WLS Welsh Property Trust Common Stock

Financial Highlights 2005 First Quarter - Net income of $20.5 million, up 33% - Earnings per diluted share of $2.36, up 52% - Consolidated operating revenue of $246.7 million, down 3% - Homebuilding gross margins of 28.5%, up 720 basis points - Quarter-end backlog of 1,580 homes, valued at $871.2 million William Lyon Homes (NYSE:WLS) today reported that net income for the first quarter ended March 31, 2005 increased 33% to $20,493,000, or $2.36 per diluted share, as compared to net income of $15,409,000, or $1.55 per diluted share, for the comparable period a year ago. Consolidated operating revenue decreased 3% to $246,682,000 for the quarter ended March 31, 2005, as compared to $254,548,000 for the comparable period a year ago. The Company's consolidated results including joint ventures were as follows: The number of homes closed in the first quarter of 2005 was 459 homes, down 24% from 603 homes in the first quarter of 2004. At March 31, 2005, the backlog of homes sold but not closed totaled 1,580 homes, down 10% from 1,755 homes at March 31, 2004, and up 35% from 1,166 homes at December 31, 2004. The dollar amount of backlog of homes sold but not closed was $871,192,000, down 5% from $916,590,000 a year ago, and up 40% from $623,578,000 at December 31, 2004. The Company's cancellation rate for the three months ended March 31, 2005 was 12%, the same as for the three months ended March 31, 2004. Net new home orders for the quarter ended March 31, 2005 were 873 homes, down 20% from 1,092 homes for the quarter ended March 31, 2004. The average number of sales locations during the quarter ended March 31, 2005 was 38, down 14% from 44 in the comparable period a year ago. The Company's number of new home orders per average sales location decreased to 23.0 for the quarter ended March 31, 2005 as compared to 24.8 for the quarter ended March 31, 2004. Based on record first and second quarter 2004 new home orders of 2,219, an increase of 30% as compared to the same period in 2003, as previously announced the Company had anticipated a significant reduction in new home orders for the first quarter of 2005 when compared to the same period in 2004. The reduction in order activity for the three months ended March 31, 2005 was consistent with the Company's expectations and primarily reflects a lack of available product for sale due to stronger than anticipated absorption levels in the previous periods and a decrease in the average number of sales locations. During the first quarter of 2005, the average sales price of homes (including joint ventures) was $533,000, up 26% as compared to $422,100 for the comparable period a year ago. The higher average sales price reflects general new home price increases and a change in product mix. The consolidated gross margin percentage on home sales increased to 28.5% for the quarter ended March 31, 2005 from 21.3% for the quarter ended March 31, 2004. These higher gross margin percentages were driven primarily by increases in sales prices during the past several quarters as a result of strong housing demand in most of the markets in which the Company operates. Selected financial and operating information for the Company, including joint ventures, is set forth in greater detail in the schedule attached to this press release. On April 26, 2005, General William Lyon ("General Lyon"), the controlling stockholder, Chairman of the Board and Chief Executive Officer of the Company, announced that he has proposed acquiring the outstanding publicly held minority interest in the Company's common stock for $82 per share in cash, representing approximately a 12% premium over the average closing price for the five trading days ended April 25, 2005. General Lyon currently owns approximately a 47.8% equity interest in the Company and has, together with certain shares under a voting agreement, a 51.2% voting interest. Trusts of which General Lyon's son, William H. Lyon, is sole beneficiary, own approximately 24.1% of the outstanding shares. In the going-private transaction, General Lyon has proposed that a company to be formed and owned by him would