billion of free cash.
Earlier in the day, Mr. Friedman said, "These are trying times for highly leveraged real-estate companies, but we think the quality of our assets and our developers are going to make us an attractive target for opportunistic investors." A special committee of the company's board has hired investment bank Lazard Ltd. to look at the company's options, including further "property sales and other strategic transactions," according to a news release.
The New York-based developer bet heavily on the Florida condo market, buying apartment complexes with plans to renovate and sell off the units for a profit. The process is known as condominium conversion. But Tarragon was late to the game, paying high prices for the properties even as demand for condos slowed.
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