acquire all of the outstanding shares of the Company's common stock not owned by General Lyon or by such trusts. General Lyon stated this transaction would be contingent upon approval by the Board of Directors or a duly appointed special committee of the Board of Directors. The Board of Directors of the Company has formed a special committee of independent directors to consider his proposal with the assistance of outside financial and legal advisors which the Committee will retain. General Lyon has advised the Company's Board of Directors that he will not sell his interest in the Company and will not entertain any proposals in that regard. Seven purported class action lawsuits have been filed in Delaware and California challenging the proposal made by General Lyon. The complaints name the Company and the directors of the Company as defendants and allege, among other things, that the defendants have breached their fiduciary duties to the public shareholders. The plaintiffs are seeking to enjoin the proposed transaction and, among other things, to obtain damages, attorneys' fees and expenses related to the litigation. The Company believes that these lawsuits are without merit, particularly given the status of the proposal and its anticipated consideration by the special committee. These lawsuits have only recently been filed and the Company has not yet responded to the allegations. William Lyon Homes is one of the oldest and largest homebuilders in the Southwest with development communities in California, Arizona and Nevada and at March 31, 2005 had 36 sales locations. The Company's corporate headquarters are located in Newport Beach, California. Certain statements contained in this release that are not historical information contain forward-looking statements. The forward-looking statements involve risks and uncertainties and actual results may differ materially from those projected or implied. Further, certain forward-looking statements are based on assumptions regarding future events which may not prove to be accurate. Factors that may impact such forward-looking statements include, among others, changes in general economic conditions and in the markets in which the Company competes, the outbreak, continuation or escalation of war or other hostilities, including terrorism, involving the United States, changes in mortgage and other interest rates, changes in prices of homebuilding materials, weather, the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable, not economically insurable or not subject to effective indemnification agreements, the availability of labor and homebuilding materials, changes in governmental laws and regulations, the timing of receipt of regulatory approvals and the opening of projects, and the availability and cost of land for future development, as well as the other factors discussed in the Company's reports filed with the Securities and Exchange Commission. -0- *T WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (unaudited) Three Months Ended March 31, 2005 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 364 95 459 Home sales revenue $187,433 $57,223 $244,656 Cost of sales (135,514) (39,468) (174,982) Gross margin $51,919 $17,755 $69,674 Gross margin percentage 27.7% 31.0% 28.5% Number of homes closed California 117 95 212 Arizona 126 - 126 Nevada 121 - 121 Total 364 95 459 Average sales price California $867,100 $602,400 $748,500 Arizona 287,300 - 287,300 Nevada 411,400 - 411,400 Total $514,900 $602,400 $533,000 Number of net new home orders California 376 205 581 Arizona 159 - 159 Nevada 133 - 133 Total 668 205 873 Average number of sales locations during period California 15 9 24 Arizona 6 - 6 Nevada 8 - 8 Total 29 9 38 Three Months Ended March 31, 2004 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 465 138 603 Home sales revenue $193,572 $60,976 $254,548 Cost of sales (153,265) (47,171) (200,436) Gross margin $40,307 $13,805 $54,112 Gross margin percentage 20.8% 22.6% 21.3% Number of homes closed California 250 138 388 Arizona 62 - 62 Nevada 153 - 153 Total 465 138 603 Average sales price California $528,700 $441,900 $497,800 Arizona 191,500 - 191,500 Nevada 323,700 - 323,700 Total $416,300 $441,900 $422,100 Number of net new home orders California 461 373 834 Arizona 107 - 107 Nevada 151 - 151 Total 719 373 1,092 Average number of sales locations during period California 21 12 33 Arizona 5 - 5 Nevada 6 - 6 Total 32 12 44 WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (Continued) (unaudited) Three Months Ended March 31, 2005 Wholly- Joint Consolidated Owned Ventures Total Backlog of homes sold but not closed at end of period California 616 355 971 Arizona 515 - 515 Nevada 94 - 94 Total 1,225 355 1,580 Dollar amount of homes sold but not closed at end of period (in thousands) California $453,105 $224,482 $677,587 Arizona 157,306 - 157,306 Nevada 36,299 - 36,299 Total $646,710 $224,482 $871,192 Lots controlled at end of period Owned lots California 3,716 1,350 5,066 Arizona 3,766 - 3,766 Nevada 1,072 - 1,072 Total 8,554 1,350 9,904 Optioned lots (1) California 4,060 Arizona 5,421 Nevada 1,272 Total 10,753 Total lots controlled California 9,126 Arizona 9,187 Nevada 2,344 Total 20,657 Three Months Ended March 31, 2004 Wholly- Joint Consolidated Owned Ventures Total Backlog of homes sold but not closed at end of period California 723 549 1,272 Arizona 252 - 252 Nevada 231 - 231 Total 1,206 549 1,755 Dollar amount of homes sold but not closed at end of period (in thousands) California $492,639 $292,232 $784,871 Arizona 62,215 - 62,215 Nevada 69,504 - 69,504 Total $624,358 $292,232 $916,590 Lots controlled at end of period Owned lots California 1,999 2,274 4,273 Arizona 1,904 - 1,904 Nevada 1,275 - 1,275 Total 5,178 2,274 7,452 Optioned lots (1) California 5,272 Arizona 6,801 Nevada 1,350 Total 13,423 Total lots controlled California 9,545 Arizona 8,705 Nevada 2,625 Total 20,875 (1) Optioned lots may be purchased by the Company as wholly-owned projects or may be purchased by newly formed joint ventures. WILLIAM LYON HOMES CONSOLIDATED STATEMENTS OF INCOME (in thousands except per common share amounts) (unaudited) Three Months Ended March 31, 2005 2004 Operating revenue Home sales $244,656 $254,548 Lots, land and other 2,026 - 246,682 254,548 Operating costs Cost of sales - homes (174,982) (200,436) Cost of sales - lots, land and other (1,813) - Sales and marketing (11,115) (10,413) General and administrative (17,441) (13,664) Other (682) (333) (206,033) (224,846) Equity in loss of unconsolidated joint ventures (411) (96) Minority interest in income of consolidated entities (6,260) (4,260) Operating income 33,978 25,346 Other (loss) income, net (105) 405 Income before provision for income taxes 33,873 25,751 Provision for income taxes (13,380) (10,342) Net income $20,493 $15,409 Earnings per common share Basic $2.38 $1.57 Diluted $2.36 $1.55 WILLIAM LYON HOMES CONSOLIDATED BALANCE SHEETS (in thousands except number of shares and par value per share) March 31, December 31, 2005 2004 (unaudited) ASSETS Cash and cash equivalents $33,629 $96,074 Receivables 25,904 39,302 Real estate inventories 1,222,494 1,059,173 Investments in and advances to unconsolidated joint ventures 18,677 17,911 Property and equipment, less accumulated depreciation of $8,367 and $7,844 at March 31, 2005 and December 31, 2004, respectively 17,960 18,066 Deferred loan costs 13,644 13,982 Goodwill 5,896 5,896 Other assets 25,986 24,158 $1,364,190 $1,274,562 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $48,776 $39,364 Accrued expenses 96,686 150,774 Notes payable 156,405 48,571 7 5/8% Senior Notes due December 15, 2012 150,000 150,000 10 3/4% Senior Notes due April 1, 2013 246,712 246,648 7 1/2% Senior Notes due February 15, 2014 150,000 150,000 848,579 785,357 Minority interest in consolidated entities 148,009 142,096 Stockholders' equity Common stock, par value $.01 per share; 30,000,000 shares authorized; 8,616,236 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively; 1,275,000 shares issued and held in treasury at March 31, 2005 and December 31, 2004, respectively 86 86 Additional paid-in capital 30,250 30,250 Retained earnings 337,266 316,773 367,602 347,109 $1,364,190 $1,274,562 WILLIAM LYON HOMES SUPPLEMENTAL FINANCIAL INFORMATION SELECTED FINANCIAL DATA (dollars in thousands except per share data): Last Twelve Three Months Ended Months Ended March 31, March 31, 2005 2004 2005 2004 Net income $20,493 $15,409 $176,733 $82,664 Net cash (used in) provided by operating activities $(168,338) $(184,059) $105,778 $(256,178) Interest incurred (1) $15,203 $14,019 $62,540 $51,386 Adjusted EBITDA (2) $42,662 $36,412 $356,095 $194,880 Ratio of adjusted EBITDA to interest incurred 5.69x 3.79x Balance Sheet Data March 31, 2005 2004 Stockholders' equity per share $42.66 $27.37 Stockholders' equity $367,602 $269,058 Total debt 703,117 569,337 Total book capitalization $1,070,719 $838,395 Ratio of debt to total book capitalization 65.7% 67.9% Ratio of debt to total book capitalization (net of cash) 64.6% 67.0% Ratio of debt to LTM adjusted EBITDA 1.97x 2.92x Ratio of debt to LTM adjusted EBITDA (net of cash) 1.88x 2.80x (1) Interest incurred for the three and twelve months ended March 31, 2005 includes $345,000 and $3,340,000 of interest related to debt of consolidated entities of $22,797,000 at March 31, 2005, due to the adoption of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, as amended. (2) Adjusted EBITDA means consolidated net income plus (i) provision for income taxes, (ii) interest expense, (iii) amortization of capitalized interest included in cost of sales, (iv) depreciation and amortization and (v) cash distributions of income from unconsolidated joint ventures less equity in income of unconsolidated joint ventures. Other companies may calculate Adjusted EBITDA differently. Adjusted EBITDA is not a financial measure prepared in accordance with U.S. generally accepted accounting principles. Adjusted EBITDA is presented herein because it is a component of certain covenants in the Indentures governing the Company's 7 5/8% Senior Notes, 10 3/4% Senior Notes and 7 1/2% Senior Notes ("Indentures"). In addition, management believes the presentation of Adjusted EBITDA provides useful information to the Company's investors regarding the Company's financial condition and results of operations because Adjusted EBITDA is a widely utilized financial indicator of a company's ability to service and/or incur debt. The calculations of Adjusted EBITDA below are presented in accordance with the requirements of the Indentures. Adjusted EBITDA should not be considered as an alternative for net income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. A reconciliation of net income to Adjusted EBITDA is provided as follows: Last Twelve Three Months Ended Months Ended March 31, March 31, 2005 2004 2005 2004 Net income $20,493 $15,409 $176,733 $82,664 Provision for income taxes 13,380 10,342 116,537 58,778 Interest expense: Interest incurred 15,203 14,019 62,540 51,386 Interest capitalized (15,203) (14,019) (62,540) (51,386) Amortization of capitalized interest in costs of sales 7,855 10,340 60,186 43,122 Depreciation and amortization 523 225 1,625 954 Cash distributions of income from unconsolidated joint ventures - - - 33,031 Equity in loss (income) of unconsolidated joint ventures 411 96 1,014 (23,669) Adjusted EBITDA $42,662 $36,412 $356,095 $194,880 A reconciliation of net cash (used in) provided by operating activities to Adjusted EBITDA is provided as follows: Last Twelve Three Months Ended Months Ended March 31, March 31, 2005 2004 2005 2004 Net cash (used in) provided by operating activities $(168,338) $(184,059) $105,778 $(256,178) Interest expense: Interest incurred 15,203 14,019 62,540 51,386 Interest capitalized (15,203) (14,019) (62,540) (51,386) Amortization of capitalized interest in costs of sales 7,855 10,340 60,186 43,122 Cash distributions of income from unconsolidated joint ventures - - - 33,031 Minority equity in income of consolidated entities (6,260) (4,260) (51,661) (4,689) Net changes in operating assets and liabilities: Receivables (13,398) (15,253) (10,078) 13,167 Real estate inventories 163,257 205,831 152,767 334,180 Deferred loan costs (338) 527 139 1,108 Other assets 1,828 791 6,159 2,716 Accounts payable (9,412) (8,680) 1,880 (9,642) Accrued expenses 67,468 31,175 90,925 38,065 Adjusted EBITDA $42,662 $36,412 $356,095 $194,880 *